Coping with the crisis today and its implications tomorrow

While the Easter holiday is a vital trading period for retailers, comparisons between this year’s sales and previous years have been rendered futile by the coronavirus pandemic. But while the short-term effects of the crisis on the retail and wholesale industry are highly visible, it’s also important to begin grappling with potentially more enduring impacts.

One possibility is a shift in consumer attitudes. New Retail Economics research suggests 47% of shoppers are now striving to be “less wasteful” in their buying habits, while 35% are “less focused on material possessions”. Buying behaviours are also changing: 38% of shoppers told Retail Economics they were doing more shopping online in order to avoid physical locations (up from 16% in a similar survey last month); a third said they were now purchasing products online they had previously bought exclusively in-store.

Not all retailers yet have e-commerce operations that are capable of meeting this demand. A third of consumers say they have experienced technical problems when buying online, preventing them purchasing the goods they wanted. In this regard, improving website functionality and e-commerce capabilities will now be crucial for many retailers, particularly if shoppers do not return to buying more goods in-store.

There will inevitably be trade-offs as the industry seeks to cope with the here and now, and to keep an eye on the bigger picture. In food and drink retail and wholesale, some large supermarkets are incurring substantial costs to meet the surge in demand, but these will provide support in the longer run, with consumers set to remember how high-profile brands acted during the crisis.

Managing demand in food and drink is an especially tricky balancing act. Some categories have been temporarily delisted to create more space for essential goods, but it will be important to restore supplies – and to manage the disruption of trade cycles and cash flows for suppliers, particularly those operating tight just-in-time delivery models.

Shifting demand in fashion

In fashion, online brands are experiencing increased demand amid high-street closures, but also shifts in consumer appetites – for example, with shoppers not going out, there is less demand for evening dress and more for loungewear. Meeting this demand highlights the value of locally manufactured products, strong supply chain links and genuine sustainability credentials, all of which now offer competitive advantage.

Fashion manufacturers, meanwhile, are highly exposed, as they do not typically invoice until goods have been shipped. Some retailers are simply cancelling orders in areas where they now have excess stock.

Looking ahead, the fashion industry now needs to think about how to mitigate the effects of missing out on the peak sales period of spring moving into summer. Demand may be lower and/or stock may be stuck in transit or storage. The temptation to sell excess stock at a discount when activity once again picks up will need to be tempered by the potential for the contagion of deep discounting.

Planning now for how to sell stock via a range of channels on an ongoing basis is therefore vital. Santander’s Retailer Offers programme for brands could be a vital source of support here.

Similarly, in homewares, supply chain resilience will be a crucial focus going forwards. Recent weeks have seen a spike in demand for domestic goods, from fridges to televisions, as consumers have faced the prospect of more time at home. But supply chains optimised for efficiency and profit are struggling to cope, with the pandemic exposing what some might consider to be an over-reliance on suppliers based in countries with low-cost manufacturing.

In future, diversifying the supplier base will often make sense, mitigating disruption in any one geography or sub-sector. This will mean building in more redundancy and potentially moving away from the practice of holding near-zero inventory. And it’s not just direct suppliers for which we must test resilience, but also second- and third-tier suppliers.

The same ideas apply across e-commerce. With the UK in lockdown, there is a huge opportunity for online sales, but this is placing huge pressure on supply chains, distribution and the health and well-being of staff. Again, the immediate ramifications of the coronavirus crisis may prompt a longer-term shift in supply chain practices, as e-commerce businesses seek to de-risk supply chain concentration.

The trends in China’s markets are interesting in this regard. There, consumers’ adoption of ‘revenge shopping’ – spending cash hoarded during the lockdown period – has prompted marketplace retailers to pledge not to raise prices. Others have gone further, with electronics stores, coffee chains and even local authorities cutting prices and handing out discount couples to encourage spending and to kickstart the economy. The top two largest marketplaces alone are giving out vouchers worth a combined $222m.

• To discuss how Santander can help your business during the coronavirus pandemic, please contact: issinsights@santander.co.uk