Retailers go into business triage mode as coronavirus enters the U.S.

Discussion
Photo: Getty Images/FamVeld
Mar 02, 2020
Tom Ryan

The fallout from the coronavirus outbreak has so far been minimal for American retailers, but some near-term and potentially much worse long-term disruption is expected as the disease spreads to the U.S.

The potential impact on U.S. retail includes:

  • Shortages: Incidents of out-of-stocks of many medical supplies, particularly hand sanitizers, face masks and antibacterial wipes, have been reported in recent days. Consumers have also been seen stocking up on bottled water, toilet paper, dry goods and medications.
  • Supply chain disruptions: Strict quarantine measures forced the closure of thousands of Chinese factories, with many slowly re-opening. Many industries also rely heavily on factories in China for parts and materials, and that could affect sourcing from other regions. Retailers and manufacturers face potential delays and increased air freight as China is expected to take months to return to full capacity. The spread outside of China presents a further risk to American supply chains. Wells Fargo in a Feb. 11 note warned that further delays in the restart of production could begin to result in out-of-stocks at U.S. shelves as early as mid-April.
  • Fear of public places: In a survey of U.S. consumers taken on Feb. 25 and 26 from Coresight Research three-quarters say they will avoid shopping centers or malls if the outbreak worsens. About 47 percent are already avoiding or limiting mall visits.
  • Tourism revenues: A number of luxury companies downwardly adjusted their 2020 outlooks because Chinese tourism has ground to a standstill. The spread of the outbreak to other regions, as well as flight restrictions, blocked borders and general unease around travel, promises to depress all tourist-related traffic.
  • Work-travel restrictions: Travel-related work will face challenges as the uncertainty continues. Amazon.com restricted employee travel to China in February and late last week asked all global employees to stop all nonessential travel, both domestic and internationally. 
  • Scams: Amazon barred more than one million products from sale in recent weeks that inaccurately claimed to cure or defend against the coronavirus. The site also removed tens of thousands of excessively-priced sanitizing gels and hygiene masks.
  • Macro slowdown: The stock market last week had its worst week since 2008, signaling that one of the longest expansions in history could be ending.

DISCUSSION QUESTIONS: What do you see as the biggest challenges facing retailers in relation to the coronavirus outbreak? What actions do you recommend retailers and suppliers take now to minimize the impact for their customers and their businesses?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Quite simply, fear is the greatest challenge. "
"Panic buying of groceries because of the coronavirus reminds me of how shoppers react when facing a major snow storm."
"Supply chain disruptions and changes to customer spending habits will have the biggest impact on retailers."

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24 Comments on "Retailers go into business triage mode as coronavirus enters the U.S."


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Neil Saunders
BrainTrust

We recently surveyed U.S. retailers about this and the biggest immediate concern for most was a disruption to the supply of products. The second biggest concern was a downturn in trade if consumers stay away from malls and other shopping places. This was closely followed by keeping employees safe and managing rostering during a time of mass sickness. Most retailers are pragmatic at the moment, but the levels of concern are rising with each passing day.

Paula Rosenblum
BrainTrust

Would you go to a mall knowing what you know now?

I wouldn’t.

I think the potential for disruption has been significantly understated. You cannot find hand sanitizer anywhere. No face masks. Empty shelves reported in Costco and others.

Until this thing peaks, we can expect real disruption. I’m not playing Chicken Little here, but the economic impact has only just begun.

Cathy Hotka
BrainTrust

People know they can’t believe anything they hear from political leaders, so may well assume the worst.

Georganne Bender
BrainTrust

Breaking news in Chicago this morning: a person infected with coronavirus is being treated in a hospital in a town next to the area’s largest and most popular shopping mall. I didn’t think too much about going there last week, but you’re right Paula, I will now.

Neil Saunders
BrainTrust

This might not help where you are, Paula – but the one place I saw loads of hand sanitizer and wash over this weekend was Bath & Body Works. They even had a sign that said “spread love, not germs” and a multibuy deal on! Other retailers I checked were either out of stock or very low on stock.

Michael Terpkosh
BrainTrust

Retailers need to have action plans in place now to address the biggest business challenge: People reacting to an outbreak. People meaning customers that quit coming out to shop, except for necessities. People meaning employees that are afraid to come to work and interact with others. People meaning those responsible for the U.S. supply-chain that just stay home. Retailers that are ready to address people concerns with positive actions plans will be the retailers rewarded by shoppers and employees alike when the crisis ends.

Art Suriano
BrainTrust
This situation is a tough one. We have the media and politicians doing their best to hype up the coronavirus as much as possible. That is causing panic. Each year thousands of Americans die from the flu. Over the holidays, I knew an elderly woman who got the flu, it turned into pneumonia, she was hospitalized and, unfortunately, because of her weak immune system she died. Sure, we should be concerned about getting the coronavirus as we should be concerned about getting any illness. But because of the media hype and politicians, each day making their unnecessary speeches, the fear level is causing panic, and that is not helping. What can retailers do? As we all should, get the facts and share the facts and stop the hype. When you tune in to some news program, and there’s another “expert” giving the voice of doom about the coronavirus, turn it off. When the politician is making an unwanted speech, walk away and tune it out. Retailers should band together and put pressure on the media… Read more »
Mark Ryski
BrainTrust

Retailers will be subjected to many if not all of the issues described in the article and retailers who are highly reliant on China for supply will be especially hard hit. While the tariffs have hardened some retailers, impact from coronavirus will exacerbate already challenging supply chain issues. It’s hard to provide any advice when there is so little reliable information on the situation. So for now, there’s not much retailers can do but hold on. Retailers should be monitoring their store traffic carefully, watching for signs of trend changes.

David Naumann
BrainTrust
David Naumann
Vice President, Retail Marketing, enVista
3 months 3 days ago

Product shortages from China and other countries is an obvious problem for many retailers sourcing products from key international countries most impacted by the coronavirus. Consumers’ fear of contact with others will drive an increase in online shopping to avoid stores and malls. Demand for groceries will be robust as consumers shift their spending from restaurants to grocers. Grocers that offer home delivery and/or curbside pick-up will be in the best position as consumers will avoid going into stores. Let’s hope for the best, as the potential impact of a significant outbreak of the coronavirus in the U.S. would be devastating to our country and retail.

Ralph Jacobson
BrainTrust

If you just look at current statistics, the coronavirus has nowhere near the human impact that the common flu virus does. However with news evolving every day and fear of the unknown driving human actions, of course retailers must prioritize their staff safety above all else. However the real effect will be driven by supply chain disruptions. Just stay close to daily developments and act responsibly. Better safe than sorry.

Dave Bruno
BrainTrust

This is very likely a short-term problem, especially for food/drug/health retailers, for whom managing supply chains will be the most daunting challenge to be sure. Already, people are panic-buying and cleaning out the shelves of their local stores. The lines at my local Costco warehouse yesterday were worse than they were on Christmas Eve, with the vast majority of carts laden with bottled water and canned goods. Once local inventories are depleted, there will definitely be shortages while global supply chains are impacted by the coronavirus. My sense is that the panic will be relatively short-lived, however, if people begin to believe this outbreak is not much worse than a bad flu season (assuming that ends up being the case, as many predict). I suspect that specialty retail will bounce back quickly once the panic subsides.

Brandon Rael
BrainTrust

Anxieties are running high, and consumers are faced with relentless coverage of the coronavirus outbreak. The most immediate impacts are already being felt with the shortages of medical supplies, masks, and hand sanitizers. With such a dependency on the Chinese manufacturing and supply chain efficiencies, product shortages and speed to market are some of the more immediate areas that will be impacted over the next few weeks. Retailers have a short term challenge to come up with a supply chain mitigation plan.

We should expect people to change their travel/vacation plans, trips to public places, and ensure that they have the essentials for their families. The silver lining of this is that while the mall traffic and traffic to large shopping areas decreases, there will be plenty of opportunities for the local Main Street stores to rise up to the challenge.

Andrew Blatherwick
BrainTrust

I would hope that most retailers and manufacturers already have a supply chain disaster plan in place as the threat of a breakdown in world supply chain is not new, whether that be from terrorism or, as in this case, health scares.

What this may result in is better supply chain risk planning looking at dual sourcing of long distance, cheaper supply vs. near source, more expensive but faster supply. It could also be a shot in the arm for the local manufacture of items lost to the Far East. Clothing especially has seen a lift for local suppliers in Europe.

Once China gets up and running again, they will still be the source of cheap materials, either finished goods or parts, but this does open an opportunity for more local suppliers to compete on supply chains in terms of both security and certainty in their local markets.

Zel Bianco
BrainTrust
For right or wrong, this will have a very negative impact on retail if this continues to spread. I was about to go out to Expo West this week which is the largest naturals/organic show in the world and the one time per year that emerging brands can meet retailers and pitch their products. Now it seems most retailers have decided not to attend, crushing the hopes and dreams for many smaller brands until next year. Some have suggested that trade shows should now be done virtually. Most retailers have pushed back saying that they would never accept a new product for their organizations unless they meet with the people behind the product and see, feel and sometimes taste it. So unfortunately, it looks like Expo West may be a bust for many, including small brands, big brands, retailers, attendees and the organizers of Expo West. I hope most people took out insurance on their trip. I know I did! As for retail in general, I think most consumers will shop for the necessary items… Read more »
Bob Phibbs
BrainTrust

Quite simply, fear is the greatest challenge. It doesn’t help to cry doom and gloom and draw comparisons with major sicknesses in the past. Yes be vigilant, but fear is what needs to be monitored at least as much as actual cases.

Mohamed Amer
BrainTrust

Strategically, supply chain shocks will play equally across most retailers as will drops in footfall traffic for mall based retailers. Some variations do exist, but at the core all will be disrupted. Any erosion in consumer confidence will further exacerbate any drop in demand. A clear opportunity is for online sales with to-the-home deliveries. While off-mall retailers will also experience negative store traffic impact, these will not be as drastic as those at malls.

Looking ahead, this could turn out to be the catalyst to drive a significant leg up in online retail sales as a proportion of overall sales. Retailers will look to reassess their sourcing risks and product flow strategies as well as accelerate the shift of investments from a primarily physical presence to online and synergistic hybrid models.

Paco Underhill
BrainTrust

The Mall at Short Hills was empty. More associates than customers in the Apple store. Costco in New Jersey was packed — water, toilet paper, and paper towels flying out the door. There are still more people with the plain flu – which has a higher mortality rate. My cynical self says this is an event for day traders. Yet there I was at Costco with the crowds on Sunday…

Mike Osorio
BrainTrust
I see three major pillars of the current and coming disruptions: 1. Significantly reduced travel due to both governmental restrictions and corporate business continuity and potential pandemic plans which call for reduced or eliminated non-essential travel. Besides well reported flight cancellations, we are already seeing cancelled conferences and incentive trips and mass attendee cancellations. Travelers are among the highest spenders so this has a significant impact on retail and on all associated travel support businesses. Resort destinations and major conference hubs may feel this most acutely. 2. Supply chain impacts, as well articulated by my colleagues. First with core related products like hand sanitizers and masks, then with component parts and ingredients for everything including medicines. 3. Basic fear. Natural overreaction to the news has people stocking up and hoarding, which will exacerbate the product shortages, and fear of the possibility of contagion has people avoiding enclosed areas such as shopping centers. I am hopeful that the spread will peak then slow relatively quickly now that worldwide governments and businesses have woken up to the… Read more »
Liz Adamson
BrainTrust

Supply chain disruptions and changes to customer spending habits will have the biggest impact on retailers. I made the mistake of going to my local Costco on Saturday; I’ve never seen so much bottled water packed into so many shopping carts. It only took about 2 hours for them to stock out.

Emergency supplies are in high demand and short supply, customers are avoiding malls and shopping online, Amazon is working quickly at preventing price gouging and fake products. Apple is warning of shortages in their iPhone with parts sourced from China. How do we minimize the impact? Convince the media and political leaders to stop spreading panic, unfortunately much easier said than done.

Craig Sundstrom
Guest

The concerns are very much dependent on the industry one is in: restaurants, theaters, sports teams … obviously “fear of contact, people not going out.” Online sellers, supply chain disruptions, and store retailers of course could be impacted by both, depending on where their goods come from. Those are the minima. In the (presumably still unlikely) event of a more widespread outbreak, there could be staffing issues at any company where people have to come to work.

But as was true when the question was asked a few weeks ago, I don’t really see this as a “retail issue.” Other than maintaining basic hygiene standards, there isn’t much someone can — or should attempt to — do.

John Karolefski
BrainTrust

Panic buying of groceries because of the coronavirus reminds me of how shoppers react when facing a major snow storm. Grocers could reassure shoppers about available supplies and discourage panic buying.

Carlos Arambula
BrainTrust
It’s a compounded list of challenges affecting every aspect of the retail industry. There is no reference point from which to proceed, so how do you account for an uncharacteristic 47% drop in traffic to the stores? I do think the aforementioned issue is a symptom of the larger problem, and that is the lack of trust in government — and the current administration’s rambling and incoherent public statements just add to the public’s fear. Aside from lowering expectations on sales for the season — which is a moving target, they need to reassure their consumers and employees that it is safe to shop in their stores and a safe place to work. I’m not certain how that is done, or even if it can be done. But there are basic things they can do: recognize the situation and communicate with employees and consumers, enact policies like no hand shaking (and promote it, consumers will understand), tissue boxes by all registers, hand sanitizers, basic hygiene tips, and POP addressing the health threat and demonstrating awareness.… Read more »
Liz Crawford
BrainTrust

Sadly, I believe that hysteria, rather than the flu itself, is threatening to cripple businesses. According to University of Chicago Medicine, “…only about 20% of people who contract this novel coronavirus actually wind up needing to be hospitalized. The other 80% get what feels like a really bad cold and they recover at home.”

Overheard today in Stop & Shop: “Look — all of the bleach and cleaning products are practically gone!” “Yes,! Well, I’m not convinced it’s worth all this upset.” “Me neither.”

Ricardo Belmar
BrainTrust
Fear is driving many decisions related to coronavirus and while some are justified, others are not. All of the items mentioned in the article are genuine concerns for retailers and consumers alike, but it is fear that will motivate people to act or not act. Out of fear, consumers will resist going to malls and stores. Out of fear, they will reduce their travel, and tourism commerce will suffer. Out of fear, some retailers may try to take advantage of consumers and engage in poor pricing practices. Just today I heard Amazon was suspending some sellers on their marketplace for price gouging. What should retailers do? Develop contingency plans if they are not already in place. Those with heavy supply chain ties to China will need to either move quickly for alternate sourcing, or in situations where that isn’t possible, find alternate products. The supply chain ramifications to retailers will lead to permanent changes and hopefully result in more diversified supply chains. One thing coronavirus has taught the world is just how important the global… Read more »
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Braintrust
"Quite simply, fear is the greatest challenge. "
"Panic buying of groceries because of the coronavirus reminds me of how shoppers react when facing a major snow storm."
"Supply chain disruptions and changes to customer spending habits will have the biggest impact on retailers."

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