With the rapid spread of the coronavirus, many retailers are anxious about business moving forward, particularly during some of the biggest holiday shopping dates of the year.
In the next few months, companies will gear up for sales ahead of Easter Sunday in April; Mother’s Day and Memorial Day weekend sales in May; Father’s Day markdowns in June; Fourth of July promotions; and back-to-school sales. The widely anticipated Amazon Prime Day generally falls in mid-July, and in fiscal 2020, it will push other retailers including eBay, Target and Nike to make special offers of their own then. So this is a critical moment for many players.
But as the contagious illness, which has killed nearly 3,900 and sickened 111,400 worldwide, continues to slow production and keep stores shuttered, experts have raised concerns over retailers’ inventory management strategies on major selling days. The alternative would be postponing those major sales to take pressure off Chinese factory owners and their own businesses.
“The jury is out, and likely in April to May, those decisions will be made [whether] to cancel or postpone [shopping holidays],” said Farla Efros, president of retail consulting firm HRC Advisory. “As long as retailers can get product, they should be OK. It’s still early days, and we need to see if and how [the coronavirus] progresses.”
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Although economists agree that it’s too soon to know the effects of the virus on consumer spending, many have lamented its impact on supply chains and potential product shortages. China is responsible for producing the bulk of apparel, footwear and accessories sold around the world, and travel restrictions in the country have impeded manufacturing and foot traffic to stores. Millions of workers in affected regions have also been delayed in returning to their factories and corporate offices, subsequently disrupting global supply chains.
Over the past month, Amazon — according to a New York Times report in mid-February — has made larger and more frequent orders of products in China and, in parallel, has cut back on marketing and promotions to avoid running out of merchandise too soon. It also reportedly expressed worries over inventory for its Prime Day shopping extravaganza; during the 48-hour window of Prime Day 2019, 175 million items were sold.
Dozens of retailers have already indicated that the virus would take a toll on business, with some issuing revenue and profit warnings for the year as lower sales are forecasted to dent their fiscal-year bottom lines. Experts suggest that large companies like Amazon would be better positioned to weather the storm, but small retailers could potentially experience a fallout from the outbreak.
“Everybody competes as it is and runs some sort of sale to compete with Amazon for Prime Day,” added Gabriella Santaniello, founder and CEO of retail consultancy A Line Partners. “They’re all having the same issues in getting the product and having the proper infrastructure. There might be delays in shipping but not necessarily lower sales volume. I think they’ve got what they need to get through the first quarter, but we might see more disruption in the second quarter.”
Beyond Prime Day, experts have also raised concerns over possible stock shortages during the back-to-school season since many electronics, art supplies and clothing retailers are reliant on China. Concerns extend to possible shortages into the second half of the year.
“More than likely, these products will come late — you’ll miss Easter, you’ll miss Memorial Day, you’ll miss the Fourth of July,” Santaniello added. “[The ripple effect] could end up disrupting the back-to-school setup, since a lot of retailers prepare for that around the end of June to early July. … You have a mad rush of people buying hand sanitizers, toilet paper and other necessities, but apparel and accessories have sort of taken a back seat.”
But instead of foregoing purchases altogether, some experts have suggested that consumers might turn to other nonphysical channels to shop. It’s a move that could deepen losses at department stores, specialty retailers and big-box chains and boost heavy online players, including Amazon.
“Sales and traffic will be impacted — they are being [impacted] now — but more people will be prone or pushed to buy online,” Efros said. “They also might delay purchases and wait until it’s necessary. I think it will further grow the share of the online pie and make traditional brick-and-mortar challenged.”
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