Watsons plans more outlets to tap consumption uptrend

Hong Kong-based health and beauty retailer Watsons said it plans to open 500 stores in the Chinese mainland this year and explore community store models, as the company has firm confidence in its growth potential in the country and will continue to make investments by leveraging the consumption upgrade trend.

Watsons announced its plans at a time when the government has issued a series of favorable policies to boost consumption and expand domestic demand. In the recently delivered Government Work Report, it listed boosting consumption as a priority among this year's tasks.

Brick-and-mortar retail is expected to embrace new business opportunities, with the trend of quality upgrades, digital transformation and the building of more commercial infrastructure in county-level cities, the company said.

Meanwhile, Chinese consumers' purchasing habits are increasingly shifting toward instant fulfillment by buying products in advance, or storing for a rainy day — a shopping habit which sometimes involves discounts. Community stores that are located close to consumers have high levels of operational flexibility. With the advantages of instant retail, such stores can reach a wider consumer base, more effectively attract offline customer traffic, enhance the efficiency of store services and boost customer and brand loyalty, said research firm Nielsen.

Facing new retail trends and consumer demand, Watsons plans to launch community stores near key residential areas in first and second-tier cities this year, and satisfy the instant demand of consumers for daily necessities such as facial masks, personal care products and health-related goods.

In addition, the company plans to launch beauty services such as hairstyling, manicures and facial work at some of its stores to make such services more convenient for those living nearby in residential communities, it said.

Earlier this month, the State Council, China's Cabinet, issued a guideline regarding special action plans to boost consumption. The guideline noted that the government encourages unleashing consumption potential among seniors by actively developing businesses such as tourism and anti-aging care products and services.

Fueled by the expansion of segmented demand increasingly being seen from the growing "silver economy" and the "she-conomy" in community settings, demand in community stores is expected to grow continuously.

"The development experiences of retail sectors in mature markets showed that the business formats of leading retailers are usually highly adapted to the living patterns of local residents. In China, residents are densely concentrated in communities, providing growth opportunities for large-scale retail markets near communities," said Zhu Yue, partner at China Insights Consultancy (CIC).

China has more than 90,000 communities each with a scale of over 1,000 households, which are widely distributed in first and second-tier cities, as well as smaller cities, said CIC.

Meanwhile, with increasingly improved logistics networks in smaller cities over the past few years, the trend of enjoyment-oriented consumption and experiential quality shopping has been accelerating in these urban areas, and consumers have indicated a growing demand for instant services.

Among the 500 newly planned stores by Watsons, the retailer also plans to open nearly half of them in third-tier and smaller cities, including in 100 county-level cities. And the company will introduce a diverse mix of foreign brands and emerging domestic products at stores in lower-tier cities.

China's fast-moving consumer goods market has been growing steadily. In the first three quarters last year, segment sales volume achieved 4.6 percent year-on-year growth, said a report by Bain &Company and Kantar Worldpanel.

In particular, home care was the only segment that maintained three consecutive quarters of sales value growth, as it experienced the lowest average selling price deflation and strongest volume growth compared to other sectors.

"Overall volume growth was supported by both increased penetration and frequency, benefiting from heightened health and hygiene needs, as well as a growing demand for improved quality of life at home," said Rachel Lee, general manager of Kantar Worldpanel in China.