Global Retail   /   June 1, 2020

Global green shoots: How retail around the world is beginning to re-emerge

By Modern Retail and Glossy Reporters

Global retail markets are beginning to reopen. The question remains whether consumers are ready to go back into public.

With lockdown restrictions now being eased by some governments, small green shoots of recovery are beginning to emerge. Modern Retail and Glossy reporters took a (virtual) trip around the globe to see where shopping is beginning to restart and if shoppers are ready to spend money once again in the real world.

Brazil: An uphill battle
Despite intensified cries for the Brazilian economy to reopen, the country remains one of the most afflicted by coronavirus.

As of Friday, May 29 there have been 441,000 cases in Brazil, behind the U.S’s 1.76 million cases. But the daily death toll has leapfrogged past the states; more than 26,000 residents have died as of May 29. Initially Brazil’s response to coronavirus in mid-March was assertive, with cruises canceled and arriving travelers urged to go into quarantine. But since then, Brazil has lost two health ministers — one fired, the other resigned — and has at times struggled to lock down at all. President Jair Bolsonaro has ordered the economy to reopen, but many local and statewide governments have defied these instructions.

“So what?” Bolsonaro said when asked by reporters in late April about Brazil’s mounting fatalities. “I mourn [the deaths]. What do you want me to do?”

At the end of April, 10% of the country’s malls had reopened according to Bloomberg. BR Malls, Brazil’s largest mall operator, had reopened four out of its 29 Brazilian locations as of May 22, according to a company spokesperson. Drinking fountains were deactivated while all food retailers must use disposable plates, cups and silverware. BR Malls imported 104 cameras with infrared sensors from China in order to measure the body temperature of shoppers, and all 29 Brazilian locations will receive at least three cameras.

“The cameras will reinforce the screening work carried out at the entrance to shopping malls,” said a company spokesperson. “Currently, all customer tenants and employees have their temperature checked with manual thermometers before accessing shopping centers.”

Stores within malls are adopting their own systems. Natura & Co., which owns Aesop, The Body Shop, and social-selling companies Natura Cosméticos and Avon Inc., has tested drive-through and curbside pick-up in 30 shopping malls within Brazil.

“The process of reopening will occur gradually, accompanied by rigorous hygiene measures to safeguard the health of customers and co-workers, in compliance with local regulations,” said Paula Andrade, Natura & Co vp of retail for Latin America

Natura has also added beauty consultations via WhatsApp to all brands, added Andrade. According to Natura & Co., first-quarter earnings from May 7, The Body Shop and Aesop have experienced a 300% and 500% increase in e-commerce sales since approximately March, while Natura’s and Avon’s e-commerce sales combined have grown by 150%.

E-commerce penetration nationwide has naturally grown during this period, with digital sales increasing by 30% between mid-March and the end of April, according to Brazilian e-commerce association <ABComm. However, this could slow as unemployment mounts and consumer confidence erodes due to the political crisis and growing death rate. The International Monetary Fund predicts Brazil’s economy will contract by 5.3% in 2020, while unemployment is expected to reach at least 17%. —Emma Sandler

Italy: Hit hard and forced to modernize
Italy, in addition to being a major economy, is also home to some of the biggest brands in fashion and luxury, including Gucci, Versace and Bottega Veneta. It was also one of the hardest hit by coronavirus and an early arbiter of what was to come for much of the rest of Europe and the U.S.

Consequently, Italy’s retail market has suffered, with retail sales down as much as 40% in some cases. The national lockdown lasted for 67 days, with stores beginning to reopen on May 18. But only about a third of Italy’s stores reopened, and those that did were left with huge stockpiles of unsold inventory and no tourism to support sales. Italy relies heavily on tourism, which can’t open back up until June 3

Italy has begun offering inflation-linked retail bonds to investors as a way to jumpstart its suffering economy.

“Based on what I heard from a lot of the brands I work with in Italy, things were not good,” said Christina Fontana, Alibaba’s director of fashion and luxury for Europe, who is based in Milan. “Even e-commerce wasn’t happening at first because the logistics centers were all closed, though e-commerce is back up now. Gucci stopped doing deliveries, Yoox stopped doing deliveries. A lot of stores closed that won’t ever open back up again.”

The one upside to all this is that e-commerce across Italy — a country notorious for being slow on the uptake of online shopping — is up. According to McKinsey, e-commerce transactions in Italy rose by 81% from February to the end of April. Italian brands like Diesel and Bulgari have launched e-commerce platforms for the first time.

“Italy had one of the lowest e-commerce penetrations in Europe,” Fontana said. “Even in smaller towns, not the big cities, there are high-end shops and people never really shopped online. That’s changing. I think Italy’s going to modernize very fast now.” —Danny Parisi

Australia: Economic ebbs and flow
With a low number of cases and abundant testing, Australia’s economy closed late and returned early. To date, the country has had 7,173 cases, with 6,582 recovered and 103 deaths, among the population of 25 million. Despite a lack of government orders restricting retailers’ operations until well into April, many of the country’s brick and mortar shops chose to close their doors as a safety precaution. The country’s retail scene began to open as early as May 4, with high touch facilities like barbershops and nail salons expected to resume services by early June.

Still, the general lack of foot traffic due to Australians staying indoors this spring has hurt the bottom line for many businesses, especially those that failed to adapt quickly. Overall, retail sales were generally down during closures, according to the Australian Bureau of Statistics’ May report, which estimated them to have fallen a record 17.9% in April after a 8.5% spike in March. The same period also saw the nation’s unemployment rate increase a record one-month jump, from 5.2% to 6.2%.

Department store Target — not to be confused with the nearly-identical American chain — has been one of the hardest hit during the pandemic. Like many department stores, the already-struggling company had been losing ground to e-commerce and younger brands, and the coronavirus only made things worse. At the end of April, Target announced the shutting of 75 of its 284 locations and converting 95 into Kmarts, which is also owned by parent company Wesfarmers. “Given the high degree of fixed occupancy costs, a sustained decline in sales momentum will have a material impact on the profitability of Kmart and Target,” Wesfarmers said in a statement.

Still, there have been some digital bright spots. As one of the fastest growing e-commerce markets, sellers did benefit from Australian consumers’ high rate adoption of digital shopping, including the use of installment payment services. These include, Sezzle and Melbourne-based Afterpay, which have seen even more growth during this period. In particular, Afterpay said it has seen an increase in sales across several categories, which the company attributed to Australian customers’ “desire to refresh their home office and environment” during shelter-in-place.

Other Australian retailers have turned to their own apps to gin up business. Fashion retailer the Cotton On Group temporarily closed brick-and-mortar stores in late March. It increased sales, however, with its new app, according to the company. Since rolling out the iOS version in New Zealand, Australia and the U.S. at the end of 2019, the brand experienced “a significant increase” in customer engagement across stores, its website and the app.

The early shift of focus to digital also helped increase signups of the retailer’s loyalty program, Cotton On & Co. Perks, which surpassed 8 million active members worldwide. —Gabriela Barkho

Sweden: A voluntary shift to online
Despite the Swedish government’s widely reported soft approach to fighting the pandemic — restricting large gatherings, but keeping schools, stores and restaurants open — locals’ shopping behavior has largely aligned with that of Americans. Likewise, efforts by Swedish retailers to ease the minds of in-store shoppers and establish improved e-commerce experiences haven’t been that unique.

“Sweden didn’t shut down, but Swedes changed their behavior, becoming less social,” said Andreas Palm, CEO of Stockholm-based men’s underwear brand CDLP. “It was voluntary social distancing.”

Swedish health officials issued first warnings around the virus on March 11, which drove apparel sales down 57% for the remainder of the month. Total apparel sales, including e-commerce, fell by 39% in March year-over-year. Retail sales across the board saw its first drop since December 2018 in April.

Now, Palm said, the summer weather has people out and about, but they’re still not going into stores. CDLP’s sole retail store, in Stockholm’s highly trafficked Stureplan public square, only shut down for two days in March. It now permits three shoppers at a time, but traffic has remained “very slow,” he said. His regular customers have moved to shopping online.

“People don’t see retail as an option the same way they did before,” he said.

Caroline Blumenthal, partner at Stockholm-based PR agency Patriksson, said local retailers are taking many safety precautions. They’re putting up signs and marking floors leading to checkouts, urging shoppers to stay two meters apart. They’re also limiting shoppers in-store, shortening business hours and days (from seven to five), keeping fitting rooms closed and increasing cleanings. Stockholm-based H&M has removed all testing products in their beauty departments and is restricting cash purchases, she said.

“I personally feel comfortable shopping now,” said Blumenthal. “And I don’t wear a mask, just like the vast majority.”

Blumenthal said that, in malls, some global brands have temporarily closed stores based on recommendations from other countries, and overall, malls are seeing “a great lack of visitors.” Palm said CDLP’s largest wholesale account, Swedish department store NK, is seeing “zero foot traffic.”

Palm said he has yet to see a lot of store vacancies, as “every brand knows a retailer.” Instead, there’s been a lot of real estate shuffling: Brands that took prime street-level space are moving to second floors to save money. Other brands are seeing opportunities to grow by expanding to two floors, or they’re moving their offices to a level that was once retail. His store’s landlord is allowing him to pay 50% of the usual rent.

Palm said he’s debating whether to keep his store, which he had opened when it became too costly to acquire customers online. To attract customers, he said the store will have to offer more of an experience — though the comeback of experiential retail, at this point, seems far-fetched.

As shoppers move online, retailers are offering more services, including increased delivery options, said Blumenthal. Many fashion and beauty brands, like skin-care brand SkinTreat and beauty chain Kicks, are also providing live shopping opportunities through local video tech company Bambuser.  —Jill Manoff

South Korea: Too soon for optimism
Praised as an exemplary model for flattening the Covid-19 curve — and without a full lockdown, no less — South Korea is not out of the woods yet.

South Korea began reopening on May 6, but is reimplementing new closings due to a spike in new cases. The country’s health minister, Park Neung-hoo, announced on May 28 that museums, parks and art galleries will be closed again for two weeks beginning May 29, and is discouraging residents from going to restaurants or gathering in groups. Newly reopened schools have been closed again, while others have delayed reopening altogether. The country has also closed bars and nightclubs after a new spike in cases traced to nightlife.

As the world’s largest travel retail market, South Korean retail was hit especially hard by a lack of international visitors that began back when the coronavirus hit China earlier this year. South Korea’s largest beauty conglomerate Amorepacific reported a more than 19% decline in revenue in its home market for the first quarter, citing a loss of travel-related spending and decreased operation hours at beauty counters within travel retail shops and department stores.

Travel retail spending is “gone right now,” said Dino Ha, the founder and CEO of K-beauty company Memebox. “Even for us, there is at least a 50% drop [in sales from travel retail locations in South Korea]. Local retail is also down right now.”

There are signs of an emerging bounceback for overall retail sales; sales grew by 3.9% year-over-year in April among the country’s 26 largest online and offline retailers, according to the country’s Ministry of Trade, Industry and Energy. Burberry also recently reported that its sales in South Korea were bouncing back.

Though stores were not forced to close, store sales among the country’s 13 largest retailers declined by 5.5% in April, according to the Ministry of Trade, Industry and Energy. Still, some growth has occurred since residents are shopping online; the country reported 16.9% e-commerce growth in April.

“While South Korea did not enforce a full lockdown, many people still chose to participate in social distancing and stay-at-home for safety. Korea also saw shopping patterns switch significantly from offline to online, and our Korea Q1 online sales were up 80%,” said an Amorepacific spokesperson.

Online fashion and beauty shopping trends have mirrored those in other countries, with casualwear and skin care trending. On e-commerce platform Gmarket, sales of loungewear increased by 133%, leggings grew 46% and women’s sports pants were up 365% in April year-over-year. In beauty, lipstick sales plunged 45% and blush was down 11%, but face serum saw a 117% increase. Toner, cleanser and eyeliner, meanwhile, also had strong sales growth.

Livestream shopping has been helpful in the region, especially via Instagram. Department store chains including Lotte, Shinsegae, and AK Plaza have been investing in livestreaming to capture some of the online boom. But, like in the U.S., these chains are feeling the pain of lost physical retail, with a 14.8% decline in April, according to the Ministry of Trade, Industry and Energy. South Korea’s largest department store chain Lotte will sell 121 of its physical locations this year due to the net loss of $35 million that it experienced in the first quarter.

Pre-coronavirus, South Korea also had a strong offline retail scene, with fashion and beauty retailers investing heavily in in-store experiences.

“There have been so many interesting and disruptive retail concepts,” said Peach & Lily founder and CEO Alicia Yoon, who noted that a growing number of brands have been working to one-up each other with high-tech, experiential flagships that felt like a retail “Disneyland.”

As a result of the change in consumer behavior, brands might begin to rethink these concepts for the long term.

“The country has not shut down, so people are definitely still going into stores and shopping, but I would say that there’s still a pretty marked difference,” said Yoon. “People are still trying not to go in places if they don’t really have to.” —Liz Flora 

Germany: Shoppers aren’t rushing back to stores
Germany was one of the first Western European countries to allow its retail stores to reopen, after shutting down in mid-March. First, the country allowed stores under 8,600 square feet to reopen in late April, provided they followed cleaning and social distancing rules. Then, at the beginning of May, all shops were allowed to reopen. To date, Germany, whose population exceeds 83 million, has had 80,400 coronavirus cases — roughly a third of the number of cases reported by hard-hit Italy and Spain.

But, as the trajectory of Germany has proven, getting all stores to reopen doesn’t mean that shoppers will come rushing back. A survey of more than 600 non-food retailers, conducted in mid-May by Handelsverband Deutschland, a German retail trade association, found that about a third are doing at most 50% the same amount of sales that they were doing last year. As such, the organization is calling for more economic assistance for retailers.

“Foot traffic has remained considerably lower compared to before the pandemic,” said Maxim Hofer, a research analyst at Euromonitor International based in Düsseldorf. “I think that’s mostly because of the measures that are still in place in terms of hygiene and distancing, but also because of economic uncertainty.” Each of Germany’s 16 states has set different rules about where exactly people are required to wear face masks in public, as well as what the fines are for people who don’t follow the rules.

Getting retail traffic back to normal also depends on getting more than just German shoppers in the door. “Our city locations are seeing a reduced number of tourists and an increase of local customers,”  Fouad Goss, general manager of retail Europe at Puma, said in an email. Goss said that Puma has seen an increased demand in running and training products, similar to what athletic apparel retailers are seeing other countries as there’s more interest for working out at home and indoors.

But retailers are starting to be able to move forward with expansion plans that had been in place before the pandemic. In the beginning of May, Puma reopened its brand store near its headquarters in Herzogenaurach that had undergone a redesign during which the sales floor was doubled. Its reopening had been delayed several weeks because of the coronavirus. –Anna Hensel 

India: The worst is yet to come
With 1.3 billion residents, the impact of the coronavirus pandemic on India can be massive.

The large population — which ranks second to China — combined with its smaller geographic region (it is the seventh-largest country by area) makes it difficult for Indians to socially distance. Despite Indian Prime Minister Narendra Modi instituting one of the strictest lockdowns globally on March 24, India had more than 169,000 cases of the virus, as of Friday, May 29, because government officials have loosened rules. Beyond cases in major cities like New Delhi, Mumbai, Chennai and Ahmedabad, migrant workers in villages across northern India are becoming infected at an increasingly alarming rate.

Like the U.S., the country is worried about the economic implications of Covid-19. India has seen its GDP slow to about 3.1% for the fourth quarter (January to March), according to the Ministry of Statistics and Programme Implementation. This brings the yearly GDP down to 4.2 percent, an 11-year low.

Obviously the hit on retail has been significant. According to National Payments Corporation of India, overall retail payment volume (or payment tractions) declined by 21% in April compared to February, and overall retail sales declined by 57% in March compared to the month prior.

Satish Meena, senior forecast analyst at Forrester India said, “We expect consumers to clearly differentiate between essentials, like grocery, personal hygiene and home cleaning, versus non-essential spending, like phones, electronics and fashion appliances.”

Meena is using China, which saw a 21% decline in retail sales between January and February, and only 3% growth in e-commerce sales, as a marker for India’s future. “The reason for [their] growth was driven by online grocery. We expect this to play out in India differently, as less than 10% of the Indian online retail market is made up of grocery and personal care products.”

The beauty and fashion segments have been hit especially hard, as beauty and fashion stores are found in malls in larger cities, said Vishnu Vardhan, Euromonitor International consultant.

“A big chunk of beauty and fashion stores are present in tier one cities (larger cities like Bangalore, Chennai, Delhi and Hyderabad), which have a high number of Covid[-19] cases and are classified as red zones. With home seclusion becoming an integral part of consumers’ lives, sales of beauty and fashion categories are getting impacted at least in the short term,” said Vardhan.

Online shopping platform Nykaa has re-opened eight physical retail stores in Goa, Jaipur, New Delhi, Bangalore and Mumbai, and is following the same procedures in stores that it is following in its warehouses.

“We immediately implemented stringent hygiene practices in our warehouses and with delivery partners, as the safety of our employees and customers is our highest priority. Since the revised guidelines, we have opened contactless delivery of our entire beauty catalog to approved pin codes [what the country calls its postal index numbers] across India,” said a company spokesperson. “Our standalone retail stores have also resumed operations. Here, we have a detailed sanitation SOP [standard operating procedure], which includes daily fumigation of the stores, masks for all employees, temperature checks and frequent hand hygiene.”

The lack of stores has resulted in significant pent-up demand, according to Nykaa, which saw its personal grooming and self-care category see a 3.5X increase in sales compared to pre-coronavirus figures. Interest and sales of hair masks and hair color have also grown for the company. This is a result of the DIY beauty effect, said Pradeep Srinivasan, Euromonitor International consultant, as homes, not salons or stores, have become “wellness hubs.”

While lip products are a hallmark of Indian beauty, a spokesperson for Nykaa said eyeshadow sales increased, due to the use of masks, and is one of the top-three selling categories for the platform.

But not all beauty and personal care brands have the digital prowess to respond to growing online sales, said Ninad Shah, founder of event company Brothers Incorporated, which puts on the India Make Up Show. This is especially true of smaller indie brands.

“Many homegrown beauty brands, even though they are popular, are not even on e-commerce because they aren’t built with massive funding or inventory capabilities, but with passion,” said Shah. “They weren’t in a rush, but now they realize they have to build capabilities or rely on Amazon or Facebook Shops, because it was the salons, spas or stores that had the traffic.” —Priya Rao

The United Kingdom: A slow response leading to a prolonged shutdown
The U.K. was one of the slowest European countries to take drastic measures in response to the coronavirus. It first locked down on March 24, more than a week after other neighboring countries like Germany, France and Spain. This was due to what experts would describe later as critical missteps; the country didn’t get adequate supplies into the country to deal with the virus’s spread, waited to announce a formal shutdown and tested fewer people initially compared to European counterparts. Currently, the country has over 270,000 confirmed cases (the most in Europe to date) and over 38,000 deaths.

As a result, retail sales have fallen dramatically. The Office of National Statistics reported that the U.K.’s total number of goods sold dropped by over 18% in April. While e-commerce saw a big boost — over 30% of retail sales were online that month — many industries saw total collapse. The clothing store Primark, for example, said its sales dropped to nothing after reporting £650m the month prior.

While e-commerce did see large growth, it was already a heavily penetrated channel in the country. “The U.K. is much more advanced in e-commerce,” said Neil Saunders, managing director of GlobalData Retail. Compared to the U.S., he went on, “it’s a much more penetrated market and much more sophisticated.” In 2019, about 16.2% of total sales in the country were done online, according to GlobalData.

The big retailers, however, lead the pack in terms of online programs. Supermarket giants like Tesco and Sainsbury saw sales grow in the double-digit percents last month. In response to the shutdown, they both announced expanded home delivery programs as well as buy online, pick-up in-store capabilities.

That doesn’t leave out the entire possibility of competition from upstarts. Some smaller digitally native brands have also seen a huge uptick in sales. U.K.-based Ugly Drinks, for example, saw DTC sales grow 500% in the U.K. since March. Of course, this was offset with the fact that many of its retail channels were completely shut off. According to co-founder and CEO Hugh Thomas, other countries like the U.S. are more used to buying from smaller brands directly, so the last few months have presented a new opportunity to reach customers. “We almost see this more as a discovery phase for British consumers,” he said.

This week, the U.K. will officially begin to reopen, but for many retailers the damage is already done. While most bigger companies have built out robust online channels, demand remains down the tubes. “Retail sales have plummeted enormously for discretionary products,” said Saunders. –Cale Guthrie Weissman

 

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