Retailers Bracing for Impact Amid Coronavirus Disruption
Public markets continue to be heavily affected as concerns regarding global growth have escalated due to the coronavirus, or COVID-19. All over the world, people have been advised to work from home and limit social interaction to help contain the spread and scope of the virus.
Retailers have specifically been put on high alert as the number of countries and cases affected by COVID-19 increases. Due to the reliance on global supplier relationships in Asia, the retail industry has experienced a compromised start to 2020. However, 2019 had its own unique challenges. The ongoing trade war between the United States and China created tensions between the two economies. Recently, negotiations have taken a positive turn, but the lingering effect of tariffs and a lack of consumer confidence may have set the stage for a more devastating impact from the COVID-19 outbreak.
At the epicenter of the disruption is China, the second-largest economy in the world and a major hub for retail businesses large and small. The most recent statistics from 2018 reveal that China was the largest exporter of textiles and clothing, coming in respectively at $118.5 billion and $157.8 billion.
As widespread geographic quarantines become mandatory and factories close for the interim, businesses are feeling a significant impact to supply chains, consumer demand and revenue. Outbreaks in other major regions, such as South Korea, Japan, Iran, and Italy, have also triggered measures to prevent further spread, resulting in increased production delays.
According to the Center for Disease Control and Prevention, COVID-19 was identified during an investigation into an outbreak in Wuhan, China at the end of December. As of March 4, according to the World Health Organization, over 90,000 cases have been reported in more than 80 countries. Veem, the global payment network, in a recent SMB Sentiment Survey, revealed that businesses around the world are bracing for or have experienced impact stemming from the virus. Nearly a quarter (24 percent) have communicated that the virus has already had a moderate to significant impact on their business.
Businesses are dusting off their contingency plans, with 52 percent reporting that they have taken measures — e.g., increased prices, changed suppliers, decreased operational costs, protected cash flow — to prepare for an economic slowdown.
Furthermore, 35 percent of businesses surveyed reported that they anticipate COVID-19 to impact revenue, while another 36 percent expect a moderate to significant impact to their supply chains.
Retailers can often be disproportionately affected by major global events. In 2002, the SARS outbreak had a similar effect on Chinese and global markets, and consequently the productivity and growth of smaller sellers. According to Refinitiv, growth in retail sales moderated to 4.3 percent in May 2003, the slowest pace on record.
As just one example, Under Armour forecasted revenue declines of $50 million to $60 million and issued updates to its first-quarter projections. The economic cost of COVID-19 on retail businesses will be substantial, but it might be several months before it’s truly felt.
These reports and data from the Veem SMB Sentiment Survey lend significant and important insight into what this means for retailers. Based on recent trends, patterns and research, businesses are likely to experience a short-term slowdown while they regain control over their supply chains. Financing and working capital are smart, strategic options that businesses, including retailers, can leverage to weather COVID-19. Retailers will need to find opportunities to mitigate risk, protect cash flow, and potentially find new interim suppliers as the long-term effects of COVID-19 unfold.
Frederick Crosby is Chief Revenue Officer at Veem, a next-generation global payment network which enables businesses to quickly and securely send and receive payments around the world.