Coronavirus: The Impact on Australian & New Zealand Retail

A full report of the supply and demand impacts.
min read
Retail Express Team
January 8, 2022
Retail Express Team
January 8, 2022

Table of contents

Article Last Updated: February 2020

The Coronavirus, which first appeared in a live animal market in the Chinese city of Wuhan, has (at the time of writing) infected almost 80,000 people and led to over 2500 deaths, sending jitters throughout global markets as investors remain concerned about its knock-on effects.

It is feared it will have a profound impact on Australia's retail market, which has been shaken recently by numerous collapses, a slow Christmas trading period, and weak consumer confidence. This article explores the potential risks for Australian retailers and provides some key recommendations to best adapt to them.

While the challenges Coronavirus presents could be considerable, resilience is a core part of the Australian retailers DNA. Retailers who harness this and take a proactive, agile approach will be best placed to minimise the impact on their businesses.

Risk #1 - Stock Availability & Lost Sales

Many Australian retailers have just come out of a slow Christmas trading period and are now faced with potential supply shortages for months to come. Without critical supply to fill stores, and continuing fixed operational costs, the future downturn down in sales may prove devastating for some.

With China being at the centre of the Coronavirus outbreak, there have been widespread factory shutdowns after an already extended period for the Lunar New Year. Furthermore, millions of Chinese workers have been in lockdown and unable to go to work as the government tries to contain its impact.

It is predicted this could cause significant production and shipping delays of both raw materials and finished goods from China and therefore lead to stock availability and sales drying up for Australian retailers.

“Some [suppliers] have said from April they’ll only be able to achieve 50% of their normal production.” says Bill Huynh, Managing Director and Founder of Interior Secrets in an interview with Smart Company. Huynh also points out that “There’s going to be a lot of their workforce who won’t be able to come back to work … they’ll have to recruit,” he says “There will be effects logistically, and also from a quality aspect, because they will need time to train new staff.” And it isn’t just supply from Chinese manufacturing that could become delayed. The slowdown in raw materials supply from China to manufacturers in other parts of the globe could cause delays for finished goods produced by these countries. The virus is likely to have impacts on manufacturing productivity and supply chain velocity in any country that it reaches.

“One of the ways the disruption from this virus plays out, global production chains basically stop working,” says Michael Blythe, chief economist from Commonwealth Bank. So, whether directly importing or buying via domestic wholesalers sourcing from China or other affected countries, it is hard to see how these supply chain issues will not have an impact on Australian retailers.

Australian Retailers Are Particularly Exposed To Supply Risk

China is Australia’s largest trading partner - supplying everything from clothing, shoes, toys, homewares, and electronics – so the impact for our retail economy could be particularly widespread, affecting most sectors. The effects on the Australian retail supply chain are yet to be seen with most experts predicting it will be March when we truly start to see major impacts become evident. Analysts at stockbroker Morgans stated that while most retailers could handle a one or two-week delay, closures stretching to a month or more could have deeper impacts. As factory workers start to return to work, Chinese suppliers are already said to be prioritising their largest customers first, leaving smaller and mid-tier retail clients to wait.

Risk #2 - Consumer Demand & Sales

“We have seen a material decline in foot traffic at some of our key centres since late January 2020….particularly where there is a high proportion of international visitors” Grant Kelley, CEO of Vicinity Centres.

China is Australia’s largest inbound market with visitors spending $12.3 billion per year annually. Chinese tourists and international students spend more at Australian retailers than other nationalities, meaning that the government’s ongoing travel ban, announced on 1 February, will also damage retail sector.

To make matters worse, there is also evidence of a general drop in footfall from Australian residents who are wary of the risks of visiting densely populated shopping areas while the virus is still at play and spending their income while the economic outlook is volatile. Economists have described the Australian dollar as the "whipping boy" for global coronavirus fears. ANZ Bank has warned it could lead the Australian economy to suffer a quarter of negative GDP growth and a sustained period of low consumer confidence. Additionally, Australian retailers who also rely on purchases from consumers residing within China – whether that is from eCommerce and/or physical presence in the country – are also likely to see a slump in demand.


So how can retailers reduce their exposure to these supply and demand issues; and protect themselves from future recurrences? It is going to be challenging for any Australian retailer to foresee exactly what, when and how the Coronavirus and the resulting situation in China will impact their specific business operations. Therefore, preparing a specific, rigid action plan upfront and expecting this will be all that is required to respond as the impacts play out is likely to be futile.

An Unpredictable Situation Requires Agile Management Capabilities

Instead retailers need to be agile and responsive to the situation as it plays out ensuring they:

  • Intimately understand and have latest data on their key business metrics and operations so they can rapidly calculate the profitability impact of challenges as they arise and the decisions they could take in response
  • Have responsive management systems, technology and organisational structures so that accurate information and data that is critical to making and executing decisions is transferred throughout the organisation in a timely and efficient way
  • Continuously monitor their internal operations and external market signals to maximise the amount of time to formulate a response
  • Collaborate as a team and explore a wide range of potential scenarios and responses so that some can be addressed with a pre-agreed action plan if they plan out exactly as expected

Minimising Exposure to Supply Shortages

The ability to quickly restructure your buying decisions based on which products are available; and which will provide the highest profitability and sell through is critical.

The retailers that will be best positioned to minimise risks to their inventory supply over coming weeks and months are those that have comprehensive understanding and real-time intelligence on their inventory and sales metrics across their product portfolio and sales channels.

With certain products delayed, the ability to quickly restructure your buying decisions based on which products are available; and which will provide the highest profitability and sell through is critical.

Many Chinese suppliers are re-prioritising customer shipments based on order volumes and purchase prices. Therefore, you need to know for each product line and SKU if you can or cannot afford to increase your bid to be at the front of the queue or, conversely, experience a huge delay with no local sell through for months.

It may also be necessary to review stock availability from other countries. Again, knowing which SKUs it is most important to ensure stock coverage, will help to prioritise such sourcing reviews, and also inform what buy price range and landed cost is acceptable. Agile retailers who have managed to identify alternative, reliable sources for products could even offer value-added services such as special orders so customers can still source the goods they want, and a sale can be secured.

Retailers must also ensure they continuously manage their existing inventory across channels as efficiently as possible. If scarcity of supply becomes apparent, the ability to know what stock is available across your network and (re)allocate it to the most profitable stores that have actually moved some already – or transfer / fulfil from one location to wherever a sale opportunity occurs - is a key capability. Identifying your key SKU’s and lines that are under threat of supply, is key for maximising your marketing direction and spend. Wasted marketing on inventory that will come under fire will unravel as the weeks go by.

Retailers with an understanding of supply chain levels across all their inventory are then able to leverage their marketing across other areas of their inventory and adjust their brand message to suit. This will help minimise wastage of marketing spend, minimise poor customer experience and expectations around depleted stock lines, and maximise sales return and customer satisfaction on available identified inventory.

This is also a pertinent time to expose other areas of your business to customers who previously haven’t engaged with a particular stock line, and provide alternative solutions to their needs. By identifying customers who have previously purchased particular items based on attributes like size, colour, brand, gender, age group, birthday month, favourite sporting teams or preferred accessories, you can recommend relevant product lines you have a definitive supply of, and/or manage the current supply as it dwindles. In order to take an agile approach to inventory management based on the exact situation that presents itself, retailers need to have accurate, shared, real-time and on-demand data and dashboards on a wide range of key metrics including:

  • Sell through rates
  • Stock turns
  • Weeks of Stock Cover (by different time periods including 4,6,8 and 12 weeks)
  • Daily Run Rates
  • Days on Hand
  • Gross Margin
  • Gross Margin Return on Inventory (GMROI)

These metrics need to be instantly available at a granular level of detail down to individual SKU level and stores/channels. Streamlined and automated business processes that then leverage this data and allow purchasing, inventory and other operational decisions to be executed rapidly will be fundamental to remaining agile and responsive.

Minimising Exposure to Consumer Demand Shortfall

When there is a potential downfall in consumer demand, a focus on customer experience becomes crucial to maintain your share of every cent of spend that is still being made. The last thing you want is for regular, loyal store visitors to abandon you at this point in time. Agile Inventory management again can be a key foundation in maintaining continuity of your customer experience by ensuring that the products and specific brands, sizes, colours or other variants are available to customers in the right stores. If the basic proposition of providing stock availability of the products customers want isn’t held up, other emotive elements of the store experience are unlikely to rescue the sale.

Now more than ever, Australian retailers will also need to ensure they shift from a dependency on one-off customer transactions and execute programs that foster repeat purchases and long-term loyalty.  With most retailers already sitting on a considerable database of customers, they will have to think creatively for ways to encourage them to make further purchases.

Personalised email campaigns, loyalty program offerings and promotional incentives based on detailed profiles of customers and their buying history are going to be lower cost and yield a high success rate – especially given if purchases can be made online during a time when some consumers want to avoid densely populated shopping precincts.

For every store visit that is made, retailers need to ensure they capture the necessary details to execute these customer growth programs on an ongoing basis. Getting a return on the acquisition costs of new customers by maximising lifetime value is going to become crucial. Managing the ‘state of mind’ of your staff is a critical factor moving forward through 2020. Making sure your staff are aware of the strategies and readiness to manage the challenges the Coronavirus represents provides a confidence across the entire retail business and ensures a positive mindset and service experience is presented to store visitors.

One-to-One Supply Chain Strategy Session

Working with over 5000 retailers across Australia & New Zealand, we’re in a unique position at Retail Express to witness and help implement some of the latest best practices in omni-channel management.Over the last few weeks we have had conversations with many of these retailers on the best approach to deal with the impacts of the Coronavirus. Innovative solutions have emerged from these discussions, providing confidence that there are ways to offset some of the key challenges.

During this unpredictable time in retail, we would welcome discussions with any industry professional to explore the impacts and share potential strategies for your business. Simply reach out to us and we can arrange a time that suits you.



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