A new report from Barclays Corporate Banking reveals this is especially true for the retail and wholesale sector, which has suffered extreme changes in its supply chains and consumer demand.
For both retailers and wholesalers, a key impact of Covid-19 was on supply chains. Before the pandemic, the average supply chain took five weeks from start to end but this has since doubled to ten weeks. Now, firms do not expect supply to return to normal until at least March 2021.
Despite this, many retailers have been able to trade on, thanks to a huge surge in sales. Over half of all retailers (55%) saw an increase in demand, which for three quarters (73%) caused temporary product shortages. Among those who saw the biggest increase in orders were DIY and garden (74%), food and drink (63%) and sports and leisure (62%) businesses.
Whilst most wholesalers saw the opposite effect, with 53% experiencing a fall in demand due to the closure of restaurants, bars and pubs, nearly a third (29%) saw a significant increase in orders. This could have been down to consumers changing their buying behaviours and trying new hobbies during lockdown – with the smallest and largest wholesalers benefiting the most (32% and 43% experiencing a significant increase in orders, respectively).
Prepared for big change
The research reveals that retail and wholesale businesses felt surprisingly prepared for the shock of Covid-19. Nearly half (44%) of retailers and wholesalers felt well-prepared, while just one in five (19%) felt the opposite.
For many businesses, major events in recent years meant they had no choice but to adapt. To prepare for Brexit, for example, many firms had altered their logistics (31%), diversified their supply chains (28%) and began stockpiling (24%). As a result, one in four (39%) businesses felt that getting ready for Brexit enabled them to deal better with Covid-19.
In turn, handling the pandemic left retailers and wholesalers feeling more equipped for the end of the Brexit transition period on 31 December. Those feeling better prepared have had their supply chains stress-tested (54%) and as a result, made changes to it (47%). Meanwhile, 55% think the economic impacts of Brexit will not be as severe as those of the virus.
Karen Johnson, Head of Retail, Wholesale & Healthcare at Barclays Corporate Banking, said, “While retailers and wholesalers have had no shortage of challenges and complications over the past few years, there is clearly an upside for the sector. Businesses have been forced to make big changes, and it seems that as a result, they are more agile and adaptable than ever.
“With the pandemic still impacting businesses across the UK, and the ‘return to normal’ likely to be a long way off, many of these changes will last, leading to long-term change for the market.
“While firms are in survival mode, they must not lose sight of their long-term priorities, like sustainability, and treating staff fairly at all levels of the supply chain. Ultimately, these are the things that businesses and their customers care about, and matter most for lasting success.”
Adapt, adapt, adapt
Changing consumer preferences over the past decade has pushed businesses to go online, with the UK now home to the third largest percentage of online shoppers (80%) in the world. Retailers have also been ‘going local’, responding to over half (55%) of UK consumers who want to shop closer to home.
Covid-19 has accelerated this transition. One in three retailers (31%) have reduced their physical footprint this year, especially in city centres (29%) and nearly a quarter (24%) have moved into more local areas.
While a seismic shift to online was already ongoing, half of all retailers (50%) have increased their reliance on e-commerce and social media since March. A further 20% plan to ramp up their social media efforts in the next 12 months, while 17% say the same for e-commerce.
Wholesalers have in turn reacted. Over half (52%) of businesses have begun selling directly to consumers since the virus began, cutting out the middleman for the first time. A further 18% plan to launch direct-to-consumer sales in the next 12 months, leaving fewer than a third (30%) of wholesalers yet to take this step.
A new look for the market
With firms expecting demand and supply to return to normal between March and May next year and 61% concerned that a second Covid-19 wave will cause further shortages, many will choose to cement these changes, leading to greater and faster change to the market. E-commerce, for example, is set to be a top priority for 47% of retailers in the coming years.
But while businesses have done all they can to adapt to the current situation, long-term priorities that were top of the agenda last year, have been put on the backburner.
For example, while nearly half of retailers and wholesalers (46%) are concerned about supply chain standards, only 16% plan to prioritise them over the next two years.
Sustainability, which was also a top priority for over 50% of CEOs in 2019, has also taken a backseat with just 35% of businesses planning to invest in it as a priority going forward.