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Coronavirus: Impact on the Retail Industry
Coronavirus Disease 2019 or “COVID-19” continues to dominate national and international discussion. News outlets in Boston, New York, London, Mumbai, Rio de Janeiro, Tokyo, and every other city and town in the world continue to post and print stories related to spread of the virus. The pendulum of public reaction seems to be continuously swinging from overreacting to underreacting and back, while the Dow proceeds in the wrong direction.
As the public reaction changes, so does the impact on retail. Some retailers have experienced a temporary spike in the sales of items, such as hand sanitizer and bottled water, as panicked customers have pulled them off of the shelves faster than store employees can restock them. Meanwhile, the service industries, particularly hospitality, travel, and tourism, brace for a down year. Many conferences and festivals have been cancelled including Austin’s South by Southwest Festival, which was canceled on Friday due to concerns of the virus spreading. Thousands of would-be attendees are electing to stay home and cancellations are expected to increase as leaders try to slow the spread of the virus.
Consumers are avoiding public places and brick-and-mortar stores so retailers have to contend with the lack of foot traffic. However, the greatest challenges for many retailers are due to disruptions of the global supply chain. The National Retail Federation recently surveyed its members and 40% of respondents said they are seeing disruptions to their supply chains; 26% expect to see disruptions as the situation continues.
The China Council for Promotion of International Trade has issued 4,811 force majeure certificates as of March 3, 2020, due to the outbreak of Coronavirus affecting the Chinese workforce and manufacturers’ ability to deliver good as promised. These force majeure certificates are intended to provide supply-side manufacturers with an affirmative defense against any claims brought for failure to deliver goods, but it is unclear how these certificates may hold up in China and internationally.
Force majeure, which translates literally from French as “superior force," dates back at least to the 19th Century when it was codified in the Napoleonic code and has been included, in some form, in service and supply contracts for generations. Many retail leases include “force majeure” exceptions to the operating clause therein, but these are typically exercised for weather events and natural disasters. Landlords may begin to see tenants look to enforce “force majeure” exceptions as the global concern over the spread of the disease continue to grow, but much like the uncertainty over the Chinese force majeure certificates, it is debatable whether such an argument could prevail.