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Post Pandemic challenges for retail: Need for reinvention

Somraj Choudhary & Sivakumar Thiyagarajan
5th May, 2020

This crisis is unlike any other we’ve seen. The structural challenges to consumer behavior, supply chain and fulfillment capabilities will happen, but the scope and magnitude is not yet clear. Those with strong cash flow and a healthy debt ratio are at an advantage, but investing in the right areas – technology, partnerships, capabilities, or others- is key

Somraj Choudhary Consulting Partner, Retail, Wipro Limited
Sivakumar Thiyagarajan
Managing Consultant, Retail, Wipro Limited

The invisible enemy that is COVID19 has brought our lives to a standstill, and with it the economy. It seems clear that we are headed towards a recession-like situation, with major economies enacting response and recovery plans, hoping to mitigate the impact as much as possible. Essential services like food, medicine, and some manufacturing are still going. There is an uptick in health and personal care items and some online services are showing growth. Retail is not so fortunate. Retailers are struggling to stay afloat, but with stores and distribution centers closed or limited in operations, there is little that can be done. As dire as the situation appears, there will be a recovery. The question retailers need to be asking themselves now is “How can we best prepare for the recovery?”

Retailers have invested a lot in digital channels, and the whole concept of omni-channel retailing,, but this has primarily been a response to challengers like Amazon. This crisis is a chance for retailers to develop their non-store channels (web, mobile, social) as independent businesses

Challenges in a post COVID-19 world

It’s still unclear how the post-COVID19 world will look. In the past, pandemics have had a V-shaped recovery, but many questions remain about this one and economic forecasts have been cautious at best. Currently, customers are trapped in their homes, ordering food and services to be delivered, reviewing their choices, and worrying about getting sick. These experiences are likely to affect behavior even after the quarantines end. It is safe to assume that store traffic will be slow to return to pre-crisis levels, influenced by vaccine timelines, customer confidence, and financial concerns. Some changes we can expect to see in retail customer behavior:

  1. Shift in purchase location from stores to online/curbside
  2. Long-term change in spending habits from ownership to lease/rent
  3. Aversion to trying on apparel/footwear in stores – leading to more returns
  4. Change in payment and POS to go “touchless”
  5. Shift towards value/off-price retailers as spending becomes a concern

In addition to customer-facing issues, retailers also need to consider addressing challenges and changes from an operational point of view as well:

  1. Build in operational resilience in case of a second wave of infection/ new threats
  2. Decide on inventory, price, and markdown optimization to accurately gauge and pace the recovery
  3. Reevaluate supply chain and delivery automation options to continue with minimal intervention
  4. Consider structural changes that allow business to cover some non-core areas that will be deemed “essential” and not shut down

In Crisis There’s Opportunity 

While discretionary spending has always been a casualty during and post-recession, the difference this time could be in its magnitude. Most retail chains will be closed for a couple of weeks (if not more), unemployment claims are growing, and consumers are looking to save rather than invest. Given these trends, we may be looking at a slow recovery in most areas.

In the past, companies that have looked at recessions as an opportunity and have taken steps to reinvent themselves have emerged as winners. There’s no reason that can’t be true today, as we emerge from this crisis. Following are some key areas we see as opportunities for reinvention:

Getting back to basics – Revisiting your value proposition

As we navigate the process of reopening the economy, most retailers are facing uncertain demand for the next few quarters. It’s a great time to take a look at your business and see if there are adjacent areas to venture into or partnerships to explore. One good example is how Primark and Kohl’s have partnered with Amazon as a selling channel and return partner. Another is how Best Buy is getting into senior healthcare. Post COVID-19, we expect new opportunities to flourish.

Profitable and sustainable digital channels

Retailers have invested a lot in digital channels, and the whole concept of omni-channel retailing,, but this has primarily been a response to challengers like Amazon. This crisis is a chance for retailers to develop their non-store channels (web, mobile, social) as independent businesses that can drive margins and acquire net new customers, rather than driven by competition alone. Post COVID-19, we expect online channels to pick up much faster than traditional store channels.

“New workers” selling to “new shoppers” using “new tech”

During this crisis, out of necessity, seniors are finding new ways to shop. Are retailers ready to serve this population with unique needs and deep pockets? Retailers need to look at senior friendly web and mobile sites, self-service technology ready for move volume, and retraining workforce to use more technology-based assistance. Post COVID-19, we should see an acceleration in end user technology interventions with focus on seniors, in addition to millennials and Gen Z.

New customer acquisition

A recent report showed that during the crisis 44% of shoppers surveyed were visiting new stores driven by product availability and access. This is disrupting brand loyalties and it creates an opening for customer acquisition. Post COVID-19 retailers need to engage this new customer and provide personalized experiences that will retain them after the crisis.

Planning through a new lens

While online penetration in retail has steadily increased, the current situation is driving a new digital-commerce first approach. This will continue after the crisis as customers stay out of stores – either out of fear or habit. Because of this change in behavior, historical data may no longer be a good guide for creating strategy, planning allocation and promotions. Post COVID-19 retailers will need to invest in building intelligent decision models based on new realities.

Ensuring safety and security

Consumers have long been conscious of safety and security. This crisis adds to the psychology of threat, whether it is product, personal safety or cyber security. Post COVID-19, expect customers to be hyper-aware of these issues, with many willing to pay a premium for added safety and security.

Supply chain agility

Retailers are struggling to serve customers and many have recognized a need to invest in supply chains to modernize, build operational resilience, and reduce dependency on people. Automation in distribution centers, transportation, and last mile delivery will see a significant jump in investments in technology. Post COVID-19 we would not be surprised to see robotic deliveries and unmanned distribution centers gain traction.

Cash Flow management

“Cash is king” – that has always been true. Most of the opportunities we’ve discussed here are not possible without having reinvestments, which is only possible with healthy cash flows. Technology can play a huge role in that effort enabling better inventory management solutions, efficient markdown planning, increasing receivables turnover and more. Post COVID-19 expect to see AI/ML systems becoming a differentiating factor in ensuring healthy cash flows.

Making the right investments is the key to success

This crisis is unlike any other we’ve seen in our lifetimes, however we’re confident that the human spirit will endure, and we will all emerge stronger. As the Sufi saints of old had intoned in their songs “This too shall pass”. We believe that structural challenges to consumer behavior, supply chain and fulfillment capabilities will happen, but the scope and magnitude is not yet clear. Those with strong cash flow and a healthy debt ratio are at an advantage, but investing in the right areas – technology, partnerships, capabilities, or others- is key. Every business will need to find the options that suit their needs – there is never a “one size fits all” approach. As always, retail is all about execution, and the opportunity is there for everyone to come out on top. ♦♦♦♦♦

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