Disruption in retail supply chain reveals need for contingency planning, says global consultancy

As the spread of the coronavirus (COVID-19) continues to impact the global economic landscape, Berkeley Research Group’s (BRG) Retail & Consumer practice has released a report that outlines the market forces and contingency planning considerations retailers should undertake to prepare for supply chain disruption, travel restrictions, shifting consumer habits and related hurdles.

The coronavirus impacted retail shopping initially in China, with the first known cases emerging from the global economic center, but its quick spread has left retailer operations in dozens of countries bearing the brunt of the situation, the report states. While the direct impacts may be obvious, additional considerations should be addressed. Reduced inventory for a sustained period, delayed product launches, shortages on seasonal goods and further shifts to online purchasing are all likely to affect retailers and their financial stability.

“For retailers, the coronavirus is a stark reminder that global supply chains can be disrupted quickly and with dramatic effect,” said managing director Keith Jelinek, co-leader of BRG’s Retail & Consumer practice. “While the primary concern is the public’s health, the long-term implications are significant for retailers of all sizes. As factory closures and travel restrictions continue, retailers that have worked aggressively over the last few years to lean out inventory levels will experience shortages, while current season shipments and future season purchasing delays could disrupt revenue forecasts.”

The BRG paper notes that, as reported in The New York Times, Chinese consumers accounted for 40% of total spending on luxury goods and 80% of the luxury consumer goods sales growth in 2019. With 780 million Chinese citizens under a travel ban of one type or another, reductions in both the manufacturing and purchase of goods in China alone has significant consequences.

As the virus spreads around the world, travel restrictions to and from major retail destinations will continue, and supply chains will be left unable to operate. Further exacerbating the impact of travel restrictions is tourism—from cruise ships being denied entry to ports and airlines culling transatlantic operations to extreme anxiety about Wall Street volatility, fewer consumers will be willing and able to spend money.

With those considerations in mind, BRG’s report lays out its recommendations for what retailers can do to protect their business models. Retailers need to immediately assess the challenges through a deliberate set of analyses. These steps include: assess risk, develop a tactical approach to monitor the situation, assess sales and inventory, react to short-term challenges and opportunities and think strategically about the future, leveraging the rebound for growth.

“The strategic necessity for companies to develop scenario plans with short-, mid- and long-term actions is of critical importance,” says managing director Rick Maicki, co-leader of BRG’s Retail & Consumer practice. “While no one is sure when supply chain operations will return to normal, one thing is for sure: panic is never a good strategy.”