Impact of Covid-19 on Decathlon Singapore
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Question 1:
The announcement of circuit breaker measures in Singapore saw the surge in fitness equipment sales almost threefold. Customers rushed to fitness stores to purchase non-essential items before they close on May 4, 2020. The government announced that all recreational facilities and public sports would be shut.
Source: The Strait Times, April 6, 2020.
Demand Curve
Price P1
P0 D’
D
Q0 Q1 Quantity
A shift of the demand curve to the right shows that the number of training bands and yoga mats (yoga products) purchased from Decathlon Singapore will increase from Q0 to Q1. On the other hand, the equilibrium price of the products will increase from P0 to P1. The phenomenon is due to the market forces governed by the speculation of shortages. Buyers speculated that the yoga products would be highly demanded with regards to the circuit breaker measures in place. Therefore, there was a likelihood of scarcity due to closure after the stipulated date. In this regard, the demand for Decathlon products will rise, and the demand curve shifts right.
The company witnessed a surge in sales for its fitness products related to yoga, bodybuilding, and cross-training by 43%.
Source: The Strait Times, April 6, 2020
The phenomenon also shows that the customers would prefer carrying out their exercises indoors rather than outdoors. As a result, customers’ tastes and preferences were geared towards yoga. The non-price determinant also portrayed that yoga could be used as substitutes for training during the COVID-19 pandemic.
Question 2:
Decathlon was not allowed to operate after the circuit breaker announcement; the demand for its yoga products was likely to fall. Therefore, the demand for training bands and yoga mats could fall before the plans to go online. Substitutes for Decathlon are treadmills used for indoor jogging in the shortage. The products will still be available online during the stay-at-home period. The high demand for treadmills in the country led to its shortage in firms like Aibi. The market condition shows that despite an increase in demand, there is a likelihood of decreased supply due to shortages. The substitute’s demand was high despite the firm bracing itself for closure in the next thirty days.
Source: The Strait Times, April 6, 2020
Following the circuit breaker announcement, companies like Aibi would be closed for a while to curb the spread of the virus among Singaporeans. However, fitness stores like Aibi were still adamant the customers could still buy the products online. Therefore, there was speculation of increased demand for treadmills even after the announcement. The speculation was based on the knowledge that most Singaporeans would be looking to adopt a healthy lifestyle during the period. In this regard, the company witnessed an increase in sales of up to 300%. However, the company has been critical that most customers would want to have a physical look of the products due to their costly nature. Singaporeans would not want to invest blindly on such expensive products.
Source: The Strait Times, April 6, 2020
In this regard, the phenomenon depicts that even though the demand for treadmills (substitute product) is likely to rise, customers would still prefer low-cost products such as training mats and yoga mats.
Another relatable business, such as Homegym.com, witnessed an increase in sales of most of its fitness products by 80%. In this regard, the company has reported that most of its products have been sold out. The phenomenon shows that even though the products’ demands are high, there is a likelihood of decreased supply. Notably, the ordered products included kettlebells, dumbbells, squat racks, barbells, and weight clips. From a positive perspective, the company’s online store visits increased from approximately 250 per day to 2000 in a few days.
Source: The Strait Times, April 6, 2020
The market condition portrays that a shift to the products’ online delivery will help keep the demand for the products high during the COVID-19 period. The founder of Directhomegym.sg, Wayne Poh, was adamant that customers were buying multiple products in small amounts from different stores. The panic buys resulted from stores not being prepared for the increase in demand due to limited stocks. Most of the customers had been working out in gyms, so they did not have most of the products. In the face of the COVID-19 pandemic, most gyms and fitness stores were closed following the circuit breaker announcement. The phenomenon shows that despite the demand for products, including yoga products in stores like Directhomegym.sg, Decathlon’s sales would still be high.
Question 3:
As the demand for yoga products was on the surge in Singapore, the quantity of the products was likely to decrease in most stores, including Decathlon. In this regard, the supply of yoga products was expected to fall in the forthcoming months. In this regard, the supply curve will shift to the left.
Supply Curve
S’ S
P1
P0
Q1 Q0
The supply curve shows that the supply of yoga products will decrease from S to S’. As a result, the quantity demanded will decrease from Q0 to Q1. However, the equilibrium price P0 will increase to P1.
Source: The Strait Times, April 6, 2020
Companies in the same industry as Decathlon have announced business closure due to their inability to meet the skyrocketing demand for fitness products. However, Decathlon has remained adamant that it will continue business since it has enough stock to meet its online demand. Despite the affirmation, the Decathlon supply is likely to be disrupted before it resumes normalcy in the coming months.
Online sales necessitate that there would be additional expenses for Decathlon alluding to delivery costs and web-hosting expenditure. The shift from physical stores to online selling is aimed at increasing the supply and sales of yoga products. In this regard, the supply of products such as yoga mats have been boosted in the face of increased demand.
Source: Economic Times June 25 2020.
The phenomenon shows that Decathlon was able to increase its supply in June despite a decline in May after the circuit breaker announcement. The shift to digital shopping and delivery has facilitated the increase in supply. As a result, the company has witnessed a rise of 220% for its cardio yoga products as customers want to bolster their home gyms. The practice aligns with yoga products’ needs due to the prevalence of online workouts during the COVID-19 pandemic.
Source: Economic Times June 25 2020.
In the earlier days, home fitness was reserved for beginners with yoga enthusiasts facing immense competition from gym-goers and other outdoor fitness lovers. In the face of the COVID-19 pandemic, the supply of the yoga materials has been on the rise despite the product line experiencing challenges at the start of the pandemic. In June, the company had opened 60% of its physical store; therefore, contributing to the increase in the supply of yoga products. The supply surge is aided by the incorporation of app-based shopping rather than physical stores.
Source: Economic Times June 25 2020.
Question Four (4a)
Generally, fitness products are regarded as inelastic due to the lack of close substitutes for commodities such as cycling items, treadmills, workout benches, etc. However, the demand for specific commodities such as yoga products is likely to be elastic, especially during the COVID-19 pandemic. In this case, the close substitutes are homemade fitness items, which are very unpopular in Singapore. Decathlon faces stiff competition from stores such as Directhomegym.sg and Aibi and other retail stores that offer some of the fitness products. Thus, the demand for particular yoga products such as yoga mats tends to be relatively inelastic. Customers are likely to be less responsive to an increase in the prices of yoga mats due to their less costly nature. Hence, customers are likely to continue demanding the product despite situations of increments in prices. Decathlon is likely to increase their prices during the stay-at-home period to counter the shortages of yoga products. The phenomenon shows that yoga products’ sales are likely to increase even if their prices are increased. The company has an increase in sales for its yoga, indoor sports, and cross-training products by 70%. Even at the normal prices, the company’s revenue is projected to increase with coronavirus prevalence in Singapore. Notably, Decathlon was allowed to operate due to its strategic decision to shift from physical stores to online selling.
Source: Strait Times, May 25, 2020
Question 4b:
Decathlon is among the fitness stores that were ordered to shut down in a bid of the government to mitigate coronavirus spread among its populace. Yoga products do not have multiple close substitutes. Substitution emerges if customers decide to change their workout routines to cycling, treadmill jogging, weight-lifting. In doing so, they will go for other products such as dumbbells, mountain bikes, treadmills, etc. Therefore, not allowing the business to operate during the circuit-breaker period was less likely to cause customers to shift to the aforementioned fitness products due to their costly nature. Besides, the “substitutes,” which are more expensive than yoga products, were likely to increase their prices in the face of shortages. Thereby, yoga products will remain inelastic to price changes, even if they take an upward trajectory. The phenomenon is aided by the closure of gyms and other outdoor exercise spaces. Therefore, Singaporeans are to practice yoga, which is much affordable compared to expensive exercises carried out using equipment such as weights, treadmills, etc. Besides, customers are likely to wait for Decathlon to open their physical stores or even order their yoga products online.
Source: Economic Times June 25 2020.
Rent expenses incurred on physical stores are fixed costs. Even though Decathlon was closed, it had to pay rent. However, Decathlon is likely to benefit from rental rebates, which the Singaporean offered due to the COVID-19 pandemic. Decathlon’s variable costs are likely to incur wages to its employees and utility bills for electricity, water, and the internet. Noteworthy, most of the staff was laid off due to the shift to digital; however, it has part-time staff in its physical stores. Besides, Decathlon did not incur massive utility expenditures due to the reduced utilization of its physical stores.
Question 5:
Decathlon decided to shift to e-commerce and digital payments to mitigate the coronavirus spread within their stores. On July 9th, Decathlon was among 28 stores that had been in the spotlight for being visited by COVID-19 victims. In this regard, persons who had visited the store were directed to take precautionary measures and monitor their health for fourteen days. The company has opened its Decathlon.com website to all its customers to allow access to their products.
Source: Today Online July 10, 2020
Despite the move to go online, Decathlon adopted additional precautionary measures for its physical stores. In this regard, the company intensified sanitization and cleaning efforts in its retail stores, offices, and warehouses. The business also provided amenities such as hand sanitizers to be used at its exit and entrance doors. Also, the business has reduced low-touch technology within its stores and introduced express payment devices. Thus, customers can pay using their smartwatches and phones. Besides, the business has acquired robots to aid their shelf inventory operations. As a result, the strategy has helped reduce human contact with its commodities. The business has also adjusted its work hours for its Market Street Location to be 10:30 am to 7:30 pm for the weekdays. The approach has helped ensure maximum safety during the day and mitigates the vulnerability of employees and customers. Notably, employees must observe social distancing, stay at home when family member(s) report feeling unwell, and wash their hands frequently. Lastly, the company canceled activities that are not essential such as business travels and physical meetings.
Source: Decathlon.com March 13, 2020