To help otherwise healthy firms survive the current crisis and safeguard the corresponding jobs, governments need to help the retail sector weather the three shocks it is faced with: a demand shock, a supply shock, and a productivity shock. In the short run, it is necessary to support retail firms just like other firms in the business sector. Yet, the specificities of the retail sector call for tailored policy responses.
First, governments need to make liquidity assistance quickly and readily available to retailers so as to keep them afloat. As non-essential retail activities face unprecedented drops in demand due to the lockdown, liquidity assistance will help avoid the “death by accident” of otherwise solvent retailers. Governments have already offered large and transversal emergency support; they need to ensure that it is accessible to all retail firms, be they small independent shops or large chains. Beyond the emergency, liquidity support measures should only be made available to viable firms in order to prevent adverse impact on business dynamism.
Second, governments need to help essential retailers deal with labour supply shortages. Essential retail firms are experiencing both a spike in product demand and a drop in labour supply because of containment measures and confinement restrictions. For example, in the United Kingdom, Nielsen reports that sales of shelf-stable groceries (i.e. food that can be safely stored at room temperature) more than doubled during the week leading to the lockdown compared to the same week in 2019, while the Institute of Grocery Distribution reports staff absenteeism rates of 20% or more during the early phase of the lockdown. Governments have taken four types of measures to ensure that households have access to essential goods: 1) increasing financial incentives for retail workers; 2) temporarily easing labour market or retail regulations for essential activities; 3) smoothing demand-supply matching for retail jobs; 4) providing guidance for health and safety in retail stores to address employee concerns (see Box 1 for examples). These measures should follow recognised responsible business conduct standards to prevent detrimental consequences on workers’ well-being. The effectiveness of these measures crucially depends on the quality of social dialogue between employers and their staff (see a joint declaration of retailers and trade unions, for example).
Third, governments should support retail firms with the implementation of social distancing measures intended to keep staff and clients safe. Measures include flexible opening hours or clear and specific guidance on health and safety standards for sale and delivery (see Box 1 for examples). Social distancing sharply affects retailer’s productivity, however (e.g. due to the extra costs for personal protective equipment and the lowered intensity of shopping activity). Government action can help smooth this shock to productivity by reducing informational barriers and regulatory uncertainty, ensuring a steady supply of protective equipment and supporting the communication with customers. Moreover, governments should re-assess the regulation of discount sales in physical stores. In several countries, existing rules only allow certain markdowns during short periods of time, which could both jeopardise social distancing efforts and restrict retailers’ ability to implement business strategies that can help them compensate for the COVID-19 revenue shock.
Fourth, governments need to ensure that competition remains sufficient in the retail sector following the crisis. Despite governments’ best efforts, the COVID-19 crisis may lead to the exit of many retailers. This impact is likely to be asymmetric, as the crisis weighs disproportionately on brick-and-mortar and small firms, while online and large firms are more likely to survive. Therefore, the crisis could further reduce retail’s local footprint and amplify the ongoing consolidation in the sector, where sales of the top eight business groups already reached almost 80% in 2014 (Figure 2). Moreover, in the exceptional circumstances of the COVID-19 crisis there are instances where co-operation between competitors is legitimate and lawful in order to overcome disruptions, especially in essential retail supply chains. Against this backdrop, governments need to ensure that competition remains sufficient to avoid negative impacts on consumers. In particular, competition authorities should challenge exploitative pricing behaviours and continue to carefully review merger activity, both during and after the crisis. Moreover, governments in several OECD countries still have scope to lower entry costs and facilitate the emergence of new retail firms by easing registration and licensing requirements (Figure 3).
