How Current World Events Have Impacted The Retail Industry


Retailers know all too well that the COVID pandemic of 2020, followed by the global recession, changed the course of business and growth operations for the long-term. It is also worth noting that in some ways, that jolt prepared them for a series of other new rude awakenings, such as global inflation, and the Ukraine War. These world events, through the lens of retailers, are more or less interconnected.

Existing Inflation Made Even Worse

As stated in research by Promodo, Ukrainian e-commerce lost 83% of sessions in one day, which was the day of the invasion, and by the end of the first week, revenues dropped by 92%. Of course, it is understandable that the losses would be significant in the current country of the war. The effects of it also managed to shake up the e-commerce ecosystem as a whole in numerous ways, all while the global economy was still scrambling to recover from the after effects of the 2020 pandemic and recession.

In turn, that also intensified the global inflation which started during the early months of the pandemic. Supply chain issues started from pandemic-related restrictions, which placed factories and warehouses in the position to operate at a limited capacity – if at all. That led to increases in price, due to limited availability of goods. In fact, it turned out that in January and February of 2022 alone, higher prices drove roughly $3.8 billion in online sales growth with no indication of a lack of consumer demand. Additionally, online shoppers spent as much as $27 billion more in 2022 on the same purchases.

Supply Chain Issues Across Europe

Since the start of the war in Ukraine, the extensive and debilitating supply chain disruption intensified, particularly for producers who buy components and materials from Europe. The impact of it is seen by over 300,000 companies out of the US and Europe, due to their supply chain dependencies in Russia and Ukraine. Russia is a significant exporter of a wide range of materials, which include wood, iron, copper, precious metals, gems, pearls, fuel, oil, wheat, cereals, and more.

According to UkraineInvest, the country also has “abundant reserves of coal, iron ore, natural gas, manganese, salt, oil, graphite, sulfur, kaolin, titanium, nickel, magnesium, timber, and mercury.” It is unlikely international investors will fund development of any new business ventures in the region until there is sustained peace in the region where the developments are to.

E-commerce companies based in countries such as China, The Netherlands, Germany, and Italy were left scrambling to manage their supply chain risk. They have made important inventory decisions in an effort to source the materials and goods from other locations, while avoiding long wait times. Of course, since everyone else is also making the same move, some wait times have become inevitable.

Increase In Shipping Costs

Supply chain issues sparked a chain reaction which led to significant increases in gas prices worldwide. According to Statista, in 2021, the average price per liter of gasoline in The Netherlands was roughly $7.11 per gallon. In March 2022, the price in The Netherlands had risen to about $9.43 per gallon. Gas prices in the US also increased to the point of breaking national records, to the tune of $4.17 per gallon.

The increase in gas prices led to an increase in shipping costs, in addition to fuel surcharges for deliveries. Along the China-EU shipping lane, TIME reports: “Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547% higher than the seasonal average over the last five years.” Another reason for the general increase in shipping costs is the fact that there has been a container shortage for China. For greater context – prices for new containers, which used to be $1,800 per 20-foot unit in 2020, skyrocketed to $3,500 per unit just one year later, with no signs of going back down anytime soon.

In response, retailers such as Levi Strauss and Tommy Hilfiger switched to the faster option of air freight for shipping, which is more expensive upfront, but helps mitigate costs in the long term. Some retailers are also moving their manufacturing locations in an effort to meet demands sooner and cut costs, such as switching from China to Vietnam, where labor wages are half of that of China.

Changes In Consumer Behavior And Demand

Between the economic turmoil, higher costs of living, job insecurities, and other amounting frustrations – consumers in general shifted to a mindset of prioritizing essential purchases, and splurging less. In fact, the largest US warehouse and distribution market is already facing difficulties with their merchandise, due to slowing sales of clothing, electronics, furniture, appliances, and other goods.

The setbacks aren’t limited to small and mid-size retailers. Even Walmart and Target ended up taking hits from their markdowns, which initiated due to shifts in consumer behaviors. It’s proving to be a double-edged sword, because they are also keeping their warehouses full, just in case demand significantly picks up during the 2022 holiday season. The demand can come in the form of traditional holiday shopping, or as a slew of panic-purchases which can lead to stockpiling, as we have previously seen with items such as toilet paper, water bottles, batteries, and disinfectants.

As the saying goes, every dark cloud does have its silver lining. Amid all this darkness, it is safe to say that the people who operate e-commerce and retail businesses have become more resilient than ever in the past two years. They managed to rise above a slew of setbacks, from pandemics, to recessions, breaches, and supply chain issues. And of course, with each setback comes another round of shockwaves. This is why it is consistently more important than ever for each department to pre-plan for best and worst case scenarios, while also continuously monitoring and identifying alternative sources to continue business operations seamlessly as possible.

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