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Virus straining retail supply chain

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NEW YORK — With more than 90,000 people across the globe infected with coronavirus, including here in the U.S., public health officials are now operating in “uncharted territory,” says the head of the World Health Organization.

The latest figures show that deaths from the virus have occurred outside of mainland China, where the virus originated, in other countries around the world, including the U.S.

As the virus continues to spread, several countries have put measures in place aimed at keeping the disease at bay, such as closing schools, cancelling events and encouraging businesses to prepare for the outbreak, including having employees work from home.

One area in particular that the outbreak has already affected is retail. In some respects, the effect has been positive, with demand for medical and health safety essentials rising significantly since the virus was first detected.

In the U.S., based on Nielsen data, for the four weeks ended February 22, retailers saw 319% in dollar growth and 378% in unit growth for medical masks compared to the same four weeks in 2019. Sales of hand sanitizers were up 73% during the same four-week ­period.

The coronavirus is putting a serious strain on the retail sector as well, especially in terms of the supply chain.

As fear of a pandemic grows, consumers are actively stockpiling emergency supplies, such as basic foodstuffs, including canned goods, flour, sugar and bottled water. Concerns are having a ripple effect into nonfood essentials as well. In the U.S., sales of supplements, fruit snacks and first aid kits are spiking.

According to Nielsen, countries around the world, such as China, Italy and the U.S., are experiencing major hoarding of emergency supplies.

As the rush to stock up continues, Nielsen expects it to have an immediate impact on supply chains for manufacturers of these emergency and essential goods. Stocks of hand sanitizers and medical face masks have already dried up in some markets, Nielsen points out, with no clear indication of when stocks will be replenished.

In Malaysia, sales of hand sanitizers hit almost $237,176 in the week ended January 26 — which is more than 800% above the weekly average.

In the U.S., Department of Health and Human Services (HHS) Secretary Alex Azar told lawmakers that as many as 300 million protective face masks might be needed in the U.S. — 270 million more than the current supply.

Nielsen measures of San Francisco drug stores indicate that year-to-date sales of medical face masks through the week ended February 22 have already exceeded those of the entire 2019 year, demonstrating the strain high demand has put on supply chains.

By the end of 2019, U.S. online sales of consumer packaged goods food products totaled more than $38 billion, which equate, when rounded down, to an average of $732 million per week.

Amid consumer concerns, Nielsen predicts that figure will grow in the coming weeks. E-commerce may also be a factor beyond consumer purchasing as more consumers fear the spread of the virus in public. In China, for example, small and medium-size retailers are using e-commerce to keep their stores stocked, which wasn’t an option during the SARS outbreak 17 years ago.

“Because shopping behavior is so much different than during the SARS outbreak, and because the government started to control the issue sooner, we think the retail impact cycle will be shorter,” said Ryan Zhou, vice president of consumer packaged goods for Nielsen China. “Store sourcing is also much different today, and online suppliers have reacted very, very quickly by offering store owners, for example, mobile applications for sourcing orders. So online has really helped suppliers react and adjust their supply systems in ways that didn’t exist during SARS.”

In China, consumer spending on restaurants, hotels and entertainment venues has plummeted. With that in mind, companies across a variety of industries need to communicate closures and precautions to their frontline workforces.

“When an epidemic like coronavirus arises, managers must be able to react quickly to potential location closures and concerned employees,” says Will Eadie, vice president of Alliances at WorkJam, a digital workplace app used by the retail and hospitality industries. “To avoid further confusion and panic, stores must be prepared with the right strategy and tools to keep staff informed about updates to location hours, staffing, scheduling, and any new health and safety training.”

The simplest and fastest way to ensure staff is well informed of these changes, in Eadie’s view, is to create a direct line of communication from the head office to frontline workers.

Disruption to the supply chain for U.S. firms could worsen should countermeasures be needed across Europe, having been introduced in some towns in northern Italy this week, and if parts of Asia remain on ­lockdown.

Many companies in the U.S. can’t ignore what is happening overseas. S&P 500 companies collectively generate almost 30% of revenue in Asia and Europe, where, so far, coronavirus cases have been most ­prevalent.

Additionally, many of the companies with more reliance on foreign sales have performed worse than average.

When it comes to a free-flowing supply chain, the popular and established strategies work, but “only when they are not disrupted,” says global management consulting firm Kearney.

However, the world today, as Kearney notes, is one of constant disruption in which conventional supply chain thinking needs to be revisited with an eye toward increasing customer satisfaction and long-term financial return.


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