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The true impact of on-shoring retail supply chains: a sensitivity analysis

Full report: Covid-19 and the Future of Retail Supply Chains

The true impact of on-shoring retail supply chains: a sensitivity analysis

3 minute read

Clearly, Covid-19 proved to be a huge shock to well established retail supply chain networks globally.

From the five key drivers that will characterise the future of retail supply chain networks (discussed in this article here); but this third article in the series focuses on one particular solution – on-shoring. Essentially, this means sourcing or relocating a retail business' production operations within its domestic borders.

As retailers prioritise building more resilient supply chains, the prospect of sourcing products from domestic economies (on-shoring) emerged as a strong theme for many. Our research revealed that some retailers had already begun to source more domestically as they looked at alternative strategies to mitigate the impact of supply chain disruption.

Retail supply chain network - Retail Economics

Furthermore, our research highlighted that other underlying motivations around the impact of Brexit, carbon reduction ambitions and consumer behavioural change combined to add further weight and, in some cases, urgency to this strategy.

Research methodology

As part of our research, we conducted a retailer survey that includes data from over 30 of the largest European retailers with a combined turnover of €600 billion. In-depth interviews were conducted to understand better the motivations, desire and ability for businesses to generate greater sourcing capabilities from their domestic markets.

Interviews were also conducted across a range of industry experts including financial services, government departments and industry trade bodies.

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Key findings

Leveraging these data and insights, we estimate that across the six European countries covered in the research (UK, Italy, Spain, France, Germany and France) c.$31.5 billion worth of trade could be on-shored over the coming 12 months, equating to around 3.6% of total imports of retail products across these countries (Figure 9).

 

Fig. 9 - On-shoring estimates for retail trade by country and scenario over the next 12 months

On-shoring estimates for retail trade by country and scenario over the next 12 months - Retail Economics

Source: Retail Economics

 

While the appetite for on-shoring appeared healthy across the retailers we spoke with, there was a clear message that higher costs and lack of supply were two key barriers that were likely to inhibit sourcing from domestic markets. The pace of move to on-shoring would be driven by efficiency, with concerns that if it occurred too quickly, significant near-term cost pressures could arise.

The companies that relied on human labour to ramp up production in a short time frame could end up building highly inefficient supply chains, and without care could damage market share due to price point inflation.

Find out more about the future of retail supply chain networks and what strategies retailers are adopting to tackle ongoing disruption due to Covid-19 and beyond.

 

Things to do now

Explore the next article in this series here.

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Found this short article interesting?

This short insight article forms part of a thought leadership report entitled “Covid-19 and the Future of Retail Supply Chains” produced by Retail Economics. It explores industry structural changes and contextualises the impact of Covid-19 on supply chains across the European retail industry. For retailers and brands seeking valuable insight into the impact of the crisis across Europe, the full report provides data-driven insights and guidance for action.

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