In British Columbia, we’re beginning to move towards reopening our economy and our public spaces. How is this staggered approach going to play out from a supply chain perspective?
William McKinnon: I’m starting to see some really interesting trends in retail fashion. There is a tremendous backlog of apparel and fashion products that are currently suspended in supply chain limbo. As retail has declined—though e-commerce is still performing well—large retailers have truncated their supply chain to stop goods in transit either at origin, somewhere between origin and destination, or at destination.
I was speaking with one large retailer recently, and they currently have 400 containers of ocean product parked between Asia and Canada. Until retail opens up, that product can’t move.
What implications does this extended pause have for the industry?
WM: What perplexes me about this whole situation is that, typically, the retail fashion industry will operate with two seasons: Spring/Summer and Fall/Winter. Because of this decline, there have been comparatively almost zero retail sales during this Spring/Summer season. So, how will this summer stock come into the marketplace? Will it be flushed out quickly, and at what price? And then, of course, how will this impact the Fall/Winter season, given that we cannot currently predict what the economic landscape will look like from a retail perspective?
The disruption that COVID-19 has caused in the retail fashion industry is huge.
We’ve heard about the “lost season” from industry professionals, where essentially half of retailers’ annual production can’t be taken to market. How are you seeing retailers react to this disruption?
WM: I think there are short-, mid-, and long-term solutions. The short term solution is storing products until the next steps become clearer and the pandemic is brought under control. In the mid term, retailers know that their seasons will be delayed and they will adjust accordingly. But the long term solution begs a big question: what’s going to happen to retail spending in the next year? Where will companies start to scale back manufacturing?
I suspect some global fashion chains are considering a moratorium on production for several months and this is understandable. Brick and mortar stores have been fundamental to consumer spending since the advent of the free market. Now, when shopping malls open up again, what is consumer spending going to look like? No one knows.
When people return to work, it’s unlikely they will have amassed any substantial savings during their period of unemployment. People are going to be nervous to spend.
WM: Exactly. I think the residual impact of what I am calling COVID Retail Trauma is going to change consumer spending in the short to mid terms. Long term, I think things could bounce back over several years. But we could see two to three years of very reticent consumer spending habits.
From the perspective of our business, I’m seeing a few potential opportunities where retail backlog or lack of sales will result in flexible, short to medium term storage requirements. The bigger question for us is the long term. Goods need to move to market in order to be sold; they won’t be sold while they’re sitting in storage.
From your perspective, how should retail professionals be approaching the logistical aspect of handling goods through this period of uncertainty?
WM: I have seen some companies shift to focus more strategically on e-commerce. Companies with a very robust e-commerce structure—meaning, not exclusive to Amazon—will see their customers will continue to move in that direction. Customers will be able to order the product they need through e-commerce channels and will continue to do so. But it’s just not the same as walking through a store.
Because of this, I imagine a hesitance to purchase brand new products or big ticket items. E-commerce is perhaps best suited to replacing worn out clothes or purchases which are comparatively “low stakes.” I suspect consumers will feel more inclined to purchase doubles or triples of clothing they already own, in fact, because they know that clothing will fit. People aren’t wanting to take risks right now.
Beyond regular online strategies, e-commerce is ostensibly the only active market right now in fashion retail. What about smaller companies without robust e-commerce structures?
For supply chain operators, there may be an opportunity to set up smaller, on-demand distribution centres as the post-pandemic economy unfolds. There will be a market need for products that perhaps don’t fit into the current scale of the supply chain.
As for fashion retailers themselves, I think we will see a permanent shift, especially within the landscape of smaller boutique or mid sized companies. The reality is that when the economy gets up and running again, many of those retailers will not have the capital to reopen their storefronts. They may have to pivot to an exclusively e-commerce platform until they recover and it’s impossible to know when that may be.
The key to this new business model would be finding a more resilient means of selling product that is not contingent upon people congregating in one space.
I have always believed that more money in the hands of consumers makes for a robust economy; conversely, when that capital is taken away, it impacts the economy tremendously. Because of the increase in unemployment, discretionary income at the consumer level has been siphoned from the economy. We know people are saving more right now, which reflects a lack of confidence in the economy; it also means people are not spending their income, they are stockpiling it.
When the pandemic is over, will people be confident enough to spend in that “new normal”? Only time will tell.