Coronavirus Has Hit Retail—Hard

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What times we are living in. Almost overnight, everything changed as quarantine rules were put into place by many governments across the world.  The growing pandemic began to feel very real.

The retail industry bifurcated into the “essential” (grocery, pharmacy and household supplies) and “non-essential” (apparel, home furnishings and malls).

For essential stores, every day was like Black Friday as consumers bought up disinfectants, meat, pasta and lots of toilet paper. This drove Herculean efforts to source products and revise replenishment systems to get goods to where they were needed most. Many retailers announced massive near-term hiring plans to keep stores running and ramp up deliveries.

For non-essential retailers, it was the opposite. As stores were closed, it became a drastic race to conserve cash. Orders were canceled, projects were halted and many associates were furloughed or laid off.

As the retail industry navigates these unprecedented times, here are some initial thoughts on how we see it unfolding and what retailers are (or will be) doing to keep their business afloat and moving forward.

Thinking About the Challenge

We see this crisis evolving over three stages:

1. Navigating the Disruption (first 30 days) U.S. retailers are doing this right now. (Europe is two weeks ahead; China went through this in January.) For essential and non-essential retailers alike, the primary focus is on business continuity, setting up new ways of working and communicating with everyone.

2. Managing in the Not-So-Normal Normal (the next 3-6 months) For essential retailers, this is about readjusting to quasi-normal demand patterns. For non-essential retailers, focus shifts to driving sales even while most or all stores remain closed. And for all, it’s a doubling down on digital platforms as a means of engagement, commerce and operations.

3. The Path to the Next Normal (too soon to tell) As retailers see the crisis beginning to abate, they will begin working on “what’s next:” How shopping behavior will change; what consumers will expect from stores and brands; and the necessary changes to their business operating models to thrive in the new environment.

The Path Forward

While it’s too soon to fully understand the implications of COVID-19 for the retail industry, let alone on society as a whole, here are some of the most likely developments:

1. Behaviors Revert to the Norm: Unless we remain under “shutdown”conditions for 12+ months, many habitual behaviors will return. People will go out to eat, travel on airplanes, work in offices, go to sporting events, and yes, shop in stores and malls.

2. Except When They Don’t: While there will be a return to physical interaction, it probably won’t return to previous levels. Many people will find that digital is just fine, and sometimes even better. We’ll see an inflection point in digital retail grocery and other consumables as shopping, buying and fulfillment become unbundled. As digital engagement accelerates across the industry, we can expect a further round of store and mall closures.

3. Clean Gets Critical: As consumers equate clean with safe, retailers will have to step up their efforts and proactively share this information. Third-party certification services will emerge as consumers rate and review store cleanliness on their own.

4. Traceability Becomes Table Stakes: Aside from ride sharing services, there has been relatively little traceability in digital consumer commerce: of where my order is; where my product was sourced/made/grown; and what the track record is (quality, timeliness, cleanliness, safety, sustainability) of everyone involved every step of the way. Traceability will move from “nice to have” to a critical requirement.

5. Corporate Darwinism Rears Its Head: In times of crisis, companies quickly separate into those that thrive, those that survive and those that disappear. The winners will leverage their position and acquire new businesses, brands or capabilities in order to expand their business and/or create operating leverage.

6. A New Wave of Innovation: Downturns invariably bring waves of innovation that propel the next business cycle. Some of these new approaches will center around customer engagement (e.g., associates selling via video); others around supply chain (hyperlocal demand forecasting that is integrated upstream with merchandising and production); and others around enterprise data and operations (voice-driven real-time analytics).

Retail has always been local, largely centered around the physical store (location! location! location!). And location is still critical. But the focus needs to shift from the store to the customer.

COVID-19 has shown the need to run the entire business locally, driven by the ability to predict neighborhood-level demand and to adjust inventory and operations accordingly. To date, no one has been able to do this at scale. But the need to make it happen will probably create a ripple effect that will transform the way the industry operates, resulting in happier customers and a more agile, resilient and sustainable retail industry.

Karl Haller is a retail industry expert for IBM Global Business Services

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