The epidemic of SARS-CoV-2, otherwise known as coronavirus (COVID-19), is already affecting retail and technology markets. The coronavirus impact on the tech market has already begun with major brands such as Apple and Nissan reporting knock-on effects due to their supply chain and production dependency on China. How fast and how great of an extent can we expect to see similar impacts expand across industries? The timing of when the outbreak can be brought under control will heavily determine the severity of market disruptions.
Coronavirus (COVID-19) impact on the tech market is a global issue
Most major manufacturers rely on parts or production capacities from China, but China’s workforce and manufacturing capability have been hit hard. China has more than 75,000 people infected with COVID-19 as of Feb 20th, majority of the workforce is staying home. Blue-collar workers are just now cautiously returning to their manufacturing sites after being away for some weeks while office employees are preferring to compensate by working from home. The coronavirus impact on the tech market is putting a huge pressure not only on the global supply chain but also on the retail and service industries.
While some manufacturers and retailers are able to live off their stocks for a certain time, the scarcity of available products will become an issue very soon. This is especially so for the tech industries even with manufacturing capacities in China starting to produce again. The question is whether consumers will be willing to postpone purchases of out-of-stock items or whether they will consider an alternative product that is available right away.
Although some companies are already making plans to diversify their sourcing, the supply impact will be unavoidable in the short term. Countries neighboring China might benefit economically from these supply chain and production moves, especially those with strong manufacturing and tech footprint.
Consumer attitudes towards price and immediacy
Naturally, price becomes a greater factor at times of short supply and is something consumers are very sensitive to. Globally, 44% of shoppers say they have increased how often they compare prices across different stores compared to a year ago, with older age groups being extra prone to this. At the same time, 61% of the consumers point to the price as the most important driver when choosing the final product.
The effects of elevated pricing due to reduced supply and product availability can range from consumers delaying a purchase to choosing an alternative product on stock, or even not purchasing a product at all. If it’s a case of postponed demand, this can be satisfied in the following quarters, if there is enough capacity on the manufacturer side. The more negative scenario might be that these postponed purchases will not materialize at all, which will lead to a significant market decline and lost sales opportunities.
The consumer expectation for immediacy is core to these developments especially when it comes to certain consumer segments who highly value immediacy in their purchases – some even at the expense of quality.
Globally, 31% specifically say they are “willing to settle for an inferior product or service if it’s available when I need it”. Added to this, 22% in Western Europe say they really need the shops and services they use to be available at all times. All of this can negatively impact retailers’ and manufacturers’ turnover.
What are the signs that manufacturers and retailers should watch for?
Risk mitigation and management during disruption like this coronavirus impact on the tech market depends on being able to spot the early changes in buying behavior. The following considerations are important signs to watch for when it comes to navigating through these turbulent times:
1. Are consumers postponing big-ticket purchases such as TVs or fridges?
2. Are there significant changes in the competitors’ performance?
3. Which sectors and product groups are hit first (or the hardest) by the drying supply chain?
4. What are the
changes to online vs offline share of the market as consumers choose to stay at home and avoid contact with crowds (e.g. in China and rest of Asia)?
5. What effects will postponing launches have on key markets?
The lack of responsiveness to such disruptive challenges usually comes at a high price. Quick availability of granular data can provide businesses with timely insights to stay on top of these questions and react fast with informed decisions.
Data in this blog is from the following reports: GfK Consumer Life 2019, GfK Consumer Insights Engine 2019 and GfK Future Buy 2019.