As COVID-19 that started in Wuhan on Dec. 2019 continues, Chinese on/offline consumption is in great uncertainty. MeasureChina expects that the revenue affected by COVID-19 will be visible from February. The best case scenario is that this ;lknb 567.v åQ nvq only lasts until February, but worst case scenario is seeing COVID-19 linger on for the first half, causing stagnated consumption. This coming March to June will be a critical period to catch signals for consumer sentiment recovery.
COVID-19 more likely to hit February
MeasureChina analyzes that revenue affected by COVID-19 will be visible from February. On January, the effect on sales were 1) Lunar new year holidays, and 2) COVID-19, which offset each other. Serious measures such as city lock down(traffic control in Wuhan), halt in corporate operations were taken after Jan. 23rd. Even if there was no outbreak of COVID-19, the lunar new year holiday was planned from Jan. 24th to 30th. Thus, we believe that the effect of COVID-19 on consumption during Jan. 1st to 23rd is minimal, and the period from Jan. 24th to 30th shows a mixture of the above mentioned two issues complementing each other.
February sales will reflect the effect of COVID-19. As China extended the lunar new year holiday to Jan. 30th, the work days of logistics companies and factories were shortened, and except for major large-sized logistics companies such as SF Express and China Post, the rest resumed their business operations from Feb. 10th. The same applied to factories. One third of February was lost, causing huge congestion in both supply and demand (Shanghai Jahwa(600315) and Proya(603605)’s factories got back to their business from Feb. 10th).
Top tier brands such as L’oreal and Estee Lauder took advantage of the special time of the year, which is Valentine’s day, by launching marketing schemes aimed for that day. Local skincare brands CHANDO and PECHOIN worked on marketing their color makeup lineups. Both of these brands had their main theme as ‘Exchange gifts and make up for non-rendezvous.’ But they were less aggressive in terms of the levels of promotion.
OLAY is planning on a marketing scheme focused on Women’s day on Mar. 8th, but many brands are still uncertain about marketing plans for the day.
MeasureChina has a pessimistic view on recovery of consumer sentiment some time within February. However, the results of promotions between Feb. to Mar. will surely be a critical signal that can help anticipate the level of consumer sentiment.
Best scenario is for end-February, Worst is for first half
To analyze Chinese market situations after COVID-19, MeasureChina has looked into the timeline of expansion history and protection measures taken by the Chinese government during SARS in 2003. With Chinese authorities controlling traffic and business operations across the country to prevent the spread of disease, SARS case in 2003 seemed most similar to the current situation with COVID-19. Although the reaction by Chinese government 17 years ago was not as timely as anyone would have liked, the SARS situation stabilized after 1-2 months after proper set up of defense mechanisms. We found that the quarantine system at the time of SARS was similar to that after the blockade of Wuhan, and quoting Chinese International Financial Company (CICC), the expectation that the situation would stabilize in late February seems to be the best scenario.
On the other hand, still with much uncertainty at hand regarding the inflow of people after the lunar new year holidays and the outbreaks of the virus after incubation period, the worst case scenario seems to be that the situation would continue into the first half of this year.