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The Technical Consumer Goods (TCG) market in China is expected to rebound in the second half of 2020, following the projected decline of 18% in value (RMB) in 1H 2020 due to the COVID-19 outbreak.
The decline in 1H 2020 is expected due to consumers postponing purchases in midst of the outbreak and disruptions in retail stores resuming business operations. As the outbreak subsides, the overall TCG market is expected to pick up in the second half of the year in line with pre-planned 5G smartphone launches, annual shopping festivals and consumers pursuing purchases that they previously put on hold.
Severe impact on overall TCG market in first half of 2020
The COVID-19 outbreak is expected to impact all sectors across the TCG market in China, with the Major Domestic Appliances, Photo and Telecom sectors projected to see the sharpest decline in the first half as consumers are either postponing or minimizing their spending, especially on consumer electronics and appliances.
The Small Domestic Appliances sector however, is expected to see the least impact offset by a spike in demand triggered by the outbreak. This can be attributed to consumers’ heightened attention towards hygiene, health and well-being, therefore increasing demand in products like vacuum cleaners, air treatment and personal care. In addition, lifestyle adjustments such as cooking at home more often is expected to increase demand for food preparation products like food processors and hot beverage makers.
Moving forward, the Small Domestic Appliances, Consumer Electronics and Telecom sectors are projected to lead the rebound in the second half of 2020. According to GfK China Consumer Life February 2020, over 64% of consumers indicated they plan to continue their purchases on personal care, and kitchen and health-related appliances, within one to three months after the epidemic with almost 1 in 3 consumers planning to increase their budget for these purchases. In terms of smartphones, 48% of consumers surveyed will continue their planned purchases, with CPU processor, Battery Life and RAM as Top 3 features influencing their purchase decision while another 23% will increase their budget.
Retail businesses focus on advertising and new channels to boost sales
Based on GfK’s Small & Medium Retailers Survey February 2020, small offline retailers expect a sales decline of 24% in the first half of 2020. Chain store retailers with more than six stores are more optimistic and expect a lesser decline at 15%.
Of the retailers surveyed, nearly half of them are planning to invest in advertising and promotions to boost sales, primarily through digital channels such as WeChat. Further, 1 in 3 retailers are working on extending their sales offerings through setting up online presence with e-commerce platforms and WeChat commerce. 75% of retailers also have a well-stocked inventory to cater to consumer demands in the next one month.
Given these approaches coupled with GfK’s consumer survey findings where 50% of consumers indicated that they intend to resume their planned purchases across all product categories immediately after the epidemic, the TCG retail businesses can potentially see a positive turn.
“As we closely monitor the unprecedented and developing outbreak situation, the performance in the TCG market in China is projected to decline by about 18% in value (RMB) in 1H 2020 compared to the same period in 2019. In terms of the full year outlook, we anticipate a rebound in the second half of the year, resulting in an overall decline of 6% in value (RMB) compared to 2019. This recovery could be aided by retailers actively leveraging new channels to cater to consumers’ changing shopping habits, preferences and expectations. We believe some sectors such as telecom will be more resilient than others given the anticipated launch of 5G smartphones”, said Vishal Bali, Managing Director, GfK China and India.
Consumer confidence and expectations for recovery in third quarter of 2020
According to GfK China Consumer Life February 2020, the overall consumer sentiment remains positive. One in three Chinese consumers surveyed felt good despite the current economic situation with 59% feeling more confident, including 46% of consumers living in Hubei, the province hardest hit by the outbreak.
67% of consumers living across all China city tiers expect the economy to recover before the third quarter of 2020, while a quarter of those living in Tier 3 – 5 cities have confidence that their income will increase in the next half of the year (the highest level of confidence among cities in other tiers).
Amidst the outbreak, the Top 5 consumer concerns include Epidemic (38%), Food Safety & Health (36%), Healthcare (27%), Inflation (27%) and decline of domestic economy (26%).
With expenditure on hygiene, food and daily essentials on the rise, over 20% of Chinese consumers surveyed have put a lid on spending on vacations, clothes, jewelry, alcohol and tobacco while expenses on consumer electronics and home appliances are neutral. All of these spending patterns are expected to continue in the next half of the year too.
Additionally, with more consumers staying indoors, there has been a surge in online shopping and home deliveries with 41% of consumers increasing their frequency of buying online in the last month. Consumers in Tier 3 cities have also turned to online shopping with double the number of first-time users compared to those living in other tier cities.
Overall more consumers are shopping for the first time across platforms such as third-party applications, brand websites and community shopping via WeChat, to order items for home deliveries. With its ease and convenience, 1 in 2 consumers surveyed expect home delivery service for all their future online purchases.
“We believe the overall consumption story in China remains intact though there is a need to have continuous monitoring of how the retailer and consumer sentiment evolves so that manufacturers and retailers can prepare ahead to ride the wave of recovery as it comes”, said Bali.
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