As COVID-19 spreads globally, health and safety of workers and customers has become top priority for fashion retailers. Brands like Levi's and many others are not only closing their stores in China but also restricting employees from travelling into and out of the country. Supply chains are being disrupted as factories within China are shut. The epidemic has also hit Amazon employees as the retailer operates in the Seattle area where a few US cases are clustered.
Global supply chain to be disrupted
Though concerns around the virus' impact on supply chains were brewing for the last few weeks, these have now mounted as sellers on Amazon's marketplace are struggling to bring goods into the country. The outbreak has also rendered almost 9 per cent of Chinese container shipping fleets inactive. It has hit manufacturing indices in the country to their lowest point since the Great Recession. As a result, manufactures have shut operations stayed since the Lunar New Year break.
The outbreak has also slowed travel across China affecting apparel supply chains in the country. Moody's analysts predict that if this outbreak intensifies further, it may materially disrupt the global apparel supply chain, hurting companies reliant on China for sourcing.
Walmart, Target feel the heat
Mass merchants like Walmart and Target, face multiple and countervailing effects from the outbreak. Not only could it disrupt their supply chains and decrease casual shopping amongst their consumers, it could also lead to a shortage of groceries and disease-fighting essentials that consumers are stockpiling.
Walmart is revamping its assortment and promotional and presentation plans. The retailer issued a memo to employees in late February stating the best practices for avoiding the spread of infection.
Luxury players’ plans slowdown
Luxury brands and retailers are also scaling back their expansion plans. Luxury stores are being shut and designers are cancelling their participation in fashion weeks. Recently, a number of designers dropped out of Paris Fashion Week, including Chinese brands Shiatzy Chen, Calvin Luo, Masha Ma, Maison Mai and Uma Wang. Additionally, LVMH Moët Hennessy Louis Vuitton canceled a reception for its 2020 LVMH Prize for Young Fashion Designers. Luxury brands like Burberry, Tapestry, Capri and LVMH closed their stores In China. They are requesting their stylists and personal shoppers to stay in contact with their customers and send them notes, reminders and private offers.
Decline in footfall at malls and shopping centers
A recent Coresight research reveals around a quarter of respondents are avoiding public areas and another 58 per cent plan to if the outbreak worsens. More than 40 per cent are avoiding or limiting visits to shopping centers/malls and more than 30 per cent are avoiding stores in general.
GlobalData forecasts, APAC duty-free sales are likely to decline by 19.1 per cent this year to $35.2 billion, due to the COVID-19 crisis. Sporting events and concerts are also likely to sell lesser merchandise. As shoppers stay away from physical retail, digital sales will increase. Delivery volumes are likely to increase by over 30 per cent as people will prefer working from home to avoid crowds.
According to IHL Group founder and President Greg Buzek, the crisis will spur investments into omnichannel technologies. There are likely to be significant increases in remote tools, moves to decentralize the supply chain and AI/machine learning, Forecasting technologies, and Analytics.
Luxury players will be the biggest losers as they haven't fully embraced e-commerce. They may reconsider their decision now.