How has the pandemic reshaped the risk landscape for retail? | Insurance Business Australia
The COVID-19 pandemic has created a massive shift in people’s lifestyle and economic activities, and the retail sector has been one of the most widely affected.
Due to the various lockdowns, people’s consumption behaviour has been altered greatly, including rapid acceleration and widespread adoption of e-commerce. The number of people going to brick-and-mortar shops was reduced due to movement restrictions, and consumers instead opted to buy online and have the items delivered to their homes.
According to Aon’s 2021 Global Risk Management Survey, supply chain issues were the top risk for retailers, but only ranked eighth for all participants of the survey.
In a podcast with RIMS, MaryAnne Burke, managing director of Aon Risk Solutions’ retail practice, said that the survey coincided with the Suez Canal blockage incident, placing the supply chain failure risk on the top of many retailers’ minds. This major shipping interruption, compounded with existing supply chain issues, caused a chain reaction.
“Retailers are trying to get product off and the shelves were empty,” Burke said. “For truckers, there was a snag in all of the ports, so the containers weren’t coming off these ships.”
According to Rob Connery, global risk consulting quarterback for Aon's retail and consumer goods industry practice, another major change caused by the pandemic was the altered demand for products.
“Home fitness equipment was much more in demand than, let's say, bridesmaid’s dresses because there were no people having formal events,” Connery said. “Another thing that we saw at Aon was a real shift in what clients were doing. Our retailers were used to [meeting] face-to-face with the client and selling directly to them, but it shifted to online rapidly. That shift to online created a demand for how we are going to physically get the product to our customers.”
Aon cited two surveys conducted by the National Association of Convenience Stores, where two out of five convenience retailers said there were “significant” levels of disruption across the supply chain during the second half of 2021, and 86% said at least 10% of their orders were disrupted. Also, two in five industry suppliers said they faced “significant” levels of disruption for materials necessary to create their products.
The report said that even when peak operations resume and things return to “normal”, there will be a lasting shift to online purchasing. This means that retailers need to focus on omni-channel strategies as a way to expand customer reach.
According to Aon, complex supply-chain risk is one of the big six risks facing businesses today. Other risks are loss of intellectual property, cyber, damage to reputation, climate change and the COVID-19 pandemic, all of which are interconnected and evolving fast. These risks have long-tail exposures but limited risk transfer solutions, the global brokerage said.
“In the face of the pandemic and a changing risk landscape, global supply chains are being tested to the limit,” the report said. “The just-in-time supply chain that is all about cost and efficiency must now respond to those emerging risks. Failure to do so is not an option. A strong, resilient and adaptable supply chain is an imperative for business survival and growth. To meet that imperative, leaders should take a number of actions, which include agreeing on which contracts, customers and products need protection first, understanding your suppliers and their suppliers, quantifying risks and breaking down silos everywhere.”