How COVID-19 is fostering new wave of retail

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RHL - Covid 19 and retail

As the coronavirus spreads across the world, the worsening situation has triggered many countries to accelerate its containment measures from enacting curfews, closure of public areas, to locking its national borders.

Fresh from reeling in the slowdown from the disruption from e-commerce players, brick-and-mortar stores have once again taken a massive hit from stores closure and consumers not wanting to step out of their homes, causing global retailers to sustain massive cash flow pressures from zero sales and high overheads from salaries and rents.

Based on data from America’s National Retail Federation (NRF), the US retail sales account form US$2.6 trillion of its annual GDP and employs 29 million people in the country alone.

In the last two weeks, over 10 million of unemployment insurance claims have been made, with a bulk of the claims being accounted to major US retailers. Macy’s, Kohl’s and JC Penny have announced furloughing nearly 80,000 employees each with fast fashion retailer Gap looking to furlough 80,000 of its 129,000 employees.

It is noted that the domino effect from the store closures and decline of US retailers have not only significantly impacted retail workers, but also clothing manufacturers, textiles, leather and fabric producers. The virus has caused chaos for millions of garment workers, especially in Bangladesh, Cambodia, Myanmar and Vietnam, where these clothes are produced.

Facing greater drawback of orders being suspended or holdback from distributors and retailers from the US and Europe, and a disruption of raw material supplies from China (where 90 per cent of raw materials in Myanmar are sourced from), we have seen the first sign of massive job losses of garment workers that are earning wages barely able to cover their basic needs, leading to a series of social issues and at the same time, sparking the possibility of a national crisis.

Also Read: Ex-Oway Director’s e-commerce app Ezay makes life easy for rural woman retailers in Myanmar

Bangladesh and Cambodia garments account for 80 per cent of export and 16 per cent of GDP while Vietnam anticipates 30-50 per cent of its 2.8 million workers employed in the garment and textile industries to be laid off in the coming months.

Perhaps the worst hit is the luxury segment, by shutting the doors of 40 per cent of its stores globally, it is revealed that Burberry Group’s sales have fallen by 50 per cent.

Nonetheless, the luxury segment has taken the lead in the adoption of technology. Shanghai and Milan Fashion Week livestreamed on Tmall and Tencent respectively this year, pivoting to livestreaming opportunistically as a way to reach a larger and savvier younger audience.

These brands have also stepped effort in their digital integration strategies as they integrate into WeChat’s Mini Program to showcase runway looks and enable orders from Customers.

The bright spot emerging from COVID-19 is the adoption of technology and the use of e-commerce platforms. Amazon announced that they are opening job positions for 100,000 employees in the warehouse and logistics department, Alibaba assisted over 300,000 merchants to host daily livestreaming sessions on Taobao Live and JD.com has seen a 400 per cent rise for sales of fresh produces.

The impact of the COVID-19 pandemic on overall economic growth will depend on the duration and effectiveness of coordinated fiscal measures taken by governments around the world. The coronavirus-necessitated economy slowdown is predicted to position global economies into a technical recession, driven by general uncertainties regarding individuals’ physical wellbeing and consumers’ negative perceptions about growth.

Also Read: How are small brick-and-mortar retailers in Malaysia coping with the e-commerce revolution

To weather the storm, it is paramount for retailers to reconsider their business models and adopt a different approach when it comes to consumer engagement.

Whilst digitisation initiatives are essential to transform traditional retailers, it is worthwhile to rethink diversification of supply chain. Perhaps we should be thinking local before global?

For more insights by RHL Ventures on COVID-19’s impact on the retail industry and various other sectors, please visit this link.

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