Impact of COVID-19 on Retail Sector and Government Policies for Economic Recovery

This report discusses the impact of COVID-19 on the retail sector and the government policies implemented in the UK to support economic recovery. It analyzes the changes in consumer retail demand and the factors influencing it. The report also explores the measures taken by the government to assist retail businesses during the pandemic.

Economics for Business

Executive Summary
Retail sector is one of the largest industry where companies in the worst impact of COVID-
19 yet got success to manage demand of its goods and services. Through online delivery options,
door to door services and more, this sector helps people who are restricted to stay at home for
prevention from coronavirus, in meeting their demands of essential goods like food and
groceries. But other retailers like clothing, furniture, cosmetics and more, fails to maintain their
sales performance. Along with this, it also affects business of small retailers who operate
business through physical stores only. Therefore, Government of UK needs to develop better
policies for supporting retail industry to overcome from negative impact of this pandemic.

Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................1
Task 1...............................................................................................................................................1
Supply and Demand analysis to determine the factors impact on consumer retail demand........1
Task 2...............................................................................................................................................5
Governmental and Economic policies of UK for economic recovery from loss of consumer
retail spending..............................................................................................................................5
Conclusion.......................................................................................................................................7
REFERENCES................................................................................................................................8

Introduction
Outbreak of coronavirus or COVID-19 has dramatically affected the business of entire
sectors at all levels. It has not only changed the habits of consumer shopping but also enforce
firms to offer unique ways of shopping, to retain their customers (Verma and Gustafsson, 2020).
E-commerce, B2C, B2B and all brands especially retail sectors, are all bracing for impact of this
pandemic create on business. In this report, data has been collected that retail brands needs to
know about way spending behaviour of consumers have changes from the past few months, after
outbreak of COVID-19 (Singh and et. al., 2020). For this purpose, supply and demand analysis
technique is used to determine factors that create positive and negative shifts in demand for retail
goods and services. Along with this, how UK Governmental and economic policies aid in
recovering the loss of retail spending also demonstrated briefly.
Task 1
Supply and Demand analysis to determine the factors impact on consumer retail demand
Heading into this worst pandemic year, social and economic disruptions due to outbreak of
coronavirus is highly devastating. Today, more than tens of millions of people are at high risk of
falling into poverty extremely at large level (Seetharaman, 2020). It results in not only
decreasing their spending power but also changes their shopping experience as well. Similarly,
on the firms, there is a renewed sense of caution has seen as cases of coronavirus soar in parts of
the world rapidly. However, with the uncertainty from this pandemic that persists throughout the
globe, impact of this virus is felt across countries in different manner. As a result, a significant
variance in both positive and negative shift in consumer retailing demand has seen, as their
respond towards crisis and adapt to the next normal (Roggeveen and Sethuraman, 2020). In
context with UK market, according to data obtained from Digital Commerce 360, it has
evaluated that online shopping has been raised up near about 36% from 28% pre-pandemic after
COVID-19 (How Coronavirus (COVID-19) Is Impacting Ecommerce, 2020). This has increased
consumer spending on retail shopping from the past months, which proves beneficial for retail
sectors who has strong online presence. But it also reduces footprint of customers from offline or
physical stores that impact negatively on business of those retailers (especially small sectors)
who has less or no presence in ecommerce industry (Richards and Rickard, 2020). To identify
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the extent at which consumer demand for retail goods or services are changed in UK, with
negative and positive shifts, supply and demand technique is used in following way –
The income effect and shift in employment –
Employment is considered as one of the main factors which highly influencing the
demand of retail goods and services (Paul and Chowdhury, 2020). People receiving a steady
income with expectations to continue receive the same, then it makes discretionary more
spending purchases that shifts demand curve towards right. While on contrast, increasing
unemployment give outcomes in almost opposite manner, where due to less income sources,
consumer spending decreases especially on luxury or unnecessary goods. Considering the
pandemic impact of COVID-19 which has devastated the UK market across all sectors,
thousands of jobs have been lost (Nicola and et. al., 2020). However, hiring process is also rising
especially in retail areas, where many of job roles related with doorstep delivery. As per BBC
report, companies in UK are cutting thousands of jobs as coronavirus continuously hitting the
economy. Currently, with an increase of 0.4%, near about 1.5 million people are unemployed
and will rise to 2.7 million till end of this month (Unemployment rate: How many people are out
of work?, 2020). This in turn, reducing highly the spending power of its customers at large level.
This has raise the demand of consumers for retail goods or services that meet their basic needs
rather than on luxury goods.
Price
D1 D2 here, D2 = Rise in demand of food and groceries
D3 D3 = Decrease in demand of other retail goods
Quantities of retail goods
UK regional or local demand factors –
The coronavirus pandemic causes a massive shock to the world economy and dampened
the entire projected growth scenarios of companies of all sectors (Gray, 2020). In UK, this crisis
is likely to impact negatively on its annual retail sales greatly, except the food retail because it is
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considered as the basic necessity. The revised forecasts indicate that while food and grocery
retail is expected to grow by 7.5 billion on the original 2020 forecasts, clothing and footwear
retailers will suffer a loss of about 13 billion British pounds in their annual sales (Covid-19 and
the retail sector: impact and policy responses, 2020). Taking up the combination of regional or
local sectors, differences in sectoral performance acts a major driver in variability of economic
performance as per regions. For an instance, regions which are highly dependent on hospitality,
manufacturing and tourism, are likely to be experienced sharper output falls in 2020 as compared
with retail sectors which are having their strong online presence (Goeb, Boughton and Maredia,
2020). In this pandemic period, where lockdown and restrictions on travel etc. create problems
for people to meet their fundamental necessities. Therefore, digital services are relatively
considered as more important, due to relative exposure of retailers and other sectors to the
detrimental impact of COVID-19.
Along with this, other factors which likely to be affected the relative vulnerability of
regions to the pandemic, includes degree of exposure to the international trade; region’s reliance
on the components and raw materials through supply chains (Donthu and Gustafsson, 2020). In
UK, as high numbers of retail sectors operate at small level therefore, so, they also make regions
less resilient than others. In addition, as compared to larger retailers like ALDI, LIDL etc. having
broad customer base, it has evaluated that small retailers faced sharper declines in sales than
larger companies, with broader customer bases. In this regard, considering the demand of
consumers in retail goods, the sharp declination has been seen in Health & Beauty; Electricals;
Home, furniture and flooring; Clothing and footwear segments (Goeb, Boughton and Maredia,
2020). However, as food and grocery products are at priority, therefore, demand of the retailing
goods are highly increased during this pandemic, especially on digital platform as compared to
physical stores.
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Figure 1: Annual Retail sales in UK with pre and post coronavirus forecast. 2020
Complementary or substitute goods –
It is another main factor which impacts directly on consumer demand for retail goods. After
outbreak of corona, which has affected both at social and economic level to people, so, with
increasing unemployment, consumers spending has highly affected (Donthu and Gustafsson,
2020). During lockdown, it has seen that demand of food and groceries are highly increased in
UK and other countries, which rise the price of some commodities as well. Under such
situations, people having low income sources or products that are outreach from them, demand
of complementary or substitute goods more. This has shift the demand of luxury retail goods to
left and demand of complementary towards right in following way –
Price
D1 D2 here, D2 = Increase in demand of complementary goods
D3 D3 = Decrease in demand of luxury retail goods
Quantities of retail goods
State of the economy –
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As people feel more confident when economic growth of a country stables or grow
continuously. Therefore, it is considered as another main factor which highly influences the
consumer demand of retail goods. Due to rapidly spreading of coronavirus infections, tougher
restrictions has been imposed to sweep its wave from society in UK. But billions of pounds has
been wiped of stock market value, in turn, it highly affects the economic state of this nation. But
gradual return of consumers to high street after lockdown and increase spending on retail goods
and services, has let this country to maintain its economy (Gray, 2020). However, with positive
signs of consumer spending power that holding ground, still Britain is fallen continuously into
deepest recession. In last month of August, retail sales have been risen up by 0.8% that proves
beneficial in shaping the business of retail industry. But clothing in retail is continuously falling
that impacts negatively as well.
Task 2
Governmental and Economic policies of UK for economic recovery from loss of consumer retail
spending
The mitigation measures of government must be aimed at slowing the impact of novel
coronavirus pandemic attack, which taken rapidly over the last few months of 2020 and has
largely affected the demand, supply and daily operations of retail industry (Nicola and et. al.,
2020). As this sector includes entire resale activities of existing or new goods which can be used
to meet needs of general public for their personal or household consumption. Therefore,
development of governmental and economic policies will support retail sectors to overcome from
the worst impact of pandemic. The retail sector refers to economic heavyweight, where on an
average major proportion of people i.e. 1 every 12 workers in UK are associated with retail
sectors. Along with this, it occupies an important position in terms of economic development, in
value chains both as an outlet for the upstream sectors and as a provider to households (Paul and
Chowdhury, 2020). Furthermore, retail sector is also considered as labour intensive, therefore,
any disruptions results in disproportionately lead to employment consequences. Therefore, for
strengthening the social and economic consequences of the crisis in retail sector, UK
Government needs to make effective policies.
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As in this pandemic attack, where number of retailers in UK face problems in managing the
sales performance. But considering the firms that are still hiring a number of employees, policy
makers need to evaluate how business of them are still managing. For example, Aldi is one of the
largest retailers in UK, under this recession period of economy, it is going to hire more than
1,200 new employees, because supermarket chain plans aid in opening an average of one new
store before Christmas (Richards and Rickard, 2020). Similarly, one of its rival i.e. Lidl also
plans to open up more than 25 new stores within next six months, which will open opportunities
of 1,000 jobs by the end of this year (The companies still hiring in the UK during coronavirus
crisis, 2020). However, neither of these chains offer online shopping service to customers, but
still their sales performance are continuously growing. The reason behind this is way they are
serving its customers and employees both by maintaining proper hygiene conditions at its stores.
Therefore, supporting small retailers to develop and maintain their stores completely free from
spread of coronavirus.
The retail sector considers as paramount importance for mitigating the impact of social and
economic devastating factors of a country (Roggeveen and Sethuraman, 2020). Through
providing support to companies of this sector, which operates as a gateway to customers from
upstream sectors and accounts for almost 5 to 6% of GDP, as well as give employment about 1
in 12 workers, help government in getting recovery from loss of consumer retail spending. For
this purpose, major policy measures are needed to be taken for the benefit of firms, consumers
and workers at all state (Seetharaman, 2020). This may shield the retail sector from worst impact
of pandemic crisis and enhance its resilience as well. The policies which could be used for this
purpose, must be built on following aspects -
 Government must ensure that schemes of liquidity assistance be accessible to firms
dealing in retail industry, irrespective of their size.
 Support essential retailers who are facing issues related with labour supply shortages,
especially, in terms of smoothing demand-supply matching for retail jobs.
 Support retail firms for implementing the social distancing measures and providing the
guidance on maintenance of health and safety standards.
 Ensure that competition within retail sector which was more intense before pandemic
attack of coronavirus, remains sufficient in aftermath of this crisis as well.
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 Increase resilience of retail firms by diversifying sales channels of them, most particular
by supporting the small brick-and-mortar retailers to develop online presence.
By making liquidity assistance readily and quickly available to retailers help in keeping their
business afloat. Since major problems arise due to decrease of non-essential retail goods during
lockdown, therefore, liquidity assistance will aid in avoiding these crises. Governments however,
has already offered the transversal and large emergency support, but still planners need to ensure
that it is accessible for all retail firms, especially for small independent shops as well as large
chains (Singh and et. al., 2020). Further, beyond this emergency, measures of liquidity support
measures should only be made available to viable firms in order to prevent adverse impact on
business dynamism. Similarly, Governments of UK needs to be taken four major types of
measures for ensuring that households or consumers have access to essential goods, so that
dependency on online or digital services could be reduced, for enhancing sales of firms having
physical stores only (Verma and Gustafsson, 2020). It includes enhancing the financial
incentives for workers dealing in retail sectors; temporarily easing the labour market and retail
regulations for the essential activities; smoothing the demand and supply matching for retail
jobs; and last is to provide guidance for health and safety measures within retail stores for
addressing both employee and labour concerns.
Conclusion
It has been concluded from all over this report that under this vast pandemic attack where
sales performance and business of every sector, is highly affected. This, in turn, not only impact
on economic state of country but also affect people to meet their basic necessities due to increase
in unemployment and income source. Therefore, it becomes essential for government to develop
effective policies for supporting retail industry to run their business efficiently.
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REFERENCES
Books and Journals
Donthu, N. and Gustafsson, A., 2020. Effects of COVID-19 on business and research. Journal of
business research, 117, p.284.
Goeb, J., Boughton, D. and Maredia, M.K., 2020. Monitoring the impact of COVID-19 in
Myanmar: Agricultural input retailers (Vol. 8). Intl Food Policy Res Inst.
Gray, R. S., 2020. Agriculture, transportation, and the COVID‐19 crisis. Canadian Journal of
Agricultural Economics/Revue canadienne d'agroeconomie.
Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., Agha, M. and Agha,
R., 2020. The socio-economic implications of the coronavirus and COVID-19 pandemic:
a review. International Journal of Surgery.
Paul, S. K. and Chowdhury, P., 2020. Strategies for managing the impacts of disruptions during
COVID-19: an example of toilet paper. Global Journal of Flexible Systems
Management, 21(3), pp.283-293.
Richards, T .J. and Rickard, B., 2020. COVID‐19 impact on fruit and vegetable
markets. Canadian Journal of Agricultural Economics/Revue canadienne
d'agroeconomie.
Roggeveen, A. L. and Sethuraman, R., 2020. Customer-Interfacing Retail Technologies in 2020
& Beyond: An Integrative Framework and Research Directions. Journal of
Retailing, 96(3), pp.299-309.
Seetharaman, P., 2020. Business models shifts: Impact of Covid-19. International Journal of
Information Management, 54, p.102173.
Singh, S., Kumar, R., Panchal, R. and Tiwari, M. K., 2020. Impact of COVID-19 on logistics
systems and disruptions in food supply chain. International Journal of Production
Research, pp.1-16.
Verma, S. and Gustafsson, A., 2020. Investigating the emerging COVID-19 research trends in
the field of business and management: A bibliometric analysis approach. Journal of
Business Research, 118, pp.253-261.
Online
How Coronavirus (COVID-19) Is Impacting Ecommerce. 2020. [Online] Available Through:<
https://www.roirevolution.com/blog/2020/10/coronavirus-and-ecommerce/>.
The companies still hiring in the UK during coronavirus crisis. 2020. [Online] Available
Through: https://www.theguardian.com/world/2020/jul/31/how-covid-19-has-reshaped-
the-jobs-landscape-in-the-uk
Annual Retail sales in UK with pre and post coronavirus forecast. 2020. [Online] Available
Through: <https://www.statista.com/statistics/1111013/pre-and-post-coronavirus-growth-
forecasts-for-retail-uk/ >.
Covid-19 and the retail sector: impact and policy responses. 2020. [Online] Available
Through:< http://www.oecd.org/coronavirus/policy-responses/covid-19-and-the-retail-
sector-impact-and-policy-responses-371d7599/>.
Unemployment rate: How many people are out of work?. 2020. [Online] Available Through:<
https://www.bbc.com/news/business-52660591>.
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