Source: Lingshou (ID: lingshouke), Author: Shili. This article is reprinted with permission. For reprint authorization, please contact the original source.

"Good times" may be over. The pandemic is accelerating the arrival of "hard times."

A Miniso employee revealed that in January, all staff received 80% of their pre-tax salary, and for February and March, salaries were paid according to different standards for different levels. The company also encouraged employees to take unpaid leave during the pandemic, with salaries at 30% of pre-tax income.

Of course, a "salary cut" still means a salary; if a company goes bankrupt, there is no salary at all.

IT training institution "Brother Link Education" stopped enrolling students at its Beijing campus on February 6 and dismissed all staff; Beijing's famous KTV "K歌之王" terminated labor contracts with all employees on February 9; Baicheng Travel Network recently initiated bankruptcy liquidation...

Industries relying on offline consumption scenarios face enormous pressure: offline training, tourism, entertainment, shopping malls, cinemas, catering, and hotels are significantly affected by the COVID-19 pandemic.

This also reminds people to prepare for "hard times."

When ordinary consumers, wearing masks, rush into supermarkets to "grab vegetables," complain about high prices, and accuse some retailers of "profiteering from the national crisis," they may not realize that the state of "can't afford vegetables" might already be on its way.

"Good times" may be over.

-01- The "New Normal" of the Economy under COVID-19

Looking back to 2019, China's economy had been in a "new normal" for several years, transitioning from "high growth" to "medium growth." Coupled with the Sino-US trade friction, social retail consumption continued to face pressure. This sudden pandemic has further impacted China's economy and industries to a certain extent.

Recently, many economists have predicted that the impact of the COVID-19 pandemic on China's economy will likely exceed that of SARS. China's GDP growth in the first quarter of 2020 will decline by 0.5 to 1 percentage point.

Li Xunlei, chief economist at Zhongtai Securities, pointed out that the impact of the pandemic on China's economy could last one year in a pessimistic estimate, or only about half a year in an optimistic estimate. The most significant impact will be in the first quarter, with recovery to normal within half a year.

The recently released China CPI for January 2020 further confirms the rise in prices.

According to the National Bureau of Statistics website, in January 2020, China's CPI increased by 5.4% year-on-year and 0.9 percentage points month-on-month. This is the fifth consecutive month of increase since September last year when it broke the 3% threshold.

If it is reasonable that agricultural product prices rose due to nationwide village lockdowns and labor shortages during the pandemic, then after the pandemic eases and work resumes, prices have not yet shown signs of falling. Could it be that the transmission is still ongoing? After each price increase, returning to previous levels may not be easy.

Of course, this is also related to money supply.

What we can see is that the CPI index is rising, prices are rising, and economic growth is slowing. The pandemic has also affected industries and enterprises, with some companies forced to lay off workers or cut salaries, and some may not survive until "dawn."

-02- Prices Rise, CPI Breaks 5%

CPI breaking 5% is a relatively "dangerous" signal.

CPI is the Consumer Price Index, commonly used to measure inflation. Higher inflation means the purchasing power of people's money declines. In simple terms, money becomes less valuable.

Behind this CPI rise is, of course, the Spring Festival factor: production capacity declines during the holiday, but some demand increases, and labor costs rise, leading to higher prices. Additionally, pork prices remain high; according to statistics, meat prices rose 77%, and prices are still at high levels, with the turning point not expected until mid-year.

Looking at previous Spring Festival data, in January 2020, CPI rose 0.9% month-on-month; in 2019, the Spring Festival month of February rose 1%; in 2018, February rose 1.2%. This year's increase is reasonable and within range.

However, special attention should be paid to the fact that the pandemic is also a direct or indirect factor in product price increases.

In the core food category of CPI, it constitutes 28% in January. Data shows that food prices rose 20.6%, non-food prices rose 1.6%; consumer goods prices rose 7.7%, and service prices rose 1.5%.

Food CPI is closely related to food supply and demand, which is determined by the rural labor market. During the pandemic, factors such as village lockdowns, road closures, and labor shortages caused price increases in fresh produce.

Consumers concerned about grain and vegetable prices feel this deeply. A cabbage costing 62 yuan is not only in Wuhan; before the year, radishes were 1 yuan per jin, but after the outbreak, they rose to 4 yuan per jin. It is said that a truckload of radishes at Xinfadi can net a profit of 20,000 yuan. Even the traditional custom of curing meat during Spring Festival has been abandoned by many residents due to rising pork prices.

Although things have recovered somewhat, the pandemic has spread widely, and major manufacturing industries have delayed resumption, causing significant impact on manufacturing, which will lead to supply shocks. This is evident from the empty shelves of BC-type food products in major supermarkets.

After the supply side is affected to varying degrees, it will inevitably lead to price increases for some products, especially fresh vegetables in food, medical and health care products in non-food, and other products with supply shortages.

Many securities institutions predict that the year-on-year CPI increase in February will remain at a high of 5.4%, while demand will relatively contract, leading to economic downturn and persistent pressure.

Beyond CPI, in January 2020, PPI also rose 0.1%, with producer prices for means of production falling 0.4% and for means of living rising 1.3%. The rise in raw material prices will transmit to corresponding commodity prices in both the short and long term, and with increased costs and distribution expenses, price increases are inevitable.

-03- Economic Downturn: Impact on Retail?

After the COVID-19 outbreak, many voices said it would not have a significant impact on the economy, retail would quickly recover, and consumers would engage in revenge spending. This is based on the judgment after the 2003 SARS epidemic, but will it be so?

Comparing the economic cycle of the SARS outbreak, in 2003, China's economy was in a high-growth upward cycle. In the first quarter, GDP grew 11.1% year-on-year, the fastest quarterly growth since the first quarter of 1995. But in the second quarter, as SARS escalated, GDP growth fell 2 percentage points to 9.1%. As the epidemic gradually eased, GDP growth in the third and fourth quarters rebounded to 10%.

Overall, in 2003, China's GDP reached 13.74 trillion yuan, with annual GDP growth of 10%, which did not cause a significant impact on the economy.

But now it is different. China's economy is in a downward cycle, with Q4 2019 GDP growth at only 6%. If GDP falls 1.7% in Q2 as with SARS, it would be the lowest growth in recent years.

From the perspective of social retail growth, in 2003, except for April and May during the SARS peak, monthly social retail growth was no less than 8%.

In 2019, only 6 months had social retail growth exceeding 8%.

Data shows that in January-February 2019, total retail sales of consumer goods nationwide were 6.6064 trillion yuan, while during the 2019 Spring Festival, national retail and catering consumption was about 1.005 trillion yuan, accounting for nearly 1/6. This year, affected by the pandemic, department stores, shopping centers, and catering are experiencing a "severe winter." This undoubtedly adds another layer of frost to the already "cooling" retail industry.

Looking back at the SARS period, sales in Beijing department stores generally fell by more than 30%. This year is even worse, and it affects the whole country. In fact, since 2018, the department store industry has entered a downward phase. In Q1 2019, retail sales growth of department stores above designated size was only 0.9%, and for the whole year, it grew only 1.4%. This year, department store data may decline.

Even more tragic is the catering industry, which is almost "completely wiped out."

On January 23, Starbucks China announced the temporary closure of all Wuhan stores. On January 28, it temporarily closed more than half of its stores nationwide. Haidilao also announced on January 26 the temporary suspension of operations at its mainland China stores.

According to data from Qichacha, from 2000 to 2019, the number of registered catering companies in China showed an overall upward trend. The largest increase was in 2019, with over 2.284 million new registrations.

At the same time, the number of cancellations of catering companies also showed a fluctuating upward trend, with the highest in 2019 at 685,000. Under the pandemic, in the first two months of this year, 99,000 new catering companies were added, and 13,000 were cancelled.

As the only resilient retail format, supermarkets and hypermarkets may become one of the few retail segments maintaining growth during the pandemic. Interviews with multiple supermarket staff indicate they will achieve around 10% growth.

Some retail enterprises have seen revenue growth exceeding 50% during the first month of the lunar year, some reaching 70%-80% or even over 100%. Some companies may complete their annual profit targets in March or April.

But retail is just the tip of the iceberg. Affected by the pandemic, consumer demand for all other consumption has dropped sharply, with the service industry hit hardest. Data shows that in 2019, the service industry accounted for 53.9% of the economy and contributed 59.4% to economic growth.

But currently, with delayed resumption of work, production and business activities are directly affected, and the national economic growth in Q1 is not optimistic.

-04- Revenge Saving

On social media, there is a poll: Will you engage in revenge spending after the pandemic?

The results show that nearly half of the people said: No, I have no money; one-fifth said: No, I finally saved some money, I won't spend it.

The so-called revenge spending refers to people's consumption demand being suppressed for a period and then suddenly released. Facts prove that to engage in revenge spending, you still need to see if your wallet allows it.

Currently, prices are rising, the economy is inevitably declining in the short term, and the pandemic has already made many small and medium-sized enterprises unable to get up. Even with resumption of work, there are still active and passive restrictions on personnel movement, causing reduced service demand, interrupted production, investment, and exports, and increased unemployment.

The "Survey Report on the Impact of COVID-19 on Chinese Catering Enterprises" shows that in terms of employment changes in Q1, 63.9% of catering companies clearly stated they would reduce staff, of which 42.0% said "moderate reduction" and 21.9% said "significant reduction."

Recently, Miniso's internal proposal to employees caused a stir in the industry. On February 21, Miniso employees received a company proposal stating that in January, company performance fell 30%, and in February, two-thirds of domestic stores were temporarily closed, with sales at open stores down more than 95% year-on-year. The decline in sales and long-term closure of domestic and international warehouses also led to massive inventory backlog and a significant reduction in cash flow. At the same time, the company still has to bear fixed costs such as labor and rent, and operating pressure is imminent.

Therefore, Miniso will pay January salaries in February, and so on, with all employees receiving 80% of pre-tax salary. For February and March, salaries will be paid according to different standards for different levels. Additionally, Miniso encourages some employees to take unpaid leave during the pandemic, with salaries at 30% of pre-tax income.

The pandemic has directly put small and medium-sized enterprises in precarious financial situations. Many companies are cutting salaries to control operating costs and reduce current pressure, which is a fatal blow to employees and "moonlight clan." Perhaps as one saying goes: 2019 was already difficult, but it will be the best year in the next decade.

Perhaps, as long as there is spare money, short-term revenge spending after the disaster may still exist, but all this is based on the premise that consumers have enough "surplus grain" in their pockets—and this surplus must last long enough, for example, until the next upward cycle arrives.

As someone said: Don't talk about revenge spending after the pandemic; I've already been revenged by excessive consumption before the pandemic. After the pandemic, you go ahead and spend revengefully; I'm going to save revengefully!

So, let's end with this Q&A, shall we?

Well, back to revenge spending, what do you think?

Tips will be paid 400-2000 yuan once the tip is adopted.