What China’s Recovering Retail Scene Could Mean for US Store Openings

As U.S. retailers grapple with plans to gradually reopen stores that had closed to help slow the spread of the coronavirus, many executives are continuing to turn their attention to China for a brick-and-mortar blueprint.

Since retail has largely returned to normal in the Asian country — where the virus originated and then forced stores to shut down before the disease reached the U.S. — several footwear firms say they’re already seeing signs of positive results.

Nike, for instance, revealed on its fiscal third quarter earnings call on March 24 that a majority of its doors in China are open, and president and CEO John Donahoe said the results have been encouraging. The executive stated Nike experienced double-digit increases in retail traffic week-over-week with some stores having already returned to prior year levels.

In the region, Donahoe stated that leveraging the label’s digital app ecosystem was critical, including activating its Nike Expert Trainer network to encourage consumers to engage in physical fitness and to stay connected resulting in an 80% climb in digital engagement. The exec said the activity helped Nike see a 30% climb in its digital business.

Blake Krueger, chairman and CEO of Wolverine World Wide — owner of the Saucony, Hush Puppies and Merrell brands — said “the consumer is out” in China during the company’s conference call on Wednesday.

“The stores there are not back to normal pre-crisis levels when it comes to their volumes but the consumer is out,” Krueger said. “There’s a lot of PPE in the marketplace. Malls are starting to get some traffic again. But again, the consumer in China is taking a little bit of a gradual pace to come back to brick and mortar anyway.”

The gradual return to retail normalcy in China has also prompted brands with no presence in the area to move forward with plans to become one. China-based Xtep, for example, is continuing with its plans to open K-Swiss stores in the country.

“On the one hand, we’re battening down the hatches in survival mode in the U.S.,” K-Swiss president Barney Waters said, “but we’re also generating new concepts and marketing plans to line up the China launch in 2021. It’s interesting how these two different things are happening.”

And this progress toward retail normalcy is cutting across categories. Crocs president and CEO Andrew Rees, for instance, said in a recent earnings call that although down from last year, the company is seeing “slow and steady recovery” in China as its more than 350 owned and partner stores have reopened and are registering “week-on-week improvements in traffic and sales.”

Despite brands looking to China to build a playbook on how to return to normal stateside, market watchers would encourage executives to temper the excitement concerning U.S. business for the time being.

“In the U.S., we’re doing this on a piecemeal basis where individual states and even cities are making decisions on when to reopen stores, which is rather confusing,” Morningstar Research Services equity analyst David Swartz. “And it creates the risk that the virus may not be contained before stores are reopened in some places and then they may have to close again.”

He continued, “The biggest concern is that they reopen the economy, the virus is not contained and then we have to close it down again. That would be a catastrophe. In China, it’s a totalitarian state, they make the decisions and the companies follow them. It seems like in China they have it contained.”

Telsey Advisory Group senior research analyst Cristina Fernández also believes the differences in containment efforts will impact how store openings stateside play out.

“In China, there was a more coordinated effort for stores to reopen through the country. In the U.S., it could be very much state by state, market by market, so it could play out a little differently. And consumers in China might be more confident because more testing was done; consumers are feeling comfortable going out again,” Fernández explained. “It could play differently here because the containment efforts, though they seem severe, were not as severe as other countries.”

Furthermore, Fernández said she is encouraged by China’s rebound, but it’s still too early for companies to use experiences abroad to make decisions domestically.

“China is still in the [retail] recovery phase and gearing toward normalization in the next couple of months, but it’s not there yet,” Fernández said. “They’re still in that phase where sales have not normalized, which to me would be that they’re equal or close to year-over-year. Perhaps within the next couple of months or by the summer it will get to a more normalized state.”

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