Retail under additional pressure due to coronavirus

by Dave Nemeth. No amount of scenario planning could have prepared the local retail market for the epidemic which has hit China in the form of Covid-19, commonly known as the coronavirus. The effects of this are far-reaching and guaranteed to have a huge negative impact on the South African market.

According to South African Market Insights, statistics in April 2019 showed that 57.75% of total clothing and textile imports came from China, amounting to a total of R16.124 billion. With so many shipments and new orders from  Chinese factories being delayed, the effects could be catastrophic to certain product categories at a time when retailers have enough struggles to contend with due to  a tough economic climate.

If I look at how far in advance orders from South Africa have to be placed, it appears  as if the effects could have an impact lasting far longer than is being currently anticipated. The biggest reason for this is that the virus and shutdown of operations in China have affected the global retail market.

Once everything is on track and functioning properly again, the larger importers in the USA and certain European countries will take priority in the manufacturing process.

A survey by the Cheung Kong Graduate School of Business in Beijing towards the end of February, noted that, “45% of firms surveyed had ‘no way to resume work’, mostly due to labour shortages. Just 11% predicted their production capacity would reach between 80% and 100% by the end of February”.

South African retail has always struggled with MOQ’s (minimum order quantities) and negotiations with suppliers and agents have always focused on getting quantities which make sense to our market, and these  are generally a lot lower than US and EU markets.

The reality is that, the smaller the retailer, the harder it is going to be to get the necessary stock of key items and product lines back. The international players such as H&M, with only 17 stores in South Africa, which have already taken a large chunk of market share from local retailers, will be in a better position due to their global footprint of 593 stores worldwide. This will also apply to Cotton On, the Australian company which has over 1,400 stores in 18 countries; which will also put them in a stronger position to fight back faster.

In theory Massmart, which has Walmart as a 51% stakeholder in the business, should also be able to get to the top of the manufacturing queue when factories are back in line as Walmart operates approximately 11,500 stores under 56 banners in 27 countries. This could assist the brand immensely as they struggle with store closures and brand consolidation.

Quality could take a dive

I foresee another issue when China is fully operational and that is the question of quality. This could be hugely impacted as the focus for these factories will be on producing huge quantities as quickly as possible in order to get back on track. Something has to give and quality will most likely be the trade-off.

The key learning factor for both local and global retailers is that the industry is far too reliant on China and, specifically here in South Africa, we need to be reinvesting in local industries and assisting smaller local suppliers in growing. The talk about supporting local brands and industry needs to stop and real action should be taken now. It is critical that the terms and stringent conditions which have to be adhered to in order to become a vendor, and which eliminate many from entry, need to be amended.

Local retailers have to increase their inhouse design and trend departments with a view to creating great products with local factories which have the potential for export; and therefore further growing this sector.

Another factor which no one is mentioning, is the protocol which will have to be followed once the products start flowing into the country again. Will the containers have to be quarantined for a period of time? Will the products have to be treated? This could further complicate supply.

In closing, I’d just like to mention one success story. The Veldskoen which has become an international hit after US billionaire and investor Mark Cuban and actor Ashton Kutcher invested in local company Veldskoen Shoes. These are now being sold in the US and UK markets. It is time for some loyalty and a rethink of the supply chain – the situation whereby 57.75% of textiles are being imported from China, is simply quite absurd.

Dave Nemeth is a trend forecaster and business consultant at Trend Forward, and a design thinker, innovator, business re-designer, trend analyst, keynote speaker and writer. He is also a columnist on Retailing Africa.

– Receive the Retailing Africa newsletter every Monday and Thursday. Subscribe here.