How will retail cope with the impact of coronavirus and how might it look different in the future because of it?
COVID-19 & Retail: Current Challenges and Future Outlook
The Current Impact of COVID-19 on Retail
Supply Chain Chaos
Retail manufacturing and production have been heavily disrupted by COVID-19, particularly in China. In apparel and textiles, China is still the world’s biggest exporter. Even apparel manufacturers based elsewhere are often reliant on textiles imported from China. China being hit by COVID-19 and having to shut down factories and production has caused huge supply chain and production disruption around the world, with luxury retailers like Burberry and Prada being hit particularly hard.
As more and more countries are affected, supply chains may be disrupted further downstream. Larger distribution centres that service multiple countries could be most problematic, not only for fears of contamination but stores in countries that aren’t as heavily affected could have their product supply disrupted. On the other hand, since China was affected by the pandemic first they may recover first, so by the time other countries are beginning to come out of lockdown and preventative measures, this supply bottleneck may well be clearing further upstream.
Shutting of physical stores & reduced footfall
Across the globe brick and mortar sales are suffering. Stores are either being closed on government orders or simply being closed by the retailer to protect staff and public. The stores that remain open are being hit by the heavily reduced footfall as the majority of the public attempt to avoid unnecessary social contact.
The effects of this on revenue have the potential to be fatal. Lost sales are damaging enough, but when you factor in continued overheads for stores like rent, wages and inventory, it is a dangerous situation. Only time will tell how damaging these effects will be on retailers across the globes, with the main variables being:
- How long areas remain affected & stores are closed for.
- To what extent a retailer’s eCommerce operation can pick up the slack (more on this below)
- How big or financially stable the retailer is prior to the epidemic – large tier 1 & 2 retailers may be able to shoulder the burden for longer than their smaller or independent counterparts.
Spike in Online Sales
With many stores closing and consumers avoiding most of the ones that remain, it’s no surprise there has been a spike in online shopping due to COVID-19. This is exemplified by the eCommerce kings Amazon who are taking on 100,000 extra staff across the US as it tries to keep up with a surge in orders sparked by the pandemic.
Whilst its good for both the retailer and the consumer that most brands now operate both on and offline, the sudden shift in proportion between online and offline sales may cause retailers problems if they struggle to keep up with demand. These issues include fulfilment centres not coping with increased demand and the amount of returns that come alongside online orders.
The other major consideration for many retailers is the typically smaller margins on eCommerce orders compared to brick and mortar sales, meaning that they may not be able to rely on their eCommerce branch to survive for too long.
So, what might a post-COVID-19 retail landscape look like? Will retailers take lessons from the crisis and bolster their infrastructure so they are more prepared for similar events in the future? Or once the dust settles will this be counted as a freak event and forgotten about? Here are possible considerations for retail life after COVID-19.
Continued advancement of e-commerce
This was bound to happen even without the pandemic, but COVID-19 may just have accelerated, or at the very least highlighted, the growth of online shopping and its advantages over physical retail. It is likely that retailers with a strong eCommerce offering will come out of the slump in a much better position.
For multi-channel retailers who had to rely on their online sales more than ever during COVID-19, evaluation into their eCommerce operations, particularly at their efficiency and smaller margins, are very likely. This may take the form of bolstering their supply chain technology and distribution centres, to increase efficiency and reduce running costs to see better margins in the future.
Diversifying manufacturing facilities
Steps have been gradually made in this area even before COVID-19, but in the aftermath of the pandemic, this may be a real concern for retailers and manufacturers. The problem isn’t China, or anywhere in particular. The problem is having such a heavy reliance on a single market, which then becomes a single point of failure for the business. Profit margins will always be a priority, but more cautious retailers and manufactures may look to diversify their production operations to be less reliant on a single region in the future.
Source-to-consumer traceability in supply chains
This is another area that was already a growing priority for many retailers. In the aftermath of COVID-19, it is likely to be even more of a concern, for both retailers and consumers. Not only does traceability help create smoother operations in the supply process, but it can offer assurances to consumers who may have growing concerns about where their products are sourced. With item-level traceability being where the industry is headed, consumers will be able to judge for themselves that their food, clothing and other things they bring into their homes is safely made and transported.
Automated warehouses and supply chains
The other element of the retail supply chain and distribution process that may change in the future is a heavier reliance on automation. This will make supply chains and distribution centres more robust, so able to withstand increased pressure. Automating processes like exception handling also means DC’s can run faster and with a leaner workforce.
Why may retailers look at automating supply chain operations in the future?
- More efficient – can deal with larger quantities of goods
- More accurate can deal with larger demand without creating bottlenecks
- Takes the reliance away from human resource constraints
Self-service stores and cashierless checkout
Finally, could the coronavirus be a catalyst for increased investment in self-service technology like cashier-less stores? We’ve seen retail giants like Amazon and Sainsbury’s explore these initiatives, but they have yet to be adopted on a large scale. Could that change? It may feel like a knee-jerk reaction to invest in technology that supports reduced human interaction but, particularly for supermarkets, solutions like Marks and Spencers’ mobile scan & pay could alleviate pressurised checkout lines.
We’ve gone over the major concerns for retail, the possible impact they could have, and the potential knock-on effects of the COVID-19 pandemic on the retail industry. But the fact is no one really knows. We are in uncharted waters, and for now, retailers are just struggling to ride the wave to the other side.
What we do know is this will pass. The main question for retailers that will determine the severity of the pandemic’s impact is when. Whilst this isn’t the second ‘retail apocalypse’, it is more than likely that the retail landscape that comes out of the coronavirus crisis may be very different from the one that went into it.