Nobody knows is as close to the truth we will come when discussing the eventual impact of the coronavirus on the South African – and global – retail industry. The ever-changing daily news and fake news about infections and measures to limit it is not good for the trade … especially as the almost hourly changes in infection rates and lockdowns create fear amongst consumers.
The first few coronavirus cases confirmed in South Africa sparked fear-of-crowds panic. Local retailers, especially in malls, reported fewer feet through doors, although not yet close to the ghost cities reported in China. This could, however, change after the State of Emergency announced by President Cyril Ramaphosa last night (March 15th).
This is also a double-whammy for mall stores who already had to contend with lower foot traffic in December and January when customers stayed home during load-shedding.
A week before the travel ban, Barry Selby, whose Athlete’s Foot store is based in this Cape Town shopping mall reported “the V & A Waterfront will be negatively affected by the drop in tourism, as tourist groups are cancelling as we speak”. He also noticed that fewer local people were visiting the shopping centre.
While people seem to be avoiding shopping centres they are actually much more likely to be infected outside in the street than in their stores, which are taking all precautions to sanitise or limit areas which customers might touch, Cape Union Mart Chairman Philip Krawitz told the Cape Talk Breakfast Show. Their stores and factories, for example, display notices and tips about changing personal hygiene habits – and that could have a lasting impact for the good, he added.
While they were not planning on closing any stores or factories despite the drop in brick-and-mortar shoppers, the Cape Union Mart group has seen a big jump in online retail sales.
To remain open or close shop is a dilemma for retailers across the world. In Italy, France and Spain the governments closed all non-essential retail stores (as well as schools, restaurants and other places of gathering) to try and limit the spread of the virus.
Among the many US retailers that closed stores are Nike, which closed all its 355 stores and other locations in the US, as well as some in Canada, Australia, New Zealand and Western Europe from 16 to 27 March. The online portals of the brand, which has been pursuing a policy of driving consumers to shop online, will remain open. Nike workers will be fully compensated during this time.
Under Armour also closed stores across the US from March 16-28 without interruption to staff pay and outdoor brand Patagonia closed its stores until March 27th, when it will re-assess the situation. Abercrombie & Fitch closed stores in the US, Canada, Mexico, Europe, the Middle East and Africa until March 28th … to name but a few of the American retailers.
Stock to sell
Another concern for retailers is whether they will have the stock to meet the demands of consumers once they resume shopping when the health scare is over.
Several retailers we’ve communicated with during March indicated that they were running short on stock – and he will certainly switch his future sourcing to brands that can now supply him, says a retailer who wishes to remain anonymous.
“On the import side there is a lot of uncertainty due to conflicting news from China – some say China has everything under control and others say they are lying, it is much worse than they tell us,” says Noel Whitehead, chairman of SAFLIA (SA Footwear and Leather Industries Association).
Despite some slow moves to other manufacturing countries over the past few years, China remains the factory of the world.
For example, about 70% (189-m pairs) of the footwear imported into South Africa in 2018 was made in China. To place this in context: according to the 2019 SAFLIA annual report the 57-m pairs of footwear manufactured in South Africa constitute 21% of the total pairs available in South Africa in 2018. The next highest volume of footwear imports come from Vietnam (4% or 11-m pairs), followed by Indonesia (1.5% of imports or 4-m pairs) and India (0.7% or 1.7-m pairs).
By mid-March some large South African retailers like Pepkor, Woolworths, Shoprite and Cape Union Mart had expressed concern that they could be running low on stock. Some, like Shoprite was already feeling it as they struggled to import winter goods like heaters and electrical blankets, which could affect sales worth R100-m, they predicted. Cape Union Mart was searching for additional supplies of products like hand wipes and other sanitisers.
Others, like Pepkor (Ackermans, Pep, Shoe City, Tekkie Town) are anticipating future disruptions. At the AGM in the beginning of March Pepkor CEO Leon Lourens said the virus would undoubtedly have an impact on the second half of the current financial year due to the lag effect in the supply chain, although it had no significant impact on group sales to date.
The companies and brands who shipped their new ranges before the Chinese New Year shut-down can provide stock to retailers once it had been cleared at customs. “We (Bolton Footwear) were able to ship our winter ranges just before the Chinese New Year and they are on their way, have arrived, or will be arriving,” says Whitehead.
“But, we in the industry are aware that a lot of stuff (from other importers) that were supposed to be shipped just after the Chinese New Year, didn’t get shipped. All I know is that a month’s delayed production from China for everything is quite significant and it will have a knock-on effect,” he adds.
The main concern is the slow return to production of of factories who need to make the next season’s ranges, especially from brands and local retailers who may not be the top priority for Chinese factories re-opening with limited capacities [see previous article ]. One of the main obstacles to the movement of cargo is the unavailability of truck drivers to move goods from the factories to the ports, reports the Sourcing Journal.
During the past few weeks Sports Trader had been talking to many South African importers of goods from China who had to cancel their advertising in our forthcoming issue due to their new ranges from China being delayed for up to three months till June/July – which is unprecedented in the 22 years that we’ve owned the magazine. This accounts for goods across the sport, outdoor and lifestyle spectrum.
The supply chain disruption is a global problem. According to a recent Global Port Tracker survey, 40% of the respondents from the American National Retail Federation (NRF) said they were still experiencing disruptions to their supply chains a month after the factories re-opened and 26% expected the disruptions to continue.
They forecast that 18.3% fewer container shipments would be arriving at US ports in March than the same period last year and quote experts who say that an optimistic view would be that normalcy would return to the trade by the end of March or early April. The good news is that Global Port Tracker believes that US imports from China could jump 9.3% in May and 9.6% in June from the previous year “on the assumption that Chinese factories will have resumed most production by then and will be trying to make up for lower volume earlier,” reports Sourcing Journal.
In South Africa, an obvious alternative would be to knock on the doors of local manufacturers. While this would certainly comply with the Retail – Clothing, Textile, Footwear and Leather (R-CTFL) Masterplan signed by various affected parties in December last year, it would, once again, not provide instant long-term relief.
It would very much depend on the availability of raw materials and the manufacturing capacity of the sector. For example, in South Africa there is a good supply of local leather and there are 18 factories that can manufacture more than 1-m pairs per year and a further ten produce more than 500 000 pairs per annum. That would, however, fall far short of the 189-m sourced from China. In addition, synthetic upper materials are also imported from China and there are concerns that some of these may not be currently available.
“But, there are always areas like Brazil,” says Whitehead. “Time will tell how these problems are addressed.”
Likewise, the bulk of clothing manufacturers depend on textile suppliers from China – or European countries like Italy, where factories have also been closed and workers quarantined after the death rate attributed to the virus passed 1 000.
Cape Union Mart owns several local clothing factories and some of its footwear styles are also manufactured locally, but they also fear that supplies of raw materials could have an effect. They will, however not lay off people, says Krawitz, as fighting poverty and providing wage packets is a much higher priority. They also ensure that stringent health directives are followed in stores and factories.
Another complication is that many brands and bigger retailers have their own trading houses in China that design and make according to their specifications. And obviously, nobody is sending people to China to oversee the processes.
A brand like Hi-Tec South Africa has found an innovative way to overcome this obstacle: they use digital designs for samples, which they discuss via digital communication software like zoom. They also have a dedicated team of five people that is in daily contact with their factories to stay up to date with progress made in manufacturing and shipping – and the brand is therefore confident that any delays can be cut to a matter of weeks, instead of months.
Another complication is the cancellation of global trade fairs, conferences and sporting events [see article] with the inevitable reduction in new business opportunities and the sale of supporter wear. Without major sporting events generating excitement and interest in sports, who knows what the impact would be on participation figures?
As stated, these are all issues affecting retail trade across the world. And as the NRF agree, there are so many unknowns that it is impossible to predict the impact of the coronavirus on retailers anywhere in the world.
Except, that the innovative thinkers and out-of-the-box planners will eventually be the winners.