Risk assessment
Risk assessment is an essential process for identification, understanding, and evaluation of potential risks that can affect a business, sector, or industry. Torabi et al. (2016) explain that robust risk assessment yields plans which can be leveraged by the company to anticipate the risk or go through risk the minimal impact on the business operations and liquidity. Despite this, there exist phenomena such as grey Rhinos and Black swans, which make avoidance of risk challenging to achieve. The black swan theory advanced by Bekiros et al. (2017) reveals that black swans are unpredictable events outliers on what is typically expected, and the black swan event has great impacts.
Retailing companies under the epidemic
A quintessential black swan is the coronavirus pandemic, which has had adverse impacts on retail businesses (Petropoulos & Makridakis, 2020). One of the sectors affected in the retail industry. One of the areas affected by the coronavirus is the supply chain; the epidemic has negatively impacted production and constrained value chains worldwide. The disruption of supply chains is exacerbated by a drastic fall in demand for goods, as many governments have provided lockdown measures for citizens, which means people cannot buy products (Fernandes, 2020). Additionally, the epidemic has eroded consumer purchasing power due to the loss of jobs where unemployment has increased to unprecedented levels. Furthermore, unemployment and the ensuing recession in many economies mean that disposable incomes have fallen.
These adverse effects on the economy and the typical way of life have led to a massive slump in retail sales for many businesses. With reduced sales, many retail companies are sacking workers and taking drastic measures to survive. However, for some, their liquidity and solvency have been threatened and ultimately culminating in bankruptcies. Some of the notable companies that have filed for bankruptcy are JCPenney with a $4 billion debt and Neiman Marcus with a debt of $5.1 billion (Gray, 2020). Both companies have filed for Chapter 11 bankruptcy protection to allow them to restructure debt (Maheshwari & Friedman, 2020; Miranda, 2020). The filing of these bankruptcies is related to the plunges in sales, which are attributed to coronavirus pandemic, which forced most stores to close. As shown below, retail purchases have fallen by 8.7% in March, and the trend is expected to continue for several months.