The Coronavirus is causing substantial supply shortages from China and customer confidence problems which will soon affect Australian & New Zealand Retailers. Read our free article to receive a complete overview & key recommendations.
A MAJOR RISK FOR THE AUSTRALIAN & NEW ZEALAND RETAIL ECONOMY
The Coronavirus, that first appeared in a live animal market in the Chinese city of Wuhan, has (at the time of writing) infected nearly 80,000 people and led to over 2500 deaths, sending jitters throughout international markets as investors remain concerned about its untoward consequences.
This report explores the possible risks for Australian merchants and provides some important recommendations to best adapt to them.
While the challenges Coronavirus presents could be considerable, resilience is a core component of the Australian merchants DNA. Advertisers who exploit this and take a more proactive, agile approach will be best positioned to minimise the effect on their businesses.
Risk #1 — Stock Availability & Lost Sales
Many Australian retailers have just come from a slow Christmas trading period and are now faced with possible supply shortages for months to come. Without crucial supply to fill shops, and continuing fixed operational costs, the future slowdown in earnings may prove devasting for some.
With China being in the centre of the Coronavirus outbreak, there were widespread factory shutdowns following an already extended period for the Lunar New Year. What’s more, millions of Chinese workers have been in lockdown and not able to go to work as the government attempts to contain its own impact.
It’s predicted this could cause substantial production and transport delays of both raw materials and finished goods from China and consequently lead to stock availability and sales drying up for Australian merchants.
“Some [providers ] have stated from April they will only have the ability to achieve 50 percent of their normal production.” says Bill Huynh, Managing Director and Founder of Interior Secrets in an interview with Smart Company.
Huynh also points out that”There is going to be a whole lot of the workforce who won’t have the ability to return to work… they will need to recruit,” he states”There will be consequences logistically, and from an excellent aspect, since they will need time to train new staff.”
And it’s not only supply from Chinese manufacturing which could become postponed. The downturn in raw materials supply from China to producers in other areas of the globe could cause delays for finished goods produced by these states. The virus is very likely to have impacts on manufacturing productivity and supply chain speed in any state that it reaches.
“One of the ways the disruption from this virus plays out, international production chains essentially quit working,” states Michael Blythe, chief economist from Commonwealth Bank.
Therefore, whether directly importing or purchasing via national wholesalers sourcing from China or other affected countries, it’s hard to understand how these supply chain problems won’t have an effect on Australian retailers.
Australian Retailers Are Especially Exposed To Supply Risk
China is Australia’s biggest trading partner — providing everything from clothes, toys, shoes, homewares, and electronic equipment — so the effect for our retail market might be especially widespread, impacting most sectors.
The effects on the Australian retail supply chain are yet to be seen with most experts predicting it’ll be March when we truly begin to see key impacts become evident.
Analysts at stockbroker Morgans said that although most retailers could take care of a one or two-week delay, closures extending to a month or more may have deeper impacts.
As factory workers begin to go back to work, Chinese providers are already believed to be prioritising their biggest customers first, leaving smaller and mid-tier retail customers to wait.
Risk #2 — Consumer Demand & Sales
“We have seen a material decline in foot traffic at some of our key centres since late January 2020….particularly where There’s a high percentage of international visitors” Grant Kelley, CEO of Vicinity Centres
China is Australia’s largest inbound market with visitors spending $12.3 billion each year annually. Chinese tourists and international students spend more at Australian merchants than other nationalities, which means that the government’s continuing travel ban, announced on 1 February, will also damage retail industry.
To make things worse, there’s also evidence of an overall drop in footfall from Australian residents that are wary of the dangers of visiting densely populated shopping places while the virus remains at play and spending their earnings while the economic outlook is volatile. Economists have described the Australian dollar as the”whipping boy” for international coronavirus fears. ANZ Bank has warned it could lead the Australian market to endure a quarter of negative GDP growth and a sustained period of low consumer confidence.
Furthermore, Australian retailers that also rely on purchases from customers residing within China — if that’s from eCommerce or physical existence in the nation — are also likely to see a slump in demand.
So how can retailers lower their exposure to those supply and demand issues; and protect themselves from future recurrences?
It’s going to be hard for any Australian merchant to foresee precisely what, when and how the Coronavirus and the resulting situation in China will affect their particular business operations. Therefore, preparing a specific, rigid action plan upfront and hoping this will be all that’s required to react as the consequences play out is very likely to be futile.
An Unpredictable Situation Requires Agile Management Capabilities
Rather retailers need to be agile and responsive to the situation as it ends up ensuring that they:
- Intimately know and have latest data in their key business metrics and operations so that they can quickly calculate the profitability impact of challenges as they arise and the decisions they can take in response
- Have responsive management systems, technology and organisational structures to ensure accurate data and information that is critical to executing and making decisions is moved throughout the organisation in a timely and efficient manner
- Continuously monitor their internal operations and external market signs to increase the amount of time to formulate a response
- Collaborate as a staff and explore a wide range of Possible scenarios and answers so that some can be addressed using a pre-agreed activity plan if they plan out just as expected
Minimising Exposure to Supply Shortages
The ability to rapidly restructure your purchasing decisions based on which products can be found; and which will offer the maximum profitability and market through is crucial.
The merchants who will be best positioned to minimise risks to their stock supply over coming weeks and months are the ones which have comprehensive understanding and real time intelligence on their stock and earnings metrics across their product portfolio and sales channels.
With specific products delayed, the capability to rapidly restructure your purchasing decisions based on which goods can be found; and which will offer the maximum profitability and market through is crucial.
Many Chinese suppliers are re-prioritising customer shipments based on order volumes and purchase prices. Consequently, you want to understand for each product line and SKU in the event that you can or can’t afford to raise your bid to be in the front of the queue or, conversely, experience a massive delay with no neighborhood sell through for weeks.
It might also be necessary to review stock availability from other countries. Again, understanding which SKUs it’s most important to guarantee inventory coverage, can help to prioritise such sourcing reviews, and inform what purchase price range and landed cost is acceptable. Agile retailers who have been able to discover alternative, reliable sources for goods could even provide value-added services like special orders so clients can still supply the goods they desire, and a sale could be procured.
Retailers must also ensure they always manage their current inventory across channels as economically as possible. If scarcity of distribution becomes apparent, the capacity to understand what inventory is available across your system and (re)allocate it into the most profitable stores which have really moved some — or move / fulfil from 1 place to where a sale opportunity happens — is an integral capability.
Identifying your key SKU’s and lines which are under threat of distribution, is crucial for bettering your marketing direction and spend. Wasted marketing on inventory which will come under fire will overtake as the weeks go by. Retailers with an understanding of supply chain levels across all of their stock are then able to leverage their advertising across different regions of their stock and adapt their brand message to match. This can help minimise wastage of advertising spend, minimise poor customer experience and expectations around depleted stock lines, and increase sales return and customer satisfaction on accessible identified stock.
Additionally, this is a useful time to expose different areas of your company to clients who previously have not engaged with a specific stock line, and offer alternative solutions to their requirements. By identifying clients who have previously bought particular items based on characteristics like size, color, brand, gender, age group, birthday month, favourite sporting teams or preferred accessories, you can urge relevant product lines you’ve got a definitive source of, or handle the current source as it dwindles.
So as to take an agile approach to stock management based on the exact situation that presents itself, retailers need to have accurate, shared, real time and on-demand data and dashboards on a wide range of key metrics such as:
- Sell through rates
- Stock turns
- Weeks of Stock Cover (by different time intervals including 4,6,8 and 12 months )
- Daily Run Rates
- Days on Hand
- Gross Margin
- Gross Margin Return on Inventory (GMROI)
These metrics will need to be instantly available at a high level of detail down to individual SKU level and stores/channels.
Streamlined and automated business processes that then leverage this information and permit purchasing, inventory and other operational decisions to be implemented rapidly will be basic to staying agile and responsive.
Minimising Exposure to Consumer Demand Shortfall
When there’s a possible downfall in customer demand, a focus on customer experience becomes crucial to keep your share of each cent of spend that’s still being made. The last thing you need is for regular, loyal store traffic to leave you at this point in time.
Agile Inventory management can be an integral base in maintaining continuity of your customer experience by ensuring that the goods and specific brands, sizes, colors or other variants are available to clients in the ideal stores. If the simple proposition of providing stock availability of the products customers want is not held up, other emotive elements of the shop experience will probably not rescue the sale.
Now more than ever, Australian merchants will also have to make sure they change from a dependence on one-off customer transactions and implement programs that boost repeat purchases and long-term devotion. With most retailers already sitting on a significant database of consumers, they will need to think creatively for ways to encourage them to make additional purchases. Personalised email campaigns, loyalty program offerings and promotional incentives based on detailed profiles of consumers and their buying history will be lower cost and yield a higher success rate — particularly given if purchases can be made online in a time when some customers wish to avoid densely populated shopping precincts.
For every store visit that’s made, retailers will need to make sure they capture the essential details to execute these client development programs on a continuous basis. Getting a return on the purchase costs of new clients by maximising lifetime value will become crucial.
Handling the’state of mind’ of your team is a vital factor going forward through 2020. Making certain your staff understand the strategies and willingness to handle the challenges the Coronavirus represents provides a confidence across the whole retail company and ensures that a positive mindset and support expertise is introduced to store visitors.
One-to-One Supply Chain Strategy Session
Working with over 5000 retailers across Australia & New Zealand, we are in a special position at Retail Express to watch and help implement a number of the most recent best practices in omni-channel management.
Over the past couple of weeks we’ve had conversations with a number of these retailers on the best approach to take care of the consequences of the Coronavirus. Innovative solutions have emerged from these discussions, providing confidence that there are ways to offset some of the critical challenges.
In this unpredictable time in retail, we would welcome talks with any business professional to explore the consequences and share possible strategies for your company. Simply reach out to us and we can arrange a time that suits you.