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Shortage of goods could choke off recovery

Shortages of goods arriving in the UK could choke off any recovery in the retail sector, notes Mark Hart (Partner).

Around 60% of UK-based suppliers have been reporting delays to imports in the past month. With more than four out of five worried they will run out of stock and struggle with sourcing extra to meet demand, there is a real danger that inflation and lack of goods will choke off demand.

There is a danger that the disruption to supply chains causing the price of goods to increase, along with a shortage of workers in the hospitality sector due to the pandemic and Brexit, and that there will be inflationary pressures which will feed into an inflationary spiral in the wider economy.

Most of the demand seems to be for seasonal products (for example, camping equipment and garden furniture) which if it is not on the shelves now, means that demand will melt away naturally. However, there is a danger that conversely, small and medium-sized businesses are left with stock later in the summer that they cannot sell.

A key element of working capital is the management of stock. Retailers should consider their supply lines to ensure that they have the right stock on day one and can manage the pent-up demand expected once stores re-open.

Supply lines are critical and need to be continually monitored. The recent disruption caused by the grounding of the container ship in the Suez Canal has shown just how tight supply lines have become. The Coronavirus pandemic and Brexit have made retailers aware of the need to move away from ‘just in time supply lines’ to ‘just in case’, holding more stock than they would have done previously to ensure demand is managed. However, while this helps meet demand, it means that cash is tied up in stock. In order to manage this, retailers must manage payment terms with their suppliers and consider using consignment stock arrangements where possible. In this way they can manage demand and cash.

In addition, they should continue to manage stock by ensuring they have multiple suppliers so that they can continue to meet demand and avoid disruption should issues with supply occur. Businesses should consider whether shorter supply chains are more efficient at this time so that they can remain responsive to demand.

Would you like to know more?

If you would like to discuss the above or how it may affect you, please get in touch with your usual Blick Rothenberg contact or Mark Hart, using the form below or via his Partner profile page.

For any press queries, please contact David Barzilay whose details are on this page.

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