Question

Buyers determine demand while sellers determine supply. Both laws of supply and demand establish market forces that make economies work to search for their market equilibrium. The impact of COVID-19 is an unprecedented event that affects the global economy. In the article, the overall retail sales dramatically dropped by 34.8%, with jewellery and luxury goods drop of 67% but supermarkets increase of 12%, in the first five months of 2020. However, online-based consumption, like demand for food delivery, online education (Zoom), stay-at-home activities and online grocery shopping surged dramatically since the outbreak of pandemic.

2.) Illustrate with TWO real examples (one favourable and one adverse impact) in the retail industry in Hong Kong or Mainland China or your country to show your understanding and application of supply and demand as well as elasticity. (400 words)

Answer 1

The impact of COVID-19 on the demand and supply forces in the retail industry of India:

The COVID-19 outbreak has slowed down economic activities throughout India. With changes in societal norms, massive shifts in consumer behaviour have been observed. The demand-supply forces have shifted from certain goods to others.

Example 1. Positive impact on local grocery stores:

While the pandemic has adversely affected apparel, electronics and stationery shops, the essential food and local grocery stores have flourished. The demand for locally produced goods has increased far more than the demand for imported and exotic products. According to a survey conducted by Accenture between the months of March and May, 74% of Indian consumers wanted to shop locally-produced goods. Preventive measures in terms of hygeine and the act of "social-distancing" have been followed by people. As per the same survey, 79% of consumers preferred buying products from nearby grocery stores rather than from big supermarkets in order to avoid a crowded setting. As a result, a shift in demand from supermarket goods to local small-store goods can be seen. Hence, it can be concluded that the demand for local brands and products has increased. The sales for local retailers have also increased.

Example 2. Adverse impact on the clothing/garment retail stores:

The pandemic has not fared well for apparel retailers. The implementation of the lockdown since March reduced the activity of departmental stores, including the closure of malls. Consumers have naturally become more conscious when it comes to going out as well. A complete fall in demand for fast-fashion and clothing in general has been observed. This has caused many clothing stores to incur losses and has even caused the closure of some. The fall in marginal profits has reduced the supply significantly as well. Post lockdown, the demand for online garment-shopping has seen a small increase, however it is still lower than that of last year. The demand is expected to increase again, with an ease of the lockdown and the festival season approaching between October-December.

As the overall demand has fallen and consumers are being more frugal, strategies like discounts or a reduction in the prices of luxury and comfort goods has not increased their demand. Consumers are preferring necessity goods like food products over comfort and luxury goods such as fast-fashion or high-end garment items. Therefore, the elasticity has been low for comfort and luxury goods.