The Corona effect & the lessons learned to meet the future crisis.

Last month, The Economist reported that Chinese retail sales were down 24 percent over the coronavirus period, and many analysts have said that although there have been some positive reports, it could take a while before things go back to normal.

The cash inflow of the industry has come to a standstill, while the fixed operating costs remain intact. Nearly 50 to 70 percent of costs are fixed costs in the retail segment. This, along with low margins, leaves businesses with limited flexibility. Rents and salaries to employees make a large part of this cost.

The current situation will lead to downscaling or shutting down operations widely and the closure of retail businesses will affect a large section of society as it is a people-intensive industry. Around 90 percent of retail employees work at the stores, earning minimum wages and living a hand-to-mouth existence. With extended closures, these employees are at risk of being retrenched. 

The Coronavirus has brought the masters of the world on knees. No one ever imagined Italy, Spain and other European countries failing to cope with coronavirus crisis; though these countries have the most advanced medical system in place.

Who would have imagined European grocery stores struggling to meet the daily essential needs of consumers?

While the corona case around the world is increasing day by day so do the havoc created by it that does not seems to stop. The pandemic has engulfed +80k people around the globe and the number is still rising.

If something could have dither Coronavirus pandemic then it could have been the medical aid, equipment, vaccine and definitely the cash flow(cohesively to say economy); the major booster to overcome the food crisis, medical treatment, and malnutrition if ever to come later. In a country like India and some countries in East Asia where the economy is hugely dependent on the influx of few essential commodities, regular FII, providing service to the IT industry in other countries, etc. all seem gloomy at the moment.

Today the global economy is struggling and it did not peak up the way it should have been at the beginning of 2020-2021 financial years. The Indian economy and the de-growing GDP have been on the doldrums since last year; the coronavirus effect marred the situation to the core. The ghost days seem to anchor around relaying different stories through social messaging. The only social messaging that seems believable is “Stay at home, Stay safe” reinforcing the announced Lockdown in India and other parts of the world.

The lockdown effect is seen across. Shared below are a few of them.

1. Labor shortage – Around 80,000 jobs expected to be cut by various retailers due to the ongoing coronavirus pandemic, according to a survey by industry body RAI

According to the research agency, the global industry in coming months will witness a big labor shortage since the daily wage earners migrating to their home town fearing the safety of their life due to the severity of the health hazards in cities, moment after the lockdown announcement by the Prime minister or President of their countries.

The retail market in the urban center will surely have a major hit.

Textile factories that are heavily dependent on migrant workers are completely shut. They do not have sufficient manpower to operate the machine. Similar is the situation for the agriculture industry. General Secretary of some states has written to Bihar CM to send back the migrant workers as their factories are not functioning in their absence.

95% of the workers in Telangana rice mills are from Bihar. The absence of these labourers will make it difficult for Telangana which aims to procure record paddy from farmers this time.

2. Change in shopping behavior – Coronavirus is a defining moment in history that may set in motion a new standard of consumer behavior. Is the latter a bad thing? Not necessarily. But retailers will have to build on these changes or adapt to them.

Many shops that are still open are no longer accepting cash due to concerns that the virus may live on the surface. So, while POS transactions are more difficult due to the lack of retail in general, those essential services that are still open are strongly encouraging card transactions.

There's going to be a lot of hesitancy and inhibition in people to step out and buy. It'll also make the end consumer more aware and inquisitive about what they're buying, where it’s coming from and so on.

In the coming months, disposable income would be significantly lower, subsequently impacting overall retail sales. The lockdown has pushed people into the online direction. It has encouraged people to use contactless payments.

The forced shifts in consumers towards e-commerce, during the current lockdown, mean scaling down of the physical channel for most retailers. 

Retailers may need to consider their long-term plans as the enforced closure of shops has seen customers restricted to buying what they need instead of what they want. This may indeed see a positive change in shopping habits as consumers could increasingly adopt more sustainable habits in the future and become more mindful about their shopping behaviors.

3. Rise of Online sales – Among the few services that remained open during this lockdown is E-commerce. The industry and society as wholeheartedly accepted the need and want of e-commerce giants, who delivered essential goods at the customer doorstep pivoting their services 24 x 7.

E-commerce food giants proved alchemy at this juncture.

The quick delivery of merchandise by Amazon, Flipkart, and Big Basket has been amazing and convenient and will create more loyalty among shoppers.

Leading retailers such as Reliance Retail, Lifestyle, Madura Fashion and Lifestyle, Arvind Fashions has decided to expand their initiatives on online sales when the restrictions are eased on online sales of non-essentials whereas there are few who feel it’s an opportune time for them to start Omni-channel.

The current situation will only force consumers to come forward and go digital thus reinforcing the GOI mission of the cashless society. The ticket size for essentials like groceries and pharmaceutical products has risen by over 75% during the lockdown period

Unfortunately, for many people, the online experience has been frustrating. Websites have been slow and orders have failed at checkout.

Carrefour had to install a virtual queuing system to control the number of people shopping on its websites. The customer experience during this period risks being severely degraded.

E-commerce accounts for single-digit contribution to sales for most brands whereby scaling up will also take time.

4. Production – With close down and projected slowdown of retail consumption, the entire supply chain will be under stress. Distributors, manufacturers, raw material suppliers and the entire value chain will have order cancellation and loss of income.

The import level has gone down to a big high from countries like China and Korea. This is further expected to severely hit the production cycles for those units/factories that depend on foreign imports for their raw materials.

The interior decor segment is hugely dependent on the influx of finished products from China and the impact of the last 2 months whereby not much has been incoming is expected to show in the near future. Given that there will be limited trade with China in the coming months, it allows the industries in India to develop and manufacture products; whereby giving them a chance to establish a successful market for them.

5. International retail scenario – The headquarters of Prada, Versace, and Armani are all in the Italian city of Milan, where International brands such as Louis Vuitton and Stella McCartney rely on Italy for the manufacture of goods. Though many Italian manufactures are unsure what happens next, the main concern is not able to manufacture the product but to sell the product which could be a million-dollar setback for them.

The scenario is not rosy for the anchor brands as well. H & M, which has expanded rapidly in recent years and ranks as an anchor on many high streets, wrote to landlords last week asking them to agree to terms that could see the retailer break a store lease with one month’s notice if trading conditions did not return to pre-outbreak levels.

The fashion retailer also pushed landlords to agree to a variety of rent-free periods, a reduction in service charges to reflect drops in footfall and a change to paying rents monthly in arrears.

While all above and many more continue, what we truly wait to see is the pandemic to get over at the earliest. The current pandemic has surely taught us a few lessons which we must remember to secure our better future.

Lessons learned during the current pandemic:-

1. Speed and Trust - Future global crises may not just come from disease; this may be from anything and everything which human has been ill experimenting for their own greediness. Hence an early warning system is needed for future crises. Having a system we can trust and it is only through a trust will citizens act as they did to self-isolate during the current pandemic.

2. Health assurance – According to the World Economic Forum, COVID-19 proved that the “Internet of You” can support a new era of health assurance. The traditional hospital to every individual may not be possible on earth but what is possible is digital health assurance and digital health delivery.

3. Medical surge capacity – The current pandemic - COVID-19 showed us, that the globe lacks the ability to assemble a powerful intensive care capacity. Across the world, the doctor and administration were seen counting IC’s. It’s a question to address and the challenge in front of the world leaders.

4. Broadband access to the internet - Digital access is now like oxygen and this must be seen as a utility, like electricity and plumbing. In the last few weeks, we witnessed the rise of the internet for people to work from home, online education, online medical advice, online ordering of essential items, online access to important news, etc.

5. Ethics and equity - According to the World Economic Forum, the promise of digital medicine is the promise of the Fourth Industrial Revolution, where the tools of artificial intelligence transform all professions. At the same time, healthcare is the ultimate argument for the difficult lesson: that the digital future cannot simply make the wealthy healthier. Digital medicine gives us an unparalleled opportunity to address the social determinants of health and provide access to everyone in their own neighborhoods.