E-commerce supply chains under pressure as lockdown laws bite

Simon Evans, Sue Mitchell and Jenny Wiggins

AFR

Aug 10, 2020

Online retailers are facing logjams and delayed deliveries because of Victorian government requirements to reduce distribution centre workforces by one-third in an attempt to slow the spread of the coronavirus.

These delays are prompting Melburnians to jump into their cars and collect online orders from retailers such as Bunnings, Big W and Super Retail Group – thwarting the government’s efforts to restrict the movement of people across the city.

Melbourne consumers keen to get out of their homes are embracing “drive and collect” options – such as this one at Super Retail Group’s BCF – as online retailers face potential logjams.

While the major supermarket chains have managed to negotiate concessions with the Andrews government to keep food distribution centres operating at capacity, non-essential omni-channel retailers such as Adairs, pure-play online retailers such as Catch Group and e-commerce logistics companies are either attempting to comply with the new rules or seeking exemptions so they can meet booming online demand.

“E-commerce and online retail is one of the only silver linings in this dark cloud and it would be awful to turn the tap off on that,” said online retail pioneer Paul Greenberg, the founder of online retail association NORA.

“E-tailers can’t suddenly chop one-third of their workforces in distribution centres and expect any kind of good result,” Mr Greenberg said.

Online retailers and logistics companies were seeking concessions on the basis that online distribution centres were a closed environment and had already put in place social distancing measures. They were also telling customers to expect delivery delays.

“These are big businesses and they just have to keep the lights on, bricks and mortar retailers are desperate to keep consumer direct going, to keep their businesses going – online retail is the shining star,” Mr Greenberg said.

Chance to get out

A spokeswoman for Wesfarmers, which owns Kmart, Target and Catch Group, said the companies were following government guidelines, but declined to comment further, as Wesfarmers was in blackout mode until the release of its full-year results on August 20.

Adairs chief executive Mark Ronan said: “It’s definitely made it a little more challenging but we are working on ways to meet the rule … we may be impacted to some degree but we need to communicate with customers as to why that’s occurring.”

Justin Dery, the chief executive of Doddle, which worked closely with Australia Post on setting up a collection and return network, said drive-up and collect had been gathering momentum fast.

“Those capacity constraints have put pressure on retailers. Customers want their parcels quickly,” he said.

“This has been a trend we’ve been seeing for a while. It’s around the convenience for a customer to be able to pick up or return,” Mr Dery said.

Rachel Caton, sales and marketing director for Doddle, said people were also enthusiastically embracing the chance to briefly escape the home and travel in their car to pick up a parcel.

“We know people are savouring any opportunity to go out. You can factor it in your daily plan,” she said.

Harvey Norman executive chairman Gerry Harvey says click and collect is becoming more popular because of the immediacy it offers shoppers who might be becoming frustrated with delays in the delivery network for online shopping.

Stockbroking house Cannacord Genuity said Kogan.com – which saw gross sales rise 110 per cent in July – should benefit from the Victorian lockdown, as it provided a ”major tailwind into August and September as bricks and mortar competitors are temporarily closed”.

‘Common sense ruled’

Other businesses have been able to operate unimpeded because they are deemed essential services.

Pharmaceutical wholesaler and operator of Amcal and Chemist King pharmacy chains, Sigma Healthcare, gained an exemption from the Victorian government for its warehouse and distribution operations at Rowville and Dandenong in Melbourne.

Sigma chief executive Mark Hooper said, after initial uncertainty, pharmaceutical operations had been exempted. “Common sense ruled the day,” Mr Hooper said.

Transport and logistics hadn’t really slowed up for the group since the stage four restrictions came in but there had been some minor delays with bulk wholesaling deliveries from Sydney because of tighter border restrictions.

“There’s a little bit of a crinkle in that,” Mr Hooper said.

ASX-listed Reliance Worldwide, a global manufacturer of plumbing supplies, has four plants in Melbourne, which all are operating. The plants at Moorabbin, Braeside, Dandenong and Croydon employ a combined 200 people and have qualified as a “permitted” industry because plumbing is deemed an essential service. A Reliance spokesman said the plants had already been operating with appropriate social distancing protocols for many weeks.

Metcash also won concessions from the Victorian government on Monday to enable the wholesaler to maintain distribution to IGA and Foodworks retailers across Melbourne and regional Victoria.

After negotiations over the weekend, Metcash has agreed to temporarily reduce the total workforce at its Laverton distribution centre in Melbourne by 15 per cent, rather than 33 per cent.

However, the total workforce onsite at any one time will be reduced by 57 per cent by splitting shifts, using smaller teams over longer periods of time, consolidating freight so there are fewer trucks on the road and asking field sales reps to phone independent retailers rather than visiting stores.

“The key priority was about us being COVID safe and creating a safe environment for our people while ensuring continuity of supply,” said Scott Marshall, the chief executive of Metcash’s food business.

Other industries are also trying to figure out how to operate under the new restrictions.

The Victorian Automobile Chamber of Commerce (VACC) has been told by the state government that only services covering essential and critical “vehicle repair and maintenance” are permitted to open for on-site work, and this does not include routine servicing.

The VACC has advised its members that assessments must take into account the conditions of vehicles when deciding whether to proceed. “If a tyre has blown out, the windscreen is cracked or the brakes are ineffective, it is VACC’s interpretation that these scenarios constitute essential and critical circumstances and therefore work could be undertaken.”