It may still be several months before the global Covid-19 pandemic is over. With strict prevention methods, China has tided over the “darkest” moment, people are recovering and looking for new opportunities. This article discusses the focus and direction of wellness and the spa industry during the post-pandemic time. By Fifi Kao
After the coronavirus outbreak in China at the beginning of this year, the government decisively took measures such as social distancing, self-isolating, extended holidays, and working at home to fight the virus spread. Since the middle of March, the situation in China has improved significantly.
The domestic economy has begun to recover; however, the overseas pandemic is becoming more and more serious and sees no hope to be over in the short term, which results in a global economic downturn. In today’s world of globalization, the severe situation abroad has a huge impact on the development and growth of the domestic economy.
Several industries suffered huge losses
Film industry. In 2019, the box office during the Spring Festival was 5.859 billion, accounting for 9% of the total box office of the year (64.266 billion). In 2020, due to the pandemic, all of the seven most anticipated films scheduled for Spring Festival holiday were withdrawn from the big screen. According to piaofang.maoyan (a professional platform to offer box office analysis in China), on the first day of Chinese New Year in 2020, China’s box office revenue was only 1.81 million yuan, compared with over 1.4 billion yuan during the same period in 2019. It’s a huge loss and a complete failure.
Transportation. The global transportation industry was hit hard when relevant measures were taken to stop the virus spread. Public transport, such as planes, coaches and buses, were suspended in China. According to the available data, on the first day of the Chinese New Year in 2020, the total transportation volume during Spring Festival fell by 28.8% year on year, while the transportation volume of railway, road and civil aviation fell by 41.5%, 25% and 41.6% year on year respectively. Since February this year, 17 airlines from different continents have applied for bankruptcy. More airlines are struggling, trying to maintain operations by cutting costs.
Catering industry. The coronavirus outbreak in China coincided with the Spring Festival holiday. As a result, many banquets were canceled and restaurants were closed. Individual businesses found it hard to survive, and the situation of food chains was not optimistic either. Even though the policy for work resumption was carried out step by step when March came, many food companies failed to survive. In the first two months of 2020, more than 13,000 catering enterprises in China closed down.
In addition, the tourism and hospitality, spa and life beauty industry also fell in crisis.
Tourism and hospitality market
Let’s start with tourism. Before the golden week of the Spring Festival in 2020, it had been expected that the total number of tourists during the week would reach 450 million, and the revenue would be over 550 billion yuan, accounting for 8-10% of the total tourism revenue of the whole year. However, the coronavirus outbreak not only turned the revenue into a bubble, but caused a total loss of 210 billion yuan. In the past 20 years, the service industry’s contribution to GDP has increased by more than 10%, among which the integrative contribution rate of tourism industry is about 11%.
In terms of global tourism, Asia-Pacific suffered the most because it is the top destination for Chinese tourists, and the situation in Europe was relatively better. North America was not so good even before the announcement of the tourism ban. In general, the tourism industry around the world suffered a lot. Destinations such as Thailand, Vietnam, South Korea and Japan were hit particularly hard by the travel ban, with Chinese tourists accounting for a large part of the inbound flow and tourism consumption. According to the World Tourism and Tourism Council (WTTC), China alone contributed 51% of the Asia Pacific’s tourism market and tourism GDP in 2018.
At the end of May, Ctrip Group released its unaudited financial results for the first quarter of the year (up to March 31st ). Affected by the coronavirus outbreak, in the first quarter of this year, its revenue dropped 42% year-on-year and 43% month on month. The net loss was 5.4 billion yuan, while the net profit for the same period in 2019 was 4.6 billion yuan.
In terms of the four core businesses of Ctrip, hotel bookings suffered the most, with business revenue of 1.2 billion yuan, indicating a year-on-year drop of 62%, a month on month drop of 61%. The business revenue of tourism and vacation sectors was 523 million yuan, indicating a year-on-year drop of 50%, a month on month drop of 35%; revenue of business travel management was 126 million yuan, indicating a year-on-year drop of 47%, a month on month drop of 66%.
“Coronavirus outbreak poses a huge challenge to global tourism. But we are happy to see signs of recovery of travel activities in many of the markets we are involved in,” Liang Jianzhang, Executive Chairman of Ctrip’s board of directors said. China’s tourism market began to recover from March, among which luxury hotels did much better than other businesses.
Sun Jie, CEO of Ctrip, said: “The Company took measures as soon as possible to protect the rights and interests of customers, and adjusted business strategies to cope with the epidemic. With a strong capital reserve, Ctrip would have a quicker recovery.”
By March 31, 2020, Ctrip’s capital reserve (cash and cash equivalents, restricted cash, short-term investment, fixed deposits and financial products) was 68.2 billion yuan, rising 14% compared to that of the end of 2019. In addition, in April this year, Ctrip Group, as a borrower, signed a credit agreement with financial institutions, which includes a US $1 billion revolving credit and an additional US $500 million credit line. The company successfully got a $1 billion loan from this credit agreement in May.
However, due to the continued impact of the pandemic, Ctrip Group expected its net revenue to fall by 67% – 77% in the second quarter of 2020 compared with the same period last year. Since the coronavirus still looms over the entire world, most countries have issued stronger travel restrictions. As a result, the international travel orders in Ctrip in the second quarter were nearly zero. However, it is expected that the domestic travel business in some countries may begin to resume in July. At present, China’s short-distance travel have seen a robust recovery, and the demand for long-distance travel and leisure tourism is increasing as well.
“In many places at home and abroad, tourism is the most resilient industry. We believe that the impact of the pandemic will at last disappear and the travel demand will rebound rapidly,” Liang Jianzhang said. In response to the pandemic, Ctrip also launched a new model of “boss live broadcast + hotel pre-sale”. In the past two months, Liang Jianzhang has traveled 31 cities in China and done 11 live broadcasts, which brought nearly 400 million sales.
SPA and beauty industry
One-on-one service is required in the spa and beauty industry, so spas and beauty salons had to suspend business during the outbreak. They missed the peak season of Spring Festival and winter holiday and experienced a heavy loss. Since March, the industry began to recover gradually. However, the average return rate of guests of day spas in March was only 25-50%, while the hotel spas couldn’t open until April or May. When May came, the return rate reached more than 80%. Since June, spas and beauty salons that target domestic guests have basically resumed the original guest flow. However, by April, 11% of the stores in the industry had closed down, and 27% of the stores had reduced business scale or closed some of the branches.
The survey also shows that, in terms of current cash flow, 35% of the stores believe they can survive another 2-3 months although their current financial statement is in the red. And 25% say their current cash flow would not be able to support their normal operation for much longer, and they are already suffering huge losses. Only 3% of the enterprises say “they have completely survived the difficult period”.
During the pandemic, what worry spas and beauty salons most are: suspension of marketing and promotion, inability to predict the sales progress, extremely low consumer demand, and high pressure on paying rent and wages. Spas and beauty salons who are able to survive the gloomy March are now redoubling their efforts to make up for the losses. Yet there were many who failed to tide over the period. And some owners even disappeared without paying staff their salaries. And these enterprise were usually at the early stage of financing or venture capital investment. When the cash flow stops, they can hardly sustain any more.
During the outbreak, most spas and beauty salons took measures to adjust their business. 64% of them delayed after-vacation opening. 38% strengthened internal training. 42% kept tracing staff’s temperature and health conditions. 52% adjusted products and business strategies. 67% reduced costs of various business. 86% reduced salaries or allowed employees to take unpaid leave temporarily. And 12% laid off staff. Even if they felt sorry to lay off their loyal employees who had been with them for a long time, they still had to do so in order to reduce the cost and survive the difficult time.
But interestingly, according to the survey, 8% of spas or beauty salons achieved the original goal for the first quarter, and some even realized a year-on-year growth of 10%. 18% completed more than 80% of the quarterly performance goal, 60% completed more than 50% and 14% completed less than 50%.
According to the follow-up tracking, some spas and beauty salons now are considering to recruit again. However, 60% will wait until the epidemic is over. 25% feel uncertain of the concrete plan and say it will depend on their business status. Another 15% don’t plan to recruit this year.
The coronavirus outbreak has indeed caused a great impact on the hospitality and holiday industry, as well as wellness, spa and beauty industry which is dominated by small and medium-sized enterprises. The most important things now are to maintain cash flow, keep talented staff, keep customer loyalty, actively adapt to the environment and try new methods.
Now that we are alive, there is hope.