While there is no doubt that Coronavirus has affected our livelihood and the way we interact with others, businesses have also faced a number of challenges throughout this period. From reductions in sales to halts in manufacturing, it is safe to say that businesses have faced unprecedented challenges which they were not entirely prepared for. This article explores some of these challenges, but also outlines certain industries which have seen a positive impact amidst all the chaos.
Perhaps the most noticeable effect of Coronavirus has been the longstanding lockdown which has effectively restricted almost all travel – domestic or global. As non-essential workers are unable to go to work, industries which rely on just-in-time or manual production such as car manufacturers have greatly suffered. This has led to every major UK and European carmaker either suspending or cutting production. If the lockdown continues, it is expected to cost the European car manufacturing industry £58bn in sales. Unsurprisingly, the car industry is not the only one facing such difficulties, as the retail industry has also seen a record fall in sales by 5.1% in March. This has led to familiar businesses such as Debenhams, Oasis and Laura Ashley to enter into administration. This trend seems to suggest that businesses which relied heavily on face-to-face interactions and manual labour will continue to face difficulties as long as the lockdown stands.
More significantly, the tourism industry has perhaps faced the hardest fall during this period. The World Travel and Tourism Council projected that, if the lockdown continues, travel companies will lose an estimated $2.1tn in revenue due to the reduction in travel demand. Although some airline companies have managed to receive government bailouts, others were not so lucky. This has led to the administration of companies such as Flybe, Virgin Australia and Trans States Airlines. This effect on travelling will be especially substantial for businesses that operate in countries which heavily rely on tourism such as Thailand (22% of GDP), Philippines (21% of GDP) and Spain (14.9% of GDP). The lack of foreign tourists has led to significant reductions in revenue for restaurants, hotel businesses and local market businesses in these countries. As these businesses often have ongoing expenses (leases, utility bills etc..) it is likely that a continuous lockdown will eventually lead to costs surpassing revenues, which could lead to more businesses going into administration.
As businesses face tight cash flow due to the reduction in revenue, some have undergone restructuring which aims to significantly reduce their labour force as an attempt to slash costs. Examples of these businesses include Uber, who have reported plans to lay off 20% of its workforce; British Airways, who plan to cut 12,000 jobs; and HSBC, who plan to cut 35,000 jobs. It is unlikely that this will help lower business costs in the short term, as redundancy pay outs are likely to be high during this period. However, in the long run, the reduction in the labour force will eventually lead to lower costs, which may help businesses survive until the lockdown is eased. On the other hand, when the pandemic is over, the reduced size of labour means that it is likely that the production capacity/supply of businesses will be lower than before. This could potentially lead to an increase in prices in order to manage the excessive demand that is likely to arise after the lockdown. Therefore, businesses must aim to survive by reducing costs but they must be careful not to reduce the production capacity to the point where they will struggle to meet consumer demand after the lockdown.
Success amidst the chaos
Throughout all the challenges and business difficulties, there are a number of businesses that have benefited from our new reality. As people are no longer physically going to places (shopping, cinema, concerts), businesses which have a strong online presence have seen an increase in demand and revenue. One of these businesses is Amazon, which has seen a 26% increase in sales due to the increasing demand for many of its products such as grocery shopping, medicines and the streaming platform ‘Amazon Prime’. This has led to Amazon proposing to hire 100,000 new warehouse staff, in order to react to the surging demand. Moreover, downloads of Netflix’s video app increased in Italy by 66% and Microsoft Teams has seen an increase in users by 37% worldwide to 44 million users per day. This clearly indicates how coronavirus is increasing our dependence on technology. As we get more comfortable with our new reality, it is possible that technology might play a bigger role in our lives than ever before. This means that companies which are falling behind on technology or online presence will continue to struggle until they adapt to the new way of living. For instance, clothing giant Primark has gone from making £650m sales in one month to nothing as they don’t have an online platform. This suggests that many businesses will need to restructure their model to accommodate the shift in demand, otherwise they will get left behind.
However, it is not all good news for these technology companies as their reliance on Chinese manufacturing could pose some challenges. This is because, as imports and exports decrease due to the travel lockdown, these companies may find it difficult to receive their stock on time at a low price. Although this could lead to an increase in costs, the significant increase in demand suggests that they can manage it. Nevertheless, it will be interesting to see how the world of commerce continues to change during these extraordinary times.