Retail Rundown – April 20, 2020 – with Ashley Dudarenok, Dave McCaughan and Shaun Rein

Julia Raymond:
Hello, and welcome to another episode of the Retail Rundown.

We’re kicking off today’s episode with what you may have missed last week.

China reported that its first quarter GDP shrunk by 6.8% in 2020 due to the COVID-19 outbreak. According to Reuters, China’s first-quarter contraction is the first decline since at least 1992, when official quarterly GDP records started.

In Europe, IKEA-owner Ingka Group is reportedly aiming to reopen its stores by May, after closures slashed sales by nearly 60%

In the United States, more retail businesses have had to make the tough decision to furlough workers amid state-wide lockdown measures.

Starting this week, Best Buy will furlough 51,000 employees. The retailer is still offering curbside pickup during the pandemic, although in-store sales have been halted since March 22.

Best Buy said its e-commerce sales are up more than 250% in the United States, with half of those sales now being picked up curbside.

And now for some good news.

Julia Raymond:
With so much chaos in the world right now, we at RETHINK Retail would like to deliver some good news to your ears this Monday morning.

Popsockets, those handy stick-on grips for your smartphone, released two new designs in which 100% of the sales will be sent to Doctors Without Borders and Feeding America.

Crocs is donating 10,000 free pairs of shoes to health care workers on the frontlines of this pandemic every day.

The Body Shop has committed to donating 30,000 units of cleaning supplies to organizations throughout the U.S. and Canada.

And finally, luxury brand Dolce & Gabbana has partnered with Humanities University to fund a coronavirus research project. The project is looking into the responses of the immune system to the virus and aims to lay the groundwork for “the development of diagnostic and therapeutic interventions” against COVID-19.

Julia Raymond:
So, today we will hear from 3 retail thought leaders currently living and working in the APAC region. Ashley Dudarenok, Shaun Rein, and Dave McCaughan joined us from Hong Kong, Shanghai and Bangkok last week, to share their experiences in the wake of the COVID-19 pandemic.

Julia Raymond:
So you are an expert on all things China, and because the virus originated in China and you guys are sort of past that curve now, and things are slowly becoming more normal or the new normal, what are some of the takeaways for you? How was your company affected? What are you seeing?

Ashley Dudarenok:
So I mean, in Hong Kong, everything started a lot earlier, in Mainland China, things started probably a week or two before even Hong Kong. So what we’ve seen here in the region is that it is definitely tough for businesses, it is definitely not SARS. For those people that remember 17, 18 years ago there was also another virus originating here in this part of Asia, and that was a very quick kind of shock to the system, and then everything very quickly, within four or five months went back to normal, right? And prices in Hong Kong dropped to its lowest, and the whole region, it’s not just Hong Kong and Mainland China, but the whole region was shaken. The mortality rate was very high, but the moment essentially it was contained, everything was back to normal.

Ashley Dudarenok:
So right now, we see that this particular virus is definitely behaving differently, and businesses here are affected long term. I think for China right now, a lot of manufacturing facilities, a lot of businesses are getting back to operations, but a lot of people start working from home, which was very unusual for Mainland China. The mainland is very digital, right now has become even more digital, people are spending a lot more time watching live streaming videos. Just basically last week, for example, 13 mayors of cities in Hubei province were actually live streaming to sell the products from their province, from their city, onto the larger Mainland China audience. And let’s say a mayor of Wuhan was live streaming about snacks, about cars, and about property. It is amazing, right?

Ashley Dudarenok:
So you see definitely a lot of shifts, and it’s going to be very interesting. What I definitely see is that Mainland Chinese is definitely recovering first, because it just originated in China first, and also very severe measures were taken to contain the virus after the initial first weeks where the time was wasted outside. So it is definitely going to be a very interesting adjustment period, and we’re all looking forward to that.

Julia Raymond :
We certainly are. And you said the mayors were live streaming?

Ashley Dudarenok:
Yeah, yeah.

Julia Raymond:
So you mean government officials?

Ashley Dudarenok:
You need to see that video.

Julia Raymond:
Wow, I do need to see it. And streaming is a trend that perhaps in your agency, you’ve seen take off in China. I know it’s a trend on this side of the pond as well, but is that something you think brands and retailers will specifically continue doing, even after the pandemic has ended?

Ashley Dudarenok:
Yeah, absolutely. In China, live streaming is not something new. So in China, this is a reality of life. I mean, in the West, we live stream for fun primarily, but there’s very little e-commerce live streaming. In China, because the whole blogger world is operating very differently, they actually started live streaming for fun. So basically, when you watch somebody, you give them gifts, and that’s how the blogger makes money. So if you paid me $100 in gifts, then the platform itself will take 50%, and I, as a blogger, will [inaudible 00:07:34] 50%, and that’s a very normal kind of format that works in the rest of the world.

Ashley Dudarenok:
But in China, they went to step forward and they said, “Okay, live streaming as e-commerce channel is a phenomenal opportunity, because I can show you my farm, and I can tell you oranges.” I can actually, like in this ’90s or ’80s, there were those TVCs, commercials all over the US where they would tell you, “Oh, this amazing pen, just today and only today.”

Ashley Dudarenok:
You know that, so it’s live streaming turned the bizarre copy of early ’90s advertising, and the whole advertising channel, and people love it. It is entertaining, people feel that this is also a place to talk to others, a place to do it together. And the social isolation, it has not completely shifted or changed the way people purchase right now, but it just accelerated this move towards live streaming. So it’s definitely there to stay. In China though, a lot of people do live streaming, as we see mayors of the cities, et cetera, but everybody but the brands are making money.

Ashley Dudarenok:
So the platform is making money, the agencies are making money, the bloggers are making money, but the brands obviously, are on the suffering side, because it’s not for them, the way to sell. They are going to sell a lot, but the cost to operate a livestream is very expensive. So you need to make sure that after selling, you are able to get a repeat purchase, or you’re able to somehow retain your customers. So that’s what I think in the West when we talk about this live streaming in China, people do not understand. E-commerce live streaming comes at a price, it comes at a cost, but it’s a great opportunity to acquire customers, but essentially, it’s not going to make or have a positive ROI, initially.

Julia Raymond:
Mm-hmm (affirmative) It’s a bit of a long play then, it sounds like.

Ashley Dudarenok:
Yeah, absolutely. Like everything in China, China is a very complex market. Consumers are very spoiled, they have so many products and services that are targeting them. I mean, they’ve got a lot of money, they are very excited, but they also know the good stuff. And you need to be reasonable in terms of price, you need to be good quality, you need to be adapted to that market in order to cater to them. So when you operate in such a fast-paced environment, you really need to essentially, change very quickly. So it is a very interesting market, because the upside is very high. There are so many people, there are so many opportunities, there are so many niche groups you can enter with a tiny little niche product, and you can just [inaudible 00:10:07]. It will be your biggest market, but in order to get there, you need to cut through the whole noise, and this is expensive and it takes time.

Julia Raymond:
Easier said than done, right? Cutting through the noise.

Ashley Dudarenok:
Yeah, absolutely.

Julia Raymond :
Are there any other trends you’ve seen retailers pick up that were specifically spurred by the pandemic? Here, I know that we’re doing a lot of click and collect, and curbside pickup, but curbside pickup, is that even a trend really in China? Is that possible with the infrastructure?

Ashley Dudarenok:
I think it is, but what’s happening in China, essentially, they have contactless delivery service, which is actually, it was stress tested during the epidemic when the whole China was on lockdown, so there are several ways to do that. There are people that can leave your parcel at location A, and then you go pick it up at whatever time you want. There were also very interesting ways to do this, for example, there was like you park a car next to your apartment building, and then once your delivery comes, you just open the car and the person puts your parcel in there and locks your car.

Julia Raymond:
Oh, okay.

Ashley Dudarenok:
That was also there, but at the same time, in some cities, it wasn’t all across China, but in some cities, for instance, platforms like JD, Jingdong, that owned their storages and their logistics operations, they have drones, they have those driverless vehicles, so they were also able to do last-mile delivery through those digital drone means. That was very interesting to see. And while I think in the rest of the world, people still feel that this is so far away, the whole drone thing, and the whole contactless delivery, and the whole robots, and the whole vending machines with all the necessities, in China, once the country stood still, there were vending machines with masks, they were vending machines with rice.

Julia Raymond:
Wow.

Ashley Dudarenok:
You could buy rice from a vending machine, and you would choose what kind of rice you want. So again, the speed is really something that sets China apart, and of course, I would say fact that people welcome innovation, that people welcome this digital arm of the world. And in the rest of the world, we very often feel that “Yeah, no, I’m not quite sure. I’m not ready to change so fast.”

Julia Raymond:
And I’m just really surprised that you said drones aren’t a figment of the imagination, because a lot of people I speak to on my podcast, they’re just like, “Oh, Amazon, they say that they’ll have drone delivery, and that’s just a PR play,” and you’re saying no, there were successful drone deliveries to consumers’ homes, it sounds like? Or are they too-

Ashley Dudarenok:
Yeah, so they have a dropping area. So again, for instance, like in Beijing, so they have the park where they drop and it’s not far from where you live. So then the little robot car kind of driverless, tiny little car, pick it up from there, from the drone area, and then will bring it to your home or to your office building, and stuff like that. And you will see that, let’s say in some small villages where it’s really difficult to get to those villages, so they have much larger drones and they set up this landing site, so then everything that these people, the whole village purchases in a week, is delivered to them through this large drone, and it just basically lands in the middle of the village, and people go to pick it up. So do those drones fly into your living room and drop the parcel? No. Obviously, there are regulations that would prevent somebody… I mean, somebody can just come here at my window and start shooting a movie with me as the main character, and I wouldn’t be happy with that, right? For instance.

Ashley Dudarenok:
So, of course, there are regulations against them, but there are effective routes and there are active deliveries happening in China right now. And it’s not only drones, but it’s also these driverless little cars and vehicles that do between one to three-kilometer deliveries within, let’s say, apartment blocks, or office buildings, or hotels. You also have the tiny little robots that would pick something up from downstairs and drive them directly to your desk. So a lot of people in China-

Julia Raymond:
Oh, wow.

Ashley Dudarenok:
Yeah, when they order food delivery per se, they don’t want to go downstairs, maybe they’re also worried that the person that brought that food might be infected. So during the outbreak, the robot was the only person that could go down, pick up the delivery, and basically bring it to your table, which was very cool, I feel.

Julia Raymond:

Does the robot, he takes the elevator then? He just goes up to your floor?

Ashley Dudarenok:
Yeah, he just takes the lift. Yeah.

Julia Raymond:
Wow. Cool.

Ashley Dudarenok:
Yeah. And the robot belongs to their partnered buildings, all the office buildings, so it knows and it communicates with all the systems, and it’s really a cute little chap.

Julia Raymond:
That is. And you’re saying this is something that existed before the pandemic, it just maybe it was used much more during?

Ashley Dudarenok:
Yeah. Right now, there’s a huge boost in that. So when people thought, “Okay, my apartment building or my office building doesn’t really need one of those,” right now, they have them. Not everybody, again, not every office building has them, but the major ones, the big ones in major cities, absolutely. And in terms of hotels, that’s also an absolute must. You need to have contact lists, check-in, you need to have contact list service, so this is becoming an everyday life.

Julia Raymond:
Dave, you are in Thailand, and you’re in Asia, so you guys are a little bit ahead of the curve. Could you give us some first-person insights as to what’s going on right now in your area?

Dave McCaughan:
Sure. I live in Bangkok, now for the last five years. I’ve lived in different parts of Asia for 25 years. Obviously, by the accent, I’m Australian in origin.

Dave McCaughan:
Lockdown here in Thailand, the real lockdown started about three and a half weeks ago in terms of shutting down all the shops, the department stores, all that sort of stuff, just essential stores, that sort of thing. The parks shut down, for what it’s worth, in a place like Bangkok. Then you had added things.

Dave McCaughan:
This last weekend, for most people in America or the west, it was Easter weekend. In Thailand, it is actually the new year. It’s the biggest single holiday weekend of the year. So two and a half weeks ago the government declared that for the first time ever, Songkran basically didn’t exist. They basically said, “No, we’re not having Songkran this year.”

Dave McCaughan:
But it’s very hard to say to 70 million Thais … Imagine saying to 300 million Americans that Christmas or New Year don’t exist. It doesn’t work that way. But one of the things they did do, I think it was Thursday last week, they put a 10 day ban on all alcohol sales across the country.

Dave McCaughan:
And of course, in my home country of Australia, I imagine in America, in a lot of European countries, the thought of saying “No alcohol on sale for 10 days,” that itself would cause a social stir. Here, it’s problematic but maybe not so bad. It’s also indicative of the fact that governments have to deal with a bunch of local issues that, when you look at it from a big global perspective, or maybe from a Western perspective, you’re not really thinking through “What does that really mean?”

Dave McCaughan:
I was actually on a Zoom call a few days ago with a bunch of businesspeople in Daka, in Bangladesh, and I happen to do a lot of projects normally in Bangladesh, and they put together a session where it was a bunch of senior business people talking to me about advice as to what they do about their brand in this time of crisis.

Dave McCaughan:
What was really interesting for me was the way in which one guy expressed the frustration that, the way he put it literally was “All this social listing and distancing and all that sort of stuff, that’s just elitist Western ways of doing things which are impossible,” in what he called the real world.

Julia Raymond:
In his world.

Dave McCaughan:
Yeah, in his world, or in the bulk of the world. Because what he was making the point was, which is something I’ve encountered elsewhere and thought a lot about, that when you live in most parts of southeast Asia and particularly southern Asia, Bangladesh, India, countries like that, when you think about the population and the way it works in these big cities, a city like there are 40 million people here in Bangkok. Interestingly, from an Asian perspective, Bangkok is sort of a middle-sized city at 40 million people.

Dave McCaughan:
Literally, somewhere around 40% of those people are day workers. They make their living day by day. In a place like Dhaka, they estimate there are about six million people that basically have enough money to last three or four days without working. The numbers are huge.

Dave McCaughan:
One of the things that this guy was alluding to that is the reality in this part of the world, but maybe we don’t think about from a Western perspective, his point was social distancing is a white-collar privilege. Basically only the middle class can really do this, that real working people particularly in these big Asian cities, and not just the cities but in the countryside, can’t do it, because you can’t sit at home for three weeks.

Dave McCaughan:
First of all, you’re living in very, very crowded conditions, much more crowded than my apartment or your apartment or whatever. The other thing is it’s just impossible to … You don’t have the facilities. I’m imagining just like you did and lots of people round the world, when this all really got serious about three, four weeks ago, we stocked up the freezer, we stocked up the fridge, we stocked up the cupboards, we bought tons of toilet paper, all that stuff. It all sounds terrific.

Dave McCaughan:
There are literally billions of people on this earth that cannot do that. They literally can’t stock up, and they literally can’t live on … I’m fortunate, maybe you’re fortunate. If your job stopped tomorrow, you could survive a while on savings and so on.

Julia Raymond:
Yeah, definitely more than three days.

Dave McCaughan:
In Dhaka, Bangkok, all these cities. The point is that we constantly see, and for example, I just woke up this morning and saw a friend of mine in Dhaka had posted from one of the main markets a photo yesterday where there were literally thousands and thousands of people down at the main market.

Julia Raymond:
Oh, just yesterday?

Dave McCaughan:
Just yesterday. Whether it’s more or less crowded than normal, it’s crowded. It’s packed. Of course, the string of comments underneath is “When is that? Yesterday? Oh no, the government’s got to do something.”

Dave McCaughan:
But the truth of the matter is yes, the government probably will try to do something. In a place like Bangkok, the government is trying to do stuff to stop people from gathering in places like that. They’re putting very strict restrictions, all that sort of stuff. Other places that are further behind the wave, like the Bangladeshis et cetera, that’s slowly in the process of happening, but you also have different relationships with the government.

Dave McCaughan:
You have lots of Asia, or South Asia, some of southeast Asia, the more developing parts of Asia, that are still trying to lockdown. Some are locked down pretty efficiently, like Thailand, some are still trying to lock down, they’re still going through the process of what can be done and what can’t be done. Then you’ve got other places like Japan which sort of took it seriously, sort of tried to put off the bad stuff because they were trying to figure out about the Olympics, now they’re trying to lock down again, people are getting very worried again about how it is.

Julia Raymond:
And when we talk about retail, and I know this is segueing way far away from what we were just discussing, but in terms of the Western world and more developed areas across Asia, Europe, North America, do you see retail opening back up within the next six months? I know it’s hard to predict, but what is your general take on the state of the retail industry?

Dave McCaughan:
Like everywhere else, I think the big mainstream retail has obviously had to adapt, online sales et cetera. But online sales for a lot of stuff are not matching what would’ve happened before all this. Some categories are doing really well, little sidelined for example. Who would’ve imagined that this is an absolute boom period for cosmetics? You go what? When you look at online sales of cosmetics in a place like China, in the first month of the lockdown, they went through the roof.

Julia Raymond:
Oh wow.

Dave McCaughan:
My first reaction, like yours, is what? Wow. And you’re thinking, what the heck? These people are locked in, they know they’re going to be locked in for weeks and weeks, and we’re not talking about therapeutic skin products. We’re talking about cosmetics. Makeup. What’s the story with that?

Dave McCaughan:
But the truth is that for many people in China and across Asia, they’re doing a lot of this, a lot of talking. China for example, long before this, had been by far, you know China is in terms of using digital means of communicating, is way ahead of the west, in terms of-

Julia Raymond:
Facial recognition, everything tech.

Dave McCaughan:
But things like vlogging, so doing video blogs.

Julia Raymond:
Yep, streaming, yep.

Dave McCaughan:
Streaming, all that stuff. The levels of that were much higher in China than they were in Western markets before all this started, and of course this has just primed it through the roof. What we’re finding is that yeah, it’s all about selfies at home but also basically appearing good when you’re doing all these things, and when you’re loading up your daily feed or your thing.

Dave McCaughan:
But at the same time there are other places and lots of people in the world where this has become “This is how I’m going to present myself.” And as you know, there are tons and tons of new videos on YouTube and stuff about how to present yourself on Zoom. What’s the right lighting to use? Where should you sit? How should you do your makeup? All these sorts of things.

Dave McCaughan:
This is where you see some unusual angles in terms of retail, where “How am I going to look” becomes important. But having said that, yes of course, a lot of the hard retail is shut. The bricks and mortar stuff is shut. People have moved obviously sales to Amazon or Lazada which is the big e-commerce site in some parts of southeast Asia in particular.

DaveMcCaughan:
Those places are booming.

Julia Raymond:
You just heard from Dave McCaughan. Our last guest today is Shaun Rein.

Shaun is the Founder and Managing Director of the China Market Research Group, the world’s leading strategic market intelligence firm focused on China.

He works with heads of states, senior executives of Fortune 500 & leading Chinese companies, private equity firms, SMEs and long/ hedge funds to develop their China growth, political and investment strategies.

Rein is also the author of the international best-selling books “The War for China’s Wallet: Profiting from the New World Order,” “The End of Cheap China”​  & “The End of Copycat China.”​

Shaun, thank you for joining us today. 

Shaun Rein:
Well, Julia, it’s great to be here. I’m in Shanghai, China right now where there has been a normalization in day to day life and especially on the retail side. I’ve been living in China mostly since 1997, full-time in Shanghai since 2003, so it’s 17 years in what I consider to be the future of retail city. I started my company, the China market research group in 2005, so this is their 15th year anniversary. Obviously it’s a tough time because of the coronavirus. But I’ve been here in China for over half my life now.

Julia Raymond:
And what are some changes that you’ve seen happen firsthand, whether that’s innovative ways companies are responding or just things that your company is doing to stay relevant, to stay active during the pandemic? 

Shaun Rein:
I think it’s important you got to remember in 2019 China became the largest retail market in the world. And already last year China was ahead of the United States, ahead of Western Europe when it comes to eCommerce, when it comes to mobile phone services, whenever I go back to the United States, I feel like I’m in the dark age. In China, they’ve really embraced what I like to call a mobile-first strategy. And so at the height of the COVID-19 in China, people weren’t panicked. And I think one of the major reasons why China has been able to contain the coronavirus is because people were able to buy online. 

Shaun Rein:
People had already been accustomed to shopping on groceries on Alibaba’s home retail store or buying electronics from Jingdong, jd.com. When the coronavirus hit, everybody just sat in their homes, watched online videos on Tik Tok and bought things through eCommerce. They were accustomed to it and I think that’s one of the things that helped China contain the spread because people didn’t feel like they needed to go outside. 

Shaun Rein:
The second part, Julia, is China is a cashless society. It’s contactless. People use Alipay or WeChat pay and scan QR codes. There’s no touching like with cash and with credit cards even. And I do believe that that early adoption has enabled retail sales to continue to grow in China despite the coronavirus, has helped us contain the problems. And that’s why retail stores in China were only shut for five weeks. Now we’re opened. Now in the United States, retail stores are entering week six, essentially of being closed. 

Julia Raymond:
Why do you think in China your payment systems, facial recognition technology is so much more advanced and I think everywhere else in the developed world is headed that way. Why do you think you guys are leading the space when it comes to that kind of technology? Is it cultural? Are there other factors? 

Shaun Rein:
China’s ahead for artificial intelligence, China’s ahead for mobile service payment and ordering really for two reasons. The first goes back 15 years ago. 15 years ago, it was basically the Chinese state-owned banks like Bank of China, ICBC, that dominated the debit card space and payments. And these state-owned banks frankly didn’t care about retail customers. They only cared about loaning money to other state-owned conglomerates. And they really forgot about the Chinese consumer. So in 2005, there were only 13.5 million credit cards in China, only 13.5 million because the banks just didn’t care.

Shaun Rein:
That created an opportunity for private Chinese companies like Tencent and Alipay to say, “Look, we’ve got a huge problem when it comes to payment systems.

Julia Raymond:
Is there an opportunity for retailers just based on the cultural differences, the fact that you guys have greater social distancing in general and it’s more accepted and you guys have advanced technology for a contact list, payments, should retailers really be investing in China right now if they haven’t already because the economy is going to have a quicker rebound potentially than other economies post-pandemic?

Shaun Rein:
This is what we say to our clients. If you’re generating five to 20% of your global revenue in China, then you should be investing here because you are going to most likely rebound here and China’s going to be large enough to offset some of the weakness in sales in Europe or in the United States. And since the second half of March, our clients who fall into this type of rubric are actually investing and my own personal consulting business has rebounded. However, if you are a company that currently has zero to 5% of your revenue coming from China, you probably don’t want to be investing here right now. It’s going to be too expensive and too difficult to build up marketing, when Brick and Mortar isn’t active, when there still a lot of difficulties in internal transportation, it’s probably better to conserve your cash and self-preservation for your American business. 

Shaun Rein:
If you look at it, to me, a company like L’Oreal, Estee Lauder, Nike, Adidas, they should be doubling down on their China operations. They have great potential. Companies like Crocs or Ugg, they also have a lot of potential in China. But if you’re a company like Everlane or if you’re a company like Birkenstock, then probably you don’t want to be investing here right now. Your operations just aren’t large enough. 

Julia Raymond:
That makes a lot of sense. And Shaun, I know you are the founder and managing director of China market research. Is there anything that you would have done differently with your firm in hindsight if you knew the pandemic was coming? 

Shaun Rein:
No, we’re actually hiring right now. Our business is okay. It’s not booming, but it definitely rebounded. But we’re trying to get aggressive. I think a lot of people are scared. They’re scared out of their mind what’s going to happen politically? What’s going to happen to the global economy? Will their companies fold? Will they lose their job? And I think in difficult times is when smart executives don’t just rush in and invest and try to expand stupidly, but don’t let fear overcome you. My own firm, we’re actually going to be moving and upgrading our global headquarters in July. I’m in negotiations with an agent, with a big building right now and we’re actively hiring, because I think that China’s going to rebound quicker than anywhere else. 

Shaun Rein:
I guess the takeaway is I understand the fear, but don’t let fear stop you from thinking logically. There are still very good opportunities out there in the marketplace.

Julia Raymond:
And with that, we’ll round out today’s show. I want to thank my guests Ashley Dudarenok, Dave McCaughan and Shaun Rein for sharing their insights with us today. I hope everyone has a safe, sane and healthy week — until next time, I’m Julia Raymond, and this was your Retail Rundown.