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The Coronavirus and its predictable future for Retail

The Coronavirus and its predictable future for Retail

This week, I was invited by Rethink Retail to speak about the actions retailers should be taking in response to the growing global concerns with the coronavirus.

In this article, I will summarize some of the information shared in the podcast plus additional post analysis insights with focus on major economies and retail.

The new coronavirus, officially renamed COVID-19 by the World Health Organization (WHO), is thought to have jumped to a human from a yet-to-be-identified animal host.

“Based on current estimates, scientists say the new virus has a reproductive value of between 2.24 to 3.58, meaning an infected person could pass on the pathogen to between two and four people. In order to contain the outbreak, that value has to be reduced to below 1.”

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The Global Impact of Coronavirus

A new study indicated that the coronavirus could impact over 5 million businesses worldwide. Dun & Bradstreet research found that “51,000 companies worldwide, 163 of which are in the Fortune 1000, have one or more direct or ‘Tier 1’ suppliers in the (primary China) impacted region.”

Moody’s just lowered its global growth forecasts by two-tenths of a percentage point, expecting the G-20 economies to collectively grow at an annual rate of 2.4% in 2020, with China slipping to 5.2% (from 6%). The Chinese economy currently represents 20% of global GDP (Gross Domestic Product).

The following top five major sectors account for more than 80% of businesses within the impacted China provinces: services, wholesale trade, manufacturing, financial services, and retail. Forty-nine percent of the companies with subsidiaries in the impacted regions are headquartered in Hong Kong, 19% in USA, 12% in Japan, and 5% in Germany.

Eighty-seven percent of USA companies with operations in China expect the outbreak to negatively impact revenue. Of that number, 24% expect declines of 16% or more.

An astounding 50 million are quarantined in China plus travel and visa restrictions to more than 70 countries are in place. As of February 24, the top 5 countries most impacted in terms of human toll are in Asia plus Italy. Note that these 5 countries represent over 99% of the total infections and deaths.

 

As the crisis continues, Asia will suffer the most as their countries are the top 20 destinations for outbound Chinese tourists. Estimates are that visitors will drop 30%-40% in the region, with Japan being especially challenged.

The Retail Coronavirus Impact

In the past two weeks, the coronavirus was mentioned 160 times on 19 different retailer earnings calls. China is already a $5.5 trillion retail market and prior to this crisis, was expected to surpass the United States in 2020 in total size.

The full arrival of the coronavirus coincided with the new Lunar New Year, one of the most important retail shopping periods in Asia. As stores reopen slowly, the biggest negative impact is expected in luxury and apparel.

In 2019, Chinese buyers represented 40% of total global spend on luxury goods and contributed 80% to the sector’s sales growth. For apparel, Chinese consumers account for 38% of the global fashion industry. “In comparison, in 2003, during the SARS epidemic, the Chinese consumer accounted for only 8% of the (apparel) market.”

For retailers such as Nike, China is a major growth area. In 2019, Nike generated $6.2 billion in revenue in the region, up from $2.6 billion in 2014. Nike also manufactures about 23% of their shoes and 27% of its apparel in China.

 

Apple also flagged challenges with their revenues in the current quarter because of the coronavirus. One analyst projected a potential $10 billion shortfall to the $65.3 billion that Wall Street had previously projected.

Adding to the retail risk is China’s manufacturing prowess as a global supply chain. NRF projects that major USA ports could see a 13% drop in containerized retail imports in February followed by a 9.5% drop in March. Container lines have lost upwards of $350 million and over 350,000 boxes have been removed from global trade lines since the outbreak started last month.

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Technology and Epidemic Control

Being focused on emerging technologies, of interest have been the utilization of new technologies during this crisis. China has 1.6 billion smartphones in use (with some users having more than one). Big data mobile analytics are being used to track the flow of people from impacted to non-impacted areas.

Alibaba has launched an artificial intelligence (AI) system that identifies through thermal imaging individuals with a fever or without masks. The solution was first deployed in Hema, Alibaba’s grocery food chain.

“From disinfection and street patrols to food and medicine delivery in quarantine wards, (AI) robots have been deployed to the front line to contain the spread of the novel coronavirus pneumonia.”

Laser positioning, intelligent navigation, and human computer interaction are some of the features programmed into the new robots.

Crisis History Lessons on the Road to Recovery

Focusing on retail, Bain & Company recently analyzed impact of the SARS epidemic in China in 2003; the earthquake, tsunami and Fukushima nuclear disaster in Japan in 2011; and the MERS epidemic in South Korea in 2015. “In all three cases, there were three phases: shock, recovery and stabilization. But the timing and trajectory of each phase differed.”

 

The end of the Coronavirus is uncertain, but above history lessons point to eventual retail recovery and stabilization. Short term, I agree with Bain, “trust will be vital now and for the foreseeable future.” While in the crisis, retailers need to continuously plan, over communicate, focus on empathy, and act quickly.

Also insightful from Bain, “by stimulating demand for online shopping, the outbreak has highlighted the broader need for traditional retailers to keep moving away from a reliance on brick-and-mortar stores to an omnichannel model.” In a digitally advanced market such as China, the coronavirus crisis will further accelerate the digital transformation of retail.

Successful digital transformation is a matter of know how and access to the best talent. We connect you to both.Click for more.

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