The Impact of the Coronavirus on Retail
Retail Dive, March 5, 2020
With the continued global spread of the Coronavirus, retailers' shift their main priority to the health and safety of both their workers and customers. As a result, many retailers have restricted company travel and encouraged employees to work from home in order to keep the virus from spending.
Although many aspects of business have been affected, retailers' supply chain is quite possibly seeing the most disruption. According to Berkeley Research Group, "the virus shut down factories and kept workers home in China, while also stalling travel, reducing both production and shipping of goods" causing China to hit their lowest point since the Great Recession. Sellers on Amazon's marketplace have also reported a struggle to bring goods in the country. Industries such as toys - with 80% of imports sourcing from China alone - and apparel could see significant supply chain disruptions on second quarter and beyond.
On the other hand, mass retailers, such as Walmart and Target, don't expect the virus to have a major impact on their year-end results. Given the fact that Target sources only 30% of its goods from China and Walmart only 15%, according to a report from Cowen & Co., there may not be as much supply chain disruption. Additionally, Target CFO Michael Fiddelke claims their size and flexibility of holding a multi-category portfolio has kept them from seeing anything (so far) that would cause their financial expectations for 2020 to deviate from their longer-term algorithm.
Although these retailers are not expecting any long-term, negative impacts, they are not totally free of the virus' effect. Supply chain disruption may become more apparent as in-store inventory begins to be depleted as consumers "stock up" in anticipation of the virus causing some "periodic delays," according to Brian Cornell, CEO of Target. To combat the delays he said the retailer is "making changes in our assortment and our promotional and presentation plans." Cornell confirms the retailer has seen "aggressive shopping across the county in [Target] stores" and notes consumers have been stocking up on "household essentials, disinfectants, food and beverage items, all those staple items that the CDC has recommended they add to their pantry."
With such uncertainty with the virus, consumers are becoming understandably hesitant about gathering in public spaces which is hurting traffic to physical retailers, especially malls, according to Coresight Research. In fact, 58% of U.S. respondents told Coresight they're planning to avoid public areas if the outbreak worsens. Of those respondents 74.6% plan to limit trips to shopping malls specifically and over half could steer clear of all retail stores. With that said, we can expect to see an increased amount of traffic to e-commerce sights with digital sales rising as shoppers continue to stay away from physical retailers.