Pollution’s Effect on Retail

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Young Couple in Matching Pollution Masks Shop Together in Beijing

What a difference a bit of wind can make! Last week Beijing and a chunk of northeast China suffered through another bout of extreme pollution that made worldwide news headlines. Then almost after 10 days of still air that had allowed the pollution to build up, on Thursday afternoon a trickle of rain began followed by the forecast wind from Siberia and we awoke Friday to a glorious day. Unfortunately it didn’t last long and today is horrible again.

Beijing’s weather and environment are harsh to say the least and the hot and humid summers, freezing winters and extremely dry climate take a toll on the body. To stay sane, one must bath in moisturizing cream daily and as for preventing complete cuticle annihilation in winter I’m yet to discover the secret sauce. Its no wonder so many international companies decide to set up shop in Shanghai instead of Beijing.

Beijing actually had a relatively mild winter with mostly clear skies since November and only one snow dump. During Chinese New Year the Government encouraged citizens to show restraint in the amount of fireworks they let off in order to protect the air that is becoming ever more valuable and a topic of concern for everyday life. These measures seemed to succeed and throughout New Year Skies stayed mostly clear until the week of the 17th.

One day you wake up and the sky is a bit hazy, which is not abnormal. A few days pass and the haze lingers and emissions from factories and cars cling to the haze and absence of any wind prevents the air from being refreshed. By around the fifth day things are getting pretty serious. Buildings become indistinguishable from a few hundred meters away, the sun is either invisible or just a dimly lit disk in the sky, and one’s mood sinks. You don’t want to go outside, and if you must, then its best to wear an air mask that you worry is probably not helping much anyway.

Inside the house, air filters stay on 24/7 using electricity that is generated by burning coal and its just becomes one big vicious cycle. All anyone talks posts and Instagrams (or wechats in China) about is the pollution and everyone goes OCD over checking the Air Quality Index of which there are two. One is the Chinese Government’s measurement and the other (always higher) measurement comes from the US Embassy’s which has ruffled some feathers.

When I first came to China early this century it was also polluted, perhaps even more so, but back then no one had mobile applications to measure pollutants and most people were preoccupied with other more pressing issues facing society and the economy such as poverty.  As many of these issues have now been solved or vastly improved the people in the more developed cities now have the ‘luxury’ to turn their attention to other lifestyle issues. The Mr. Wang and Ms Lis now have their own apartment, with all the mod cons, they have a car, some international branded goods and if they are lucky get to travel overseas every now and again.  Now their basic needs have all been met its time to turn their attention to lifestyle issues including the quality of the air they breath.

Since coming into power in 2012, China’s Government has made the environment and particularly pollution a matter of urgency, creating their own pollution index and mobile applications to stay abreast of the daily changes. Last week when the pollution began to get out of hand the government issued warning to stay in doors, wear masks and for elderly and infants to take extra precautions. Many schools forbid children from playing outside while the better equipped schools like International School Beijing have installed hospital grade air filtration systems and spent millions of dollars to build fresh air domes where children can play.

When the situation gets this bad it has a significant impact on peoples lives and the way international companies (including fashion and luxury brands operate in China.) Over the last two years many expats have left Beijing quoting pollution and concern for their children’s health as reason for leaving. Despite this in late 2013 HSBC ranked China as the most attractive global destination for expats. However, with the pollution levels breaking new records, hardship allowances, office air filtration systems and health insurance clauses are all hot topics in expat circles and its going to get more expensive for companies to attract top international talent for China assignments.

Venturing outside last week the amount of citizens wearing air masks had risen dramatically from previous occasions and every supermarket and convenience store etc. were well stoked with air masked creating another market for niche goods.  Malls and other retail areas were noticeably quieter as people stayed at home. This Guardian article reports that visitors to the Forbidden City fell to a quarter of their normal levels due to the pollution. If a similar drop in visitors were happening at commercial outlets then retailers surely would have felt the effects to their bottom line last week.

Not only did the pollution dissuade one from going shopping but it also affected the whole shopping experience. While entering one international electronics retailer’s stores I noticed they had the door open allowing the polluted air into the store. (It seemed to be the store’s policy to keep the doors open in order to welcome customers.) Meanwhile the staff just inside the door were all wearing confronting white air masks which presented quite a contrast to their matching shirts. When the time did come to speak to a service staff I felt a distinct lack of personal engagement and no feeling of friendliness from the girl serving me because she was wearing a mask. Its not that she was rude or mean, I just couldn’t see her smile, couldn’t detect other facial expressions and therefore couldn’t build any sense of rapport with her.  

It certainly wasn’t just this retailer that would have had this problem. For premium brands where service is a key value proposition then the inability to build rapport and sell to a customer is a big problem. What can brands do? Order staff not to wear masks? Not likely when the Government has issued a warning and is encouraging people to wear them.

Besides air mark and air filter companies that are seeing a surge in business from pollution, the other sector to benefit is e-commerce. Already e-commerce is stealing market share away from the department stores, shopping malls and retailers, and add to this the fact that pollution levels are beyond the measurable index and people are loath to venture outside, then buying online becomes an even more attractive proposition.

Last week my good friends at KPMG China released this report titled China’s Connected Consumers in which they surveyed over 10,000 luxury consumers across the country. A few interesting finding of the report include:

– 2015 e-commerce transactions in China  predicted to reach USD 540 billion or 7.5 % of all retail transactions

– By 2020 Chinas e-commerce market to be larger then US, UK, Japan, Germany and France combined!

– 9% of respondents were driven to purchase online because of the comfortable shopping at home (this is where pollution comes in)

– 55 % of Chinese internet users have made a mobile payment VS only 19% in the US

– There is a shift to online payments that is happening fast and catching many unaware (I’m seeing and hearing this from multiple sources, not just KPMG, and predict mobile payments in China to be a major disruption to retail in China this year).

Despite all of this airpocalypse doom and gloom some people are staying positive and happy by dancing in the streets.

What would you do?

 

Shoppers in Pollution Masks Brave the Beijing Pollution

 

Shoppers Brave the Pollution With Air Masks in Beijing

 

Use Masks, Scarves, Hoods and Whatever you can to Avoid the Pollution

 

View of Beijing's CBD on a Clear Day

 

View of Beijing's CBD on Extremely Polluted Day

  

The Sun in Beijing Barely Visable Trough Heavy Pollution

  

Mobile Phone Screen Shot Showing the Air Quality Index in BeijingChina vs USA Mobile Payments for E-Commerce Comparison. Source: KPMG & Emarketer.com

 

China vs USA Mobile Payments for E-Commerce Comparison. Source: KPMG & Emarketer.com

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