Disruptions in the Retail Sector: Pre and post pandemic world
Even before the COVID-19 outbreak all over the world, the retail industry was undergoing continual disruptions. From global trade and economic tensions, mixed retail earnings to elevated consumer confidence the retail market needed bold moves to achieve further success in the economy. In order to navigate this disruption, stay competitive and ensure growth the retailers need bring about a paradigm shift in their supply chain markets, go digital and embrace the technological developments.
Impact of the Coronavirus
There is an uncertainty about the economic impact of COVID-19 looming over us. The disruption is taking a toll on business supply chains and operations as there is a fluctuation in the production process and the constrained resources. Retail Industry is one of the many industries globally that has taken a hit during this pandemic and in order to survive they will need to adapt and respond to the virus in a better and more organized manner.
The following are the repercussions of the COVID-19 Outbreak:
How will Insurance play a role?
There is a considerable drop in physical footfall in retail outlets and malls as people are hesitant about gathering in crowded spaces
- There are also restrictions in employee travel as the top priority for any brand currently is the health and safety of their workers and customers
- The traditional brick-and-mortar retail business model is being seriously challenged. A significant shift has taken place in the channel of shopping from retail outlets to e-commerce resulting in a boom in the e-commerce market sales
- Struggle to bring goods into the country is having a major impact on the supply-chain a s China is the source of goods for various local as well as global brands. This is resulting in a shift in supply chains from china to other parts of the world
- Higher impact on fashion retail because of shutdown of the clothing and footwear retail clothing stores, low consumer confidence and financial insecurity. Duty-free sales are also affected due to travel restrictions. Non-Grocery/Food Retailers are reporting 80% to 100% reduction in sales
- Many retailers are also now reviewing their overall financial stability under a variety of different scenarios and, if required, engaging with lenders to refinance loans or amend financial covenants that may be impacted
- Even retailers of essential items are facing losses as they aren’t allowed to sell non-essential items, which would bring them higher margins
- The industry is experiencing severe liquidity challenges, which can lead to large scale unemployment. The cash inflow of the industry has come to a standstill, while the fixed operating costs remain intact, as per the survey conducted by Retailers Association of India (RAI) , 70% of retailers expect the business recovery to happen in more than 6 months, 20% expect it to take more than a year. <10% of Medium and Large Retailers expect to earn any profits till Aug’20, 26% of Small Retailers expect to earn profits in the same time period
The COVID-19 pandemic has become a testing ground for the Insurance sector. With countries going into lockdown and various industries coming to a standstill the business sector is under unimaginable distress. The Insurance Regulatory and Development Authority of India (IRDAI) issued a circular in the first-week of March asking insurance companies to design policies in a manner which covers treatment for Coronavirus. Insurers of the future will need to evolve and transform. According to a report by the National Insurance Academy on the impact of COVID-19 pandemic on Indian non-life and Life insurers, "The micro, small and medium enterprises sector is likely to be seriously affected and this could potentially reduce their premium paying ability,".
With the threat of pay cuts and job losses also being spoken about, people opting for other kinds of insurance covers such as home, health are also likely to be affected. "Retail business, which largely consists of Motor and Health business, is expected to behave differently. Automobile sales will continue to fall due to the pandemic situation, further to the poor performance in the automobile sector in the previous year," the National Insurance Academy report states.
Business Interruption covers due to the pandemic may face big claims even though they are not payable as per policy terms. There is a possibility for some of these claims to land in long-drawn litigations. Reinsurers will also be at a higher exposure due to event cancellations in the retail sector including the various fashion weeks.
Road to recovery
Retailers will need to think of a recovery model to cope with the after-effects of the coronavirus pandemic. For surviving this pandemic, the retailers need to leverage on the online shift and understand the consumer demand better. Some steps to the road to recovery are as follows:
- Retailers need to understand their physical footprints better to provide an overall better experience to the customer and keep them engaged
- In order to survive in the post-pandemic world, the brick and mortar stores will need to use the wow factor to bring customers in and away from the online retail experience
- Develop the customer experiences that their target customers want. Because at the end it is what the customer is all about. New and better marketing tactics need to be adopted for attracting more customers and retaining the existing customers with better discounts and good product offerings
- Putting offerings into the marketplace that minimize physical interaction and maximise digital interaction. Understanding the mindset shift is also important
- Raise the bar for safety to satisfy consumer needs
- There needs to be a contingent plan in the supply-chain model
- Businesses should focus on brand loyalty and keep their communication lines open
- Keeping their cash flow open will also play an important role
The solutions devised for the current situation shouldn’t be considered a temporary arrangement and need to be sustainable. Businesses should be able to continue them without draining resources and be able to change them in case the ground shifts again. The leaders need to understand the business needs to incorporate empathy and human touch at this point of time The solutions that are being adopted should be creative and useful in the long run and adaptive to the ‘New normal’.
Due to the long term social, economic and health impact of COVID-19, retailers will have to adapt swiftly and future-proof themselves against further turbulence. This will fundamentally change the reality of the retail sector and insurance can play a major role in facilitating this need. The insurance sector will have to adapt itself to the new ways of doing business i.e. contact-free, user-friendly and online. This is the time to face the facts and start adapting.