Retailers adapt supply chains and embrace digital

Out-Law Analysis | 10 Mar 2021 | 2:24 pm | 4 min. read

Retailers in the UK have had to adapt their business practices to remain viable, competitive and compliant in light of the challenges presented by Brexit, the coronavirus crisis and increased regulatory scrutiny.

Many retailers have already invested in supply chain changes to become more resilient to disruption as well as to gain comfort that supply chain practices are ethical and sustainable. Many too have been investing in building a stronger digital presence, particularly as pandemic-related restrictions continue to cause many 'bricks and mortar' stores to remain closed.

Continued investment in supply chains and digital technology and marketing is anticipated as 2021 progresses as retailers seek greater flexibility and seize opportunities.

Supply chain pressure

Global supply chains have come under strain in the past year.

Lockdown restrictions imposed in response to the coronavirus crisis in many countries caused delays in manufacturing and shipping, while some insurers have been reluctant to extend export insurance policies. Logistics challenges have arisen too, with trade impacted by a build-up of containers in the US and not enough in China. Challenging economic conditions have resulted in an increase in insolvencies too, with this having a knock-on impact on payments throughout the supply chain.

In Europe, retailers have had to deal with issues with supply stemming from the end of the Brexit transition period. A combination of increased administration, new regulatory hurdles and costs led to a backlog of freight at the UK border. According to a Financial Times report in January, the Road Haulage Association estimated that the volume of exports from Britain to the EU dropped by up to 68% in January compared with the same month in 2020.

The delays caused by the extra red tape are particularly challenging for wholesale fashion retailers, which need certainty about shipments to deliver goods on schedule to consumer-facing retail outlets.  

Retailers and industry associations have complained about additional fees and taxes payable on imports and exports to and from the EU and a number of retailers have announced they are planning to move production away from the UK to save money.

Supply chain costs have also increased due to the coronavirus pandemic, with the lack of containers available quadrupling prices for imports of goods from Asia to Europe, according to the Financial Times.

Livesey Samantha

Samantha Livesey

Partner, Head of Commercial

More companies are starting to use technology such as QR codes to inform consumers about the source of the materials used in their products

Making changes

Retailers that are successfully adapting to the challenges caused by supply chain pressure are often adopting innovative solutions.

Clothing business Zara operates a highly automated distribution centre which facilitates the brand’s swift turnover of designs and inventory. The centre serves as the central hub for raw materials, finished clothes and the distribution of those products to its stores. The model enables Zara to adapt quickly to changes in short-term demand.

Fashion retailers are also under pressure to respond to demand from consumers for more ethical and sustainable products, and need to build their responses into the way they source and supply their goods. Earlier this year UK foreign secretary Dominic Raab announced businesses that fail to publish annual 'modern slavery' statements will face potential financial penalties under the Modern Slavery Act.

Fashion Revolution’s Transparency Index 2020 showed that 40% of brands were publishing a list of the manufacturers which they have direct business relationships, up from 35% in 2019. However, only 7% were publishing information on their raw material suppliers.

More companies are starting to use technology such as QR codes to inform consumers about the source of the materials used in their products, but it is clear that more will be expected of businesses, including retailers, with the prospect of legislative reform looming.

Careful consideration will need to be given to increasing the burdens on businesses in respect of their supply chain oversight. According to a 2019 survey by McKinsey of chief purchasing officers, embracing sustainability and ethical requirements is likely to further increase the cost of goods to consumers.

A digital shift

The coronavirus crisis has accelerated the evolution of the retail market. Office for National Statistics data showed a 46% increase in online spending in 2020 compared to 2019 – a figure that to a significant degree reflects the fact that many 'non-essential' high-street stores were closed for several months of the year as public health measures were imposed to curb the spread of Covid-19.

The shift to online retail pre-dates the pandemic. High street brands have been exploring how digital technologies and data analytics can help them improve both their in-store and online offering for a number of years, from the way their physical stores are laid out to a more personalised approach to promotions online.

Livesey Samantha

Samantha Livesey

Partner, Head of Commercial

Some brands having been reprimanded for failing to ensure influencer posts are sufficiently flagged as adverts

Social media is an important channel for building brand recognition. The recent unlikely combination between Weetabix and Heinz to promote the idea of baked beans on the breakfast cereal highlighted the power of a unique message and social, viral engagement in raising profile and reaching an audience.

However, social media marketing is evolving further still with some retailers rethinking their presence on digital platforms altogether. In the case of cosmetics brand Lush it chose to move away from pushing engagement through its own accounts to relying more on its community of inventors and customers to drive conversation.

Other retailers rely on celebrity influencers to help get their message across. However, retailers must carefully navigate UK advertising rules, with some brands having been reprimanded for failing to ensure influencer posts are sufficiently flagged as adverts. In addition, while partnering with influencers can help brands reach new, particularly younger, audiences, retailers will want to choose who they team up with carefully – the sometimes extravagant lifestyle led by some influencers has attracted public criticism amidst continuing coronavirus-related restrictions.

We can expect to see retailers' digital strategies evolve further in 2021 as the importance of e-commerce and an online presence continues to grow.