How Covid-19 is shifting retail supply chains dynamics

10 March 2021 4 min. read
More news on

The Covid-19 pandemic looks set to transform many retailers’ supply chains, with firms set to on-shore more than £4 billion of products in the UK over coming year, as the pandemic sees them adapt their procurement strategies. Across the continent, around seven-in-ten of Europe’s largest retailers have similarly conducted a review of their supply chains because of the coronavirus, with many relocating production to domestic economies.

The on-going pandemic has created new pressures on retailers, exposing weaknesses in global supply chains and leading many to rethink strategies for the future to remain resilient. One recent study suggested global markets could forfeit as much as $5 trillion in economic losses, if they do not adapt their supply chains in the wake of the Covid-19 virus – illustrating just what may be on the line for retailers who do not take the threat seriously.

In response to these pressures, a new report by global professional services firm Alvarez & Marsal (A&M) – in partnership with Retail Economics – has found that 70% of Europe’s largest 30 retailers have conducted a review of their supply chains because of Covid-19. While across all companies this sinks a little to 56% of firms who have either done it or will do it in the next 12 months, a further 69% said they were also near-shoring – bringing products closer to home, if not returning their production to domestic markets.

Are you considering any of the following options since the emergence of the pandemic

Focusing on Britain in this respect, the study estimates that UK retailers are already on-shoring produce, and by the end of 2021, more than £4.2 billion of products will have been brought back. This would represent a significant boost to UK manufacturing in the face of future disruptions, being equivalent to the country’s entire current clothing manufacturing output.

According to A&M, however, not all firms are finding it easy to make such a shift. A multitude of barriers are currently making it difficult for retailers – many of whom were already financially weakened before the pandemic – in particular costs. A majority of 86% said higher costs were stopping them shifting their supply chains to domestic economies – and in many cases such firms had shifted production abroad to make use of lower-cost, deregulated labour markets.

What barriers are stopping you from shifting your supply chains to your domestic economy

At the same time, ack of specialisation, choice of suppliers and concerns about capacity were also likely to dampen the pace at which retailers on-shored supply chains. A&M stated that the commercial viability of sourcing strategies would ultimately drive decision making amongst firms on a case-by-case basis. For example, onshoring a significant proportion of the production of electrical products to the UK would be impractical due to restrictions of scale and cost implications – as labour constitutes a significant proportion of production costs and with higher wages in Europe.

Motivations for moving production closer to home are not only related to the pandemic, however. As many firms weigh up their organisational sustainability, on-shore supply chains can also have a significant impact on carbon emission targets. As many consumers also become conscious of the emissions they are sponsoring with their custom, this could well impact on the profitability of a number of retailers.

If a retailer or brand sourced products from your domestic economy to help meet carbon emissions targets, would it in uence where you shopped

According to the researchers, 32% of customers in the UK would be prepared to pay more for locally sourced products, while a further 35% said they would use local sourcing as a differentiator between retailers of the same price range. While 33% said local sourcing was not a factor for them at all, the many flagging retailers of the UK would have difficult relying on the spending of just one-third of the country’s consumers.

Commenting on the findings, Tim Waters, European Supply Chain Practice Lead at A&M, said, “Despite significant distress and disruption, Covid-19 has also acted as a catalyst for change for retail businesses, with evolving consumer behaviour, ESG commitments and technological potential leading new strategic thinking… Our research highlights that on-shoring operations is already underway for many retailers. Not only will this help to create more ethical supply chains, it will help to manage future risk.”