Retailers brace for financial, supply-chain disruptions from coronavirus

Escalating concern over the spread of coronavirus is affecting every industry and sector, and retail and e-commerce is no exception. Apart from challenged supply chains, retailers are also concerned about run on certain products as consumers panic and stock up.

As retailers around the world grapple with the myriad consequences, unlike the previous disruptions (SARS, swine flu, Fukishima) in the past two decades, the disruption from coronavirus is having an impact on both supply and demand sides.

“For many, it is shaping into a once-in-a-generation test of business continuity planning and supply chain flexibility,” says Hilding Anderson, Senior Director and Retail Strategy Lead at Publicis Sapient, the digital business transformation hub of Publicis Groupe.

From the supply side, Southeast Asia has been particularly hard-hit, says the executive, while on the demand side, Europe and the US are already seeing changes in demand, with visits to retailers dropping and major conferences being cancelled or rescheduled.

In South-East Asia, demand has dropped considerably “as even people outside mandatory quarantined zones reduced their spends”.

A similar scenario appears to be playing out in India, as retailers brace for supply-chain disruptions with many anticipating a huge drop in revenue. As retailers register reduced footfalls, analysts report massive drop in sales.

Anderson states this is bound to be a key issue, given that a majority of retailers still depend on physical purchases for revenues. Stores still represent over 80 per cent of revenue for most global retailers.

However, as consumers move from shopping in-store to online, e-commerce is set to gain and home shopping likely to double during this period. The change in consumer demand and fall in supply are expected to have a significant impact on retailers, shaking their business models and forcing them to focus more heavily on digital channels.

The executive says retailers who have added digital channels will have an opportunity to capture more sales for the next four to eight weeks, which, in turn, is bound to put pressure on IT contingency planning.

Grocery is expected to particularly experience huge variability during this time.

Anderson adds a critical area that would be tested by this crisis “is the degree of flexibility and redundancy in retailers’ supply chain. Variability puts stress on supply chains, increasing storage costs and inventory carrying costs.”

Many retailers have also been questioning their sourcing strategies. “Balancing sourcing resilience and flexibility with cost was already on the list of many retailers. The spread of coronavirus might just be another reason for retailers to consider introducing more supplier flexibility,” says Anderson.

Those companies on the path of digital business transformation are expected to be better equipped to handle this disruption. The executive adds the application of technology and data can provide a useful solution to some of the issues retailers are likely to face over the coming months.

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