New research suggests that large numbers of retailers in the UK are already experiencing some supply chain issues as a result of the coronavirus.
A study by consultancy Retail Economics and global law firm Squire Patton Boggs showed that 24% of retailers surveyed – ranging from food, fashion and health & beauty businesses – had experienced delays in the supply chain that are having a significant impact on their business. A further 28% said they had seen some disruption but could manage it, whilst 48% stated they had not yet been affected. However, most firms surveyed said they don’t have flexible enough supply chains to be able to switch suppliers.
If the virus persists, around a quarter (24%) of the retailers believe it could lead to a permanent change in their business, including switching suppliers, investing more into online operations, reviewing contracts, and risk mitigation.
Besides the supply issues, retailers are most concerned about the damage the virus could have on consumer confidence. 45% of retailers surveyed have seen a negative impact on sales already, while 75% of them expect a negative impact on sales if the virus persists.
A separate survey among UK households revealed that over a third (39%) of consumers are worried about product shortages as a result of the coronavirus, which has led to almost 1 in 10 consumers (9%) to stockpile.
Reports in recent days have suggested that people worried about being in quarantine have been panic buying, with some supermarket shelves stripped bare of food and medicines. Items such hand sanitiser and wipes have also sold out in most stores, with remaining stock being rationed.
The government’s chief scientific adviser Sir Patrick Vallance said yesterday there was “absolutely no reason” to stockpile because special measures would be in place to distribute food and medicines in cases of widespread household quarantine.
Supermarkets in the UK are said to be drawing up ‘feed-the-nation’ plans to cope with mass panic buying if the coronavirus outbreak escalates.
Richard Lim, CEO at Retail Economics said: “Retailers are battling against significant disruption to supply chains as the coronavirus has choked off production in China. While the impacts may not yet be apparent on shop shelves, around a third of retailers suggested that ‘continuity of supply’ is currently their biggest concern.
“Of even greater concern for other retailers is the impact on consumer confidence and the effect this will have on their behaviour.”
Matthew Lewis, Head of Retail at Squire Patton Boggs added: “Maintaining an effective supply chain and an operational workforce is critical to retail and to the long-term health of the sector and the wider economy.
“The most staggering result shows that just under 45% of retailers and those operating in the supply chain do not have the option to switch suppliers to mitigate against the impact of the coronavirus. This raises serious concerns about business continuity. It is not too late and retailers should look at their supplier contracts.”
NAM Implications:
- Like most sudden unexpected changes in a market…
- …the coronavirus has exposed the lack of a ‘Plan B’ in some organisations…
- …and a need for increased flexibility in the application of supplier-retailer contracts.
- In practice, this means building in more buffering…
- …and a cost vs. risk assessment.
