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Hind Al Soulia - Riyadh - DUBAI — A new report, "The Shape of Retail: COVID-19 and the Future of Retail Supply Chains," by global professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics, highlights the greater emphasis the COVID-19 crisis has placed on using technology to build more resilient supply chains and accelerated trends towards digital trade and e-commerce.
According to the report, technological innovation and adoption will shape the future of supply chains, helping to streamline operations and drive efficiencies.
Of the retailers surveyed, the majority recognise the need for continued investment into technology, with 77% who are considering investing in digitalisation, 63% in automation and 23% in artificial intelligence, and for many, these changes can bring about sizeable rewards with minimal investment.
Dr. Saeeda Jaffar, managing director and head, Middle East, A&M commented, “While the key trends largely focus on Europe, similar trends are observed in the GCC. Retailers are strengthening and stabilizing their supply chains. There is a move towards acquisition of strategic assets to provide security of critical supply chains.
“For example, local investors have recently invested heavily in the food and agricultural sector, to combat supply chain disruptions which were especially heightened due to COVID-19. Simultaneously, there is a move away from heavy dependence on concentrated imports to local content and distributed sourcing and storage.
“Furthermore, a digital transformation is inevitable, which COVID-19 has helped accelerate. We expect business models to incorporate digitization, which, will ultimately have an impact on customer interfaces and operating models, creating flexible, lean and data driven organization.”
The report , also estimates that more than £4.2 billion (AED20.33 billion) of products will be on-shored to the UK by retailers in the next 12 months. This would represent a significant boost to UK manufacturing, being equivalent to the country’s entire current clothing manufacturing output.
COVID-19 has created new pressures on retailers, exposing weaknesses in global supply chains and leading many to rethink strategies for the future to remain resilient. Nearly three quarters (70%) of Europe’s largest 30 retailers say they have conducted a review of their supply chains as a direct result of the pandemic.
Erin Brookes, managing director and head of retail and consumer, Europe, A&M, noted, “COVID-19 has brought about a fresh set of financial and logistical challenges which retailers must overcome while accommodating permanent shifts in consumer behaviour. Our research shows that despite these new pressure points, most retailers are responding at speed, creating new growth opportunities within their domestic economies and protecting against future risk.
“This holiday season will be a major test for this new operating environment. The structural shift towards online will place extraordinary pressure on distribution and in some cases, we are likely to see supply not meeting demand. Meanwhile, social distancing measures could place a strain on physical retail capacity. In the next few weeks, retailers will need to deliver a steady flow of sales to contain the usual last-minute rush.”
Increased focus on ESG leads to more sustainable supply chains
Retail businesses are being forced to reassess the future of their supply networks and how they can not only meet COVID-19 related challenges, but simultaneously address underlying structural changes to ensure they are future-proofed.
Now that the initial shock of the pandemic has resided, businesses and governments are considering how to build back better, with sustainability playing a major role. As European retailers come under increasing pressure to create visible ESG commitments, 70% of the retailers surveyed have already begun changing the way they source products to help meet their goals, with the remaining 30% planning to do so in the future.
Part of these plans also incorporate on-shoring, with 46% stating they already source more from their domestic economies to help meet ESG targets, while 39% suggest they intend to in the future.
Retailers are also increasing their focus on sustainability in response to growing consumer demand for ethically sourced goods. A third (32%)³ of UK consumers say they would be prepared to pay more for products sourced from Britain to help meet carbon emissions targets, while a further 35% would if there was no impact on price.
The long-term impact remains unknown until Brexit agreements are reached
Away from the pandemic, the uncertain outcome of the ongoing Brexit negotiations will have significant repercussions for UK retailers and their supply chains, with no-deal creating costly delays and interruption. According to A&M’s analysis, a no-deal scenario would create new tariffs of £7 billion (AED 33.88 billion) for UK businesses, with most of the burden placed on food (17.1%) and clothing (10.6%).
As such, A&M’s research suggests that European retailers are reluctant to commit to any permanent changes to their supply chains until a Free Trade Agreement (FTA) is negotiated between the UK and the EU. — SG
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