Coronavirus: From staffing to stockpiles – the major challenges facing UK retailers

Today the government unveiled its plans to address a widespread outbreak of coronavirus in the UK, revealing a range of measures that might be necessary depending on the scale of infection.

Boris Johnson laid out various “reasonable worst-case” scenarios, ranging from army support for the emergency services through to a fifth of the workforce having to work or stay at home as a result of contracting the virus, caring for others who do, or lockdowns.

The government is focused on “four main strands”: containing the virus; delaying its spread; researching a vaccine or cure; and mitigating the effects it might have on the economy and population.

At the time of writing, there were 51 confirmed coronavirus cases in the UK and Johnson said the chance of that increasing was “highly likely”.

What does the situation mean for retailers? The sector, in particular food retailers, roleplays a variety of potential crisis situations so, in some respects, it should be as well prepared as it can be.

Yesterday, Bernstein analyst Bruno Monteyne – a former Tesco supply chain director who had undertaken such exercises – set out how UK food retailers would react in a worst-case pandemic scenario.

He said there would be increased employee absence, supply chain disruption and then shortages potentially leading to food riots. If disorder broke out, Monteyne said, the industry would shift to a ‘feed the nation’ alliance. That would involve stocking reduced ranges coordinated across the industry; the army being asked to protect depots, food trucks and stores; and “everyone working together to feed the people of the UK”.

One grocery source said Monteyne had outlined “the absolute worst possible” scenario but broadly agreed.

Many of the issues facing food retailers would be mirrored across other categories.

Staff shortages and lockdowns

Retail Week has spoken to a number of senior retail executives who say their day-to-day jobs have almost been taken over by preparing their businesses in readiness for the disease spreading.

One of the major retailer concerns is the impact of people off sick or otherwise unable to work if areas were put into lockdown. That could affect not only stores but the wider supply chain, notably distribution centres and suppliers.

That was experienced in many Chinese cities when the coronavirus outbreak struck in January. While issues were exacerbated by the effects of many depot workers being away on holiday, even a month after the worst of the outbreak many warehouses are still running at very limited capacities.

As a note from Investec points out, many Chinese factories and distribution centres have resumed production “but at reduced capacity”.

What effect an outbreak in the UK would have on warehousing is still relatively unknown, but Monteyne’s note could give an indication. He says a “sudden” 5% increase in workforce absence would leave supply chains “with no real capability to build safety buffers”.

This would also be compounded by retail suppliers facing similar issues further down the chain. In that scenario, with reductions of between 5% and 10%, “it would only take a few weeks to generate major shortages” in stores.

Protecting staff

As well as following Public Health England guidelines, a number of UK retailers have begun implementing wider bans on international travel and have taken steps to limit face-to-face meetings within the UK, Retail Week also understands.

In the Netherlands, Nike has taken the extraordinary step of closing its Amsterdam headquarters for deep cleaning, sending 2,000 staff home.

While such developments may seem alarmist, former Tesco supply chain executive Neil Ashworth, now the chair of retail fulfilment firm Selazar, says protecting staff will be a top priority.

He was working at Tesco in 2005, in the period soon after the Sars outbreak, and says there is only so much retailers can do.

“You can put in place procedures to protect staff, but you can only plan so much. You can plan for 80% of eventualities, but there is that 20% that will throw you out. From memory, that’s what we were seeking to do in 2005/06 – create a template of guidelines that we could then respond to,” he said.

As has been seen globally and more recently in the UK, with school closures because of students who have possibly been at risk of exposure, Ashworth says the potential “ripple effects” are massive and hard to predict.

These effects will also be felt in the supply chains, as Monteyne notes. Ashworth says shortages of items such as ambient, long-life food products “can happen faster than you think”.

This could lead to price increases, as certain products become less available, according to Ashworth. Monteyne thinks that would be unlikely in food because retailers will be keen to avoid being seen as profiteering from the virus. Ashworth wonders whether retailers will have much choice “due to the natural law of supply and demand”.

Ultimately, as Shore Capital head of research Clive Black says, the long-term effects may be a fundamental shift in how UK retailers view China.

“More broadly it’s going to lead to a reassessment of China as a place for the production of base products and, indeed, components. That’s much bigger stuff for down the line, but those thought processes are happening.”

Stockpiling

There are signs that the outbreak is affecting consumer behaviour. Today’s Kantar grocery market data showed sales of hand sanitiser increased 255% in February, liquid soaps were up 7% and household cleaning product sales rose 10%.

At the weekend, Ocado, while it did not mention coronavirus explicitly, warned customers of “exceptionally high demand” because shoppers were placing “particularly large orders”.

A source close to a convenience store retailer said there had been an “increase in demand for cleaning products, sanitisers and handwash” as well as an uplift in “canned meat, vegetables and beans”.

However, the source said the uplifts “could just as arguably be attributed to poor weather” as the virus.

If as many as one in five of the UK’s working population might work from home should the virus become widespread, might that play into the hands of online retailers generally?

Ashworth points out that Chinese pureplay giants like JD.com and Alibaba have been “filling the gap” in China when it comes to food supply. While he expects things to be less extreme in the UK, he would expect consumers to self-isolate as the number of cases grows.

“As people become concerned about the spread of the virus and begin to isolate themselves then grocery home delivery will become more prevalent,” he says.

It’s not just food that customers are looking to buy online. Retail Week has heard anecdotally from an online fashion brand it has experienced increased demand, which it believes is because of consumers wishing to avoid public places such as malls.

Footfall to popular retail destinations is already being affected, as chief executive of the New West End Company Jace Tyrell has made clear: “It’s certainly having an impact [on sales] in the district and will continue to have an impact.”

Broker Investec has also raised the prospect of demand weakness issues, saying that as the disease spreads in the UK and Europe, some retailers will be struck, particularly “low-margin players” such as Superdry, Dixons Carphone and Asos.

Given that a wider spread of the disease in the UK appears likely, retailers are working overtime to mitigate its effects and protect staff. The industry, like much of the country, is preparing for the worst while hoping for the best.