Retail Sourcing Report Q3 2020

Retail Sourcing Report Q3 2020

August 19, 2020




The Retail Sourcing Report provides research and analysis aimed at informing global sourcing and buying decisions for retailers, brands and other sourcing and supply chain professionals. Each issue includes a snapshot of key information and trends impacting global sourcing, such as economic conditions in sourcing countries, container shipping trends, currency exchange and commodity rates. We also cover hot topics ourselves and include insight from analysts and other experts.


Purchasing Manager’s Index (PMI)

To help understand industry and economic conditions in a country, the PMI Index tracks variables such as output, new orders, stock levels, employment and prices across private companies in the manufacturing, construction, retail and service sectors. Over 30 countries and regions participate in various PMI surveys. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates growth. This update looks at a selection of emerging economies and key sourcing countries, providing indicators for recent months based on data provided by IHS Markit, NIKKEI, CAIXIN and other sources.

Q3 2020 News and Analysis: While easing significantly in June due to the phasing out of lockdowns, global manufacturing indices remained in contraction through Q2. Of the 32 countries surveyed, 15 reported expansion in June, compared to just 2 in May. However international trade continued to suffer on weak demand and the pandemic continued to impact supply chains, with average vendor lead times lengthening. ASEAN countries, except for Vietnam and Malaysia, recovered only slightly and many remain concerned over the potential impact of further virus outbreaks through the remainder of 2020. Overall, export demand remained weak and employment numbers are still falling as uncertainty prevails.


Sources: IHS Markit Economics, Nikkei, Caixin


Low-Cost Country Sourcing (LCCS) Highlights


This section looks at selected issues impacting sourcing from key LCCS destinations based on data available at the time of printing the report, alongside official import/export numbers highlighting global sourcing trends. Low-Cost Sourcing Countries continued to struggle through Q3 with rising virus cases and reduced export demand causing widespread unemployment and economic uncertainty, expected to continue through 2020.

Bangladesh – With the garment sector working at half their normal capacity and a loss of almost $5 bln Q2 revenue, Bangladesh saw export earnings sink by 17% to 33.67 bln in the 2019-2020 fiscal year.

Cambodia – Despite a relatively low virus rate, Cambodia’s economy is expected to shrink by up to 2.9% in2020, the World Bank predicted, with over 1.75 mln jobs at risk, the worst performance in over 25 years.

India – With over 450,000 confirmed COVID-19 cases, India is one of the hardest-hit countries, with some estimates showing that India’s economy declined by 45% between April-June and further declines expected.

Indonesia – Indonesia’s economy is expected to contract through the rest of 2020 following negative growth of 4.3% in Q2 rising cases of Covid-19, which are likely to reach a peak only in August/September.

Pakistan – Following weak economic growth since 2018, Pakistan’s economy is now expected to contract in 2020 as it tries to balance a healthcare crisis from rising virus cases against opening their economy.

Philippines – The Philippine economy is projected to contract by at least 8% through 2020 as it battles an unchecked pandemic and remains under lockdown with rising unemployment and no signs of recovery.

Thailand – Thailand’s economy is expected to shrink by over 8% in 2020 as unemployment approaches record levels, exports plummet and essential tourism revenue has dried up, limiting recovery prospects.

Turkey – Inflation in Turkey reached 12.6% in June as foreign reserves were depleted in an effort to combat the pandemic, with forecasts indicating that Turkey’s economy will contract by 5% over 2020.

Vietnam – One of the few success stories of the pandemic, after successfully containing the pandemic


Sources: News Reports, Various Statistical Bureaus


Focus Topic: Post-Pandemic Retail


One of the biggest outcomes of the Covid-19 pandemic is a shift in the way people live, work, travel and consume goods and services, which in turn is driving massive shifts in retailing. Retailers that have succeeded during this crisis have adapted their business models to effectively meet the needs of consumers. With people locked-in at home, malls, restaurants, shops, and travel shut-down, e-commerce was one of the big winners. Online groceries, cleaning supplies, PPE, household goods, fitness equipment and DIY products were some of the categories that saw dramatic increases in online sales. But the retail shift goes beyond e-commerce impacting why, what, where and how people buy, driving retailers to adapt or die.


Consumer Value Shift

In the US alone, around 40 million people lost their jobs since the pandemic began in March. Those who still have jobs also face uncertainty over their future. While government stimulus and benefits helped, for many people it was not enough and as these benefits end, people remain in economic limbo which for the most part has resulted in more calculated spending.

According to McKinsey and other research, the pandemic has highlighted the trend of consumers looking for value, which is a combination of price quality and service. This has meant increased market share for discounts and bulk retailers such as Costco and growth in the big online marketplaces such as Amazon and Walmart. Private label products have also gained traction, with 34% of US consumers spending more on private label products during the pandemic.

With people working and cooking more at home, food subscription box providers have gained market share and DIY sales have grown as people look to improve their living and working environment. Customer loyalty has also shifted, as consumers try different retailers, buy larger quantities with less shopping trips, and opt for online ordering wherever possible. Fashion has also shifted as people spend less time in the office and wear more casual and sportswear, which boosted sales for retailers such as Lululemon and similar brands. With people driving and taking less transit and business trips, automotive sales are down, bicycle trips are up and for some the opportunity to live in more remote locations will also affect the way they consume.

While seasoned online shoppers are buying more, the biggest shift is in people who did little shopping online, such as older demographics. Now that more people have seen the convenience and opportunity in online shopping and online retailers have improved their service and offering, digital commerce is positioned to grow even faster. Many people are still hesitant to venture out and face the added pressure of wearing a mask, along with longer lines and more time-consuming check out procedures. This means that e-commerce is likely maintain a high growth rate post-pandemic.


The Adaptive Retailer


According to Emarys and GoodData, in the US, retailers that are primarily brick-and-mortar saw online orders grow 24% between May 31 and June 7 compared to the same period last year. Pureplay online retailers saw online orders grow 5% during that same period compared to 2019. Research from Brick Meets Click, a grocery retail consulting firm, showed that US online grocery sales set a record in May, reaching $6.6 billion, a 24% jump from April. Brick-and-Mortar giant Walmart, which was ramping up its ecommerce operations before the pandemic, saw online revenue soar 74% in its first quarter ended May 1 with its grocery delivery and pickup services in high demand.

Many brand names have shut stores and moved towards more hybrid models. For example less stores, more selection online and converting stores into pick-up locations. JC Penney, J. Crew, Neiman Marcus, and Pier 1 Imports are among those that have announced plans to close stores permanently and/or have declared bankruptcy, citing losses caused by the pandemic. Alternative fulfillment models such as curbside pick-up have also grown dramatically, with small and large retailers scrambling to offer touchless pick-up in various forms of sophistication. Retailers have had the opportunity to experiment and improve their fulfillment capabilities and consumers have stepped out of their comfort zone, accelerating the shift in retail.

Spanish retailer Inditex and its flagship Zara clothing brand, announced plans to invest more than $1 billion on its digital operations while closing 1,200 physical stores. Others retail chains are adding new services to accommodate consumer demand for more shopping options, such as curbside pickup and buy online, pick up in store (BOPIS). Target has been building up its BOPIS capabilities for a few years, while other retailers have scrambled to provide the option as consumers avoided the risk of physical stores during the pandemic. Bed Bath & Beyond is converting a quarter of its stores in the US and Canada into regional fulfillment centers to support its growing digital operation.


Watch Out for Q4 2020!

The Retail Sourcing Report aims to keep you ahead of the curve by providing facts, insight and analysis on issues impacting retail global sourcing. We produce this free report for individuals at retailers, brands and companies involved in global sourcing and supply chain management. Check back next quarter for the full Q4 2020 update.


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