Retailers and their suppliers should be careful how they handle the collapse of business during the coronavirus disease 2019 (COVID-19), as measures taken to mitigate the financial losses could have long-term supply chain ramifications, the International Apparel Foundation (IAF) has warned.
With stores around the world shut and orders canceled, the shock to the apparel supply chain is creating a dramatic domino effect of revenue losses, IAF secretary general Matthijs Crietee said in an IAF update on the coronavirus. But retailers and brands should collaborate in finding ways to reduce the damage to suppliers, he added.
“Operating with the objective of moving as much of the pain upstream in the supply chain will create breaches of trust that will be difficult to repair when we emerge from this crisis,” Crietee said. “Choices made now will be scrutinized later.”
The devastating impact that store closures and stay-at-home laws are having on retail sales is beginning to emerge, especially in Europe. In the first three weeks of March, the IAF said in-store fashion retail sales in Germany dropped 42 percent compared with the same period in 2019.
A study by German consumer and market data provider Statista on the projected impact of the coronavirus on retail sales in Europe forecasts that retailers will face a loss of $4 billion between March 9 and April 21. Germany is expected to suffer the most, with $900 million in lost sales during the time period.
Bangladesh orders cut
With no clarity on when stores will reopen and foot traffic resume, factory orders are being canceled. The IAF said more than $2 billion in apparel and textile orders was canceled in Bangladesh in the past week alone.
The apparel and textile industry has one of the world’s longest and most globally dispersed and labor-intensive supply chains that are particularly vulnerable to disruption. As business dries up, both buyers and suppliers will be left with difficult choices.
“No buyer can be expected to sacrifice its own existence or the jobs of its employees to save its suppliers,” Crietee said. “Each individual company will have to determine what line of buying behavior it does not want to cross if it can in any way avoid it.”
Apparel industry analyst Jane Singer, managing director of market intelligence publication Inside Fashion, also highlighted the need for collaboration between retailers and their suppliers to work through the crisis. But she said the crisis was leaving the industry facing a prisoner’s dilemma, where suppliers and retailers acting in their own self-interests could ultimately damage each other’s businesses.
“Facing the current situation where retail sales around the world are collapsing, is it better to focus on the short term and mitigate current losses, but risk losing your supply chain? Or do you take a longer-term view, and try to protect your supply chain, even if it means greater short-term losses?” Singer asked in a recent Inside Fashion newsletter.
Falling volume hits forwarders
While shippers puzzle over ways to balance plummeting sales without losing supply lines built up over the years, the canceled factory orders are leaving global forwarders also trying to cope with rapidly declining demand for their services.
“There will be a huge volume drop over the next few weeks, that is clear. There is no new inventory that will be needed for a while,” said Dominique von Orelli, DHL Global Forwarding executive vice president and global head of ocean freight.
William Ma, group managing director of Kerry Logistics, said in the company’s 2019 annual results announcement Monday that the coronavirus pandemic has created “a global business and financial turmoil.”
“As of today, one-third of the world’s population is under varying degrees of lockdown,” he said. “The world has been switching to a more domestic-based supply chain for daily essentials.”
But Ma had a sobering message for anyone expecting a rapid bounce back of business once the world finally gets on top of the coronavirus. “When the pandemic comes under control, the global supply chain will be in chaos and the recovery is expected to be slow and painful,” he said.