The impact of COVID-19 on the retail industry

COVID-19 impact on the retail industry

corona virus

While COVID-19 spreads globally, the retail industry braces for the outbreak’s fallout. From the slowdown in sales at the moment to not being able to move inventory and an increase in demand from the consumer market, here’s everything you need to know about the impact of the coronavirus outbreak on the retail industry.

The impact of coronavirus on retail

1. Decrease in the sales of non-essential items

Retail businesses that fall under general necessities and health have seen a spike in their consumer demand as well as sales. But those falling under the non-essential items categories, like clothing, footwear, and jewelry, have seen a revenue hit of 75% so far, due to the restrictions put in place to combat coronavirus. non-essential

Retail experts predict that coronavirus will change how the new-age consumer makes purchases, forever. The fear of public places will provide eCommerce businesses an opportunity to thrive over the next few months as consumers will turn to digital options in place of the physical shopping environments.

Non-essential item retailers will need to rethink their strategy to sell products. eCommerce might become their savior, depending upon the laws that are put in place in their location.

2. Hit in revenue and Sustaining fixed costs

The decrease in sales is bound to affect the revenues of the businesses which fall in the non-essential category. The shuttered malls during the course of the lockdown and the subsequent months until the world economy recovers will cause a massive loss in revenue.

As per the National Retail Federation of the United States, retail accounts for a whopping 52 million jobs in the country and contributes up to 25% of the GDP. Sustaining these jobs in this environment alongside loan repayments, rent and other costs will prove difficult.

3. High inventory and warehousing costs

As the number of consumers making lesser non-essential item purchases increase, retail businesses are experiencing high inventory and warehousing costs. An increase which they have never experienced before even as market and seasonal changes came in.

In the fashion industry, major fashion retailers who are shutting shop in the US and UK are now canceling their already completed orders in Bangladesh, resulting in workers being laid off without salaries. The Indian retail industry is no different. Take the case of Amazon orders being canceled into account.

Maintenance of the supply chain amidst this pandemic, with different rules and laws of countries due to the lockdown, is challenging at best.

4. Shift to E-commerce

A potential silver lining of this pandemic is for E-commerce as consumers shift to online shopping to buy essentials. Retail app downloads and usage have seen an unparalleled surge with an increase in sessions and conversions too. Many retailers have taken this time to fix their apps in order to engage their consumers better. ecommerce

This success is however limited as all countries are pressing for only deliveries of the essentials. Other non-essentials are mostly shown as unavailable on most e-commerce platforms.

5. Possible supply chain slowdown

The impact of the COVID-19 virus which started affecting manufacturing in China in early January has now started to affect major industries across the world. MIT supply chain expert, David Simchi-Levi has stated that the global public health crisis is not only affecting the supply chain and there is a significant impact on demand, and as a result, a significant impact on the financial performance on all the major businesses.

He had forecasted in January that the effects of COVID-19 in China would lead to a manufacturing slowdown in the U.S. and Europe by mid-March because many Chinese manufacturing suppliers temporarily, but drastically, cut production in late January, due to the problems caused by the virus. Given the timetable of global shipping, that meant major manufacturers would be low on supplies about six weeks later.

“The last shipment to deliver products arrived at the end of February because it takes about 30 days from Asia to North America or Europe,” says Simchi-Levi. “Most manufacturing companies will keep about two weeks of inventory. That means they were able to cover demand for the first two weeks of March. After that, [given] no more supplies, there will be disruption of manufacturing. And we see this right now.”

As he had predicted many of the major automakers have cut production in the days since mid-March, with Volkswagen and Renault shuttering facilities in Europe as a result. In the U.S., most major automakers announced last week they were temporarily closing plants due to health and safety concerns, with Honda explicitly stating on March 18 that they would enact a temporary shutdown “due to an anticipated decline in market demand related to the economic impact of the COVID-19 pandemic,” as well as in response to health concerns.

With the improvement in the situation in China and its slow march back to normalcy, the problem is no longer about the production which is likely to be back to normal by the end of April.

The problem now is the spread of COVID-19 all across the globe. “At the beginning, the problem was the reduction in supply,” says Simchi-Levi, referring to China’s production issues. “But now it is not only a matter of supply from China; it is supply from everywhere. Second, the demand side is completely changing. Now there is a big drop in demand.” With unemployment rising and consumer spending reduced, fewer large manufacturers can keep operating at full capacity or anything close to it.

If you’re struggling to optimize your supply chain, also read our blog on 5 things to know about supply chain optimization.

All in all, it’s time for the businesses in the retail industry to take stock of their inventory, look into their supply chain and logistics to identify opportunities, and what might end up being overheads at a time when making sales is difficult.

Start by minimizing operation costs with Inventory Optimization

The retail business is clearly facing a challenging time on all fronts - from the supply chain, inventory management, order fulfillment, and delivery to customer service.

A new poll of supply chain managers by the Institute of Supply Chain Management found that nearly 75% of companies reported supply chain disruptions in some capacity due to COVID-19 restrictions, and more than 80% believed that their organization will experience some impact because of COVID-19 disruptions and have marked down their revenue.

For many companies, the biggest immediate challenge is stocking inventory and its priority amongst the consumers as sourcing the stock is difficult due to the efforts and time involved. They are also looking at prioritizing orders of existing customers over new customers.

Most companies are forecasting demand and working with multiple suppliers to get the products back in stock so as to address the current and the immediate future demand but many are facing the problem of volatile demand.

While some companies selling to most affected sectors such as aviation and hospitality are seeing a dip in demand, the companies selling to vendors of medical equipment, food, and pharmaceuticals are grappling with a big spike in demand. Either way, optimizing your inventory will help you make better and more informed decisions.

The goal should be to focus on demand forecasting, efficient stocking policies, and replenishment. It will ensure the availability of products and support your operational efficiency by optimizing your working capital and saving on warehousing costs by minimizing excess stocks.

But in the retail industry, the average accuracy of inventory is only 63%.

That’s where implementing a solution like BluePi comes into play. BluePi works with retailers in providing retail optimization solutions that are tailor-made keeping their specific supply chain nuances as per their industry.

Whether you are a multi-format retail chain, apparels, or a grocery store, artificial intelligence and machine learning-driven algorithms can improve your bottom-line and top-line with accurate forecasts on demand for better supply chain optimization.

Want to know more about how artificial intelligence can optimize your inventory, supply chain and help you tide over the coronavirus slowdown?

Contact us for a demo.

PGaurav Batra
Written by
Gaurav Batra

Head Strategy@BluePi

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