As we emerge from lockdown, retailers need to optimize new processes and new ways of working to protect margins and enhance the shopping experience. Traditional, lean approaches need to be enhanced by new technologies, like AI. This will differentiate in terms of customer experience and flexibility for change, harnessing new data sources and developing deeper operational understanding.
Intense impacts, globally and locally
Globally, the impact of the crisis has been complex. For example, on the one hand, Amazon is experiencing what it understates as “unprecedented demand”. On the other, it has committed its entire $4bn Q1 2020 profits to creating traceably COVID-19 free operations.
Meanwhile, local impacts have been seismic. In the UK, retail sales were down by a record 18% in April and 14% in May, resulting in 31 retailers going bust, closing 1600 stores and with around 40,000 jobs affected so far. However, as COVID-19 shut stores across the country, April’s online sales growth surged to a 10-year high, up an astonishing +23.8% Year-on-Year, as our recent report shows.
Shopping in an uncertain world
All retailers faced key trading challenges in Q2, managing either double digit surges or collapses in demand, amplified by a huge switch to online shopping.
Now, as we emerge from lockdown, retailers will need to sharpen their ability to continuously monitor the market. They’ll need to use real-time data to identify emerging trends in sentiment and spending patterns, which may vary dramatically across categories. They’ll need to reliably predict volumes of surplus and distressed stock building up across the supply chain. And they’ll need to analyze competitors’ merchandising and promotional strategies, optimizing data to remain competitive in uncertain and saturated markets.
Restart priorities and long term strategies
Retailers need to analyze how consumer behavior has shifted and how demand patterns have fluctuated across all markets during Q1 and Q2 2020. To achieve this, they’ll need to identify category insights and learn from other markets how consumer patterns are changing post lockdown.
The key trend is for customers to purchase more goods online. They’re buying more goods that are locally and regionally sourced. And they’re buying them in ways that guarantee hygiene and safety. We’ve also seen shifts away from luxury and durable goods, with the likelihood that this will continue, as consumer sentiment remains pessimistic.
New ways of working are critical, and retailers should focus on taking frequent and incremental insights to enable frequent and incremental decisions. For example, the Q1 pre-lockdown customer did not behave like the Q2 locked-down customer, who will not behave like the Q3 store reopening customer, who will not behave like the Q4 cash strapped customer. Insightful and appropriate actions will be key to encouraging positive consumer buying patterns.
Making stores work
The COVID-19 crisis has forced retailers to implement queuing systems, crowd control measures and basket limits, all designed to keep customers and staff safe. In May, Aldi implemented a new traffic light system, designed to control the number of shoppers in store at any one time. For retailers, these measures represent expensive, operational friction that needs to be evolved in terms of efficiency and sustainability. This heightens the need for process optimization and improvement, cost cutting, and technology investment.
Capgemini Research Institute recently published a compelling report on Smart Stores. It emphasizes that retailers will need to rethink their store strategy, looking at store numbers and locations, and what role stores play. Most retailers are currently using tough profitability scenario modelling to review store viability, focusing on drops in sales and increases in costs based on operational friction. They will then either dispose of sites or aggressively renegotiate rents to mitigate the additional costs.
Retailers also need to consider how customers interpret the idea of safe and engaging environments in the ‘new normal’. They will also need to consider the stability of the ‘new normal’ itself, as we face second waves, unpredicted spikes, and localized lockdowns, as well as fluctuating distancing and hygiene regulations. As localized lockdowns become more regular, retailers will need to support customers via other stores, and consider stock redistribution. In the face of these unknowns, the flexibility to roll out significant adjustments at short notice is critical.
Supporting the online shopping surge
The huge upsurge in demand online sees retailers considering their strategic support options. Some are setting up dark stores, while others are picking online orders from stores, or converting parts of their stores to become urban fulfilment centers. For some, scaling robotic fulfilment has been problematic, while others simply hired extra people and trained them quickly.
Enabling real-time supply chain visibility
Retailers also need to build greater visibility and control into their supply chain, so they can be better prepared for future socio-economic shocks, whatever the crisis. Supply chain transparency is critical. Retailers need to better understand where their stock comes from, where it is at any one time, and what other suppliers in other countries they’re dependent on. It is likely that an ecosystem of smaller solutions will eventually support overall supply chain visibility.
The challenge will be to create a resilient supply chain that is lean, rather than a lean supply chain that is fragile. The intelligent use of data and AI to make small, clever decisions around routing, sourcing and demand sensing will be key.
Overall, supply chain visibility vastly improves opportunities to effectively manage and mitigate risk. Visibility in real time enables the accurate use of predictive algorithms to spot trends, provide decision making support, or even fully automate decision making.
Intelligent stock management
Managing existing stock will be crucial. Retailers will need to sell through existing stock, trading intelligently across channels, and making informed buying decisions for forthcoming seasons. This will mean exploiting new technologies and partnerships to achieve effective scenario planning, instructive demand modelling, and confident decision making.
For example, since lockdown in Spain in March, Inditex, owner of Zara and Massimo Dutti, has relied on its online business to keep operations running, limiting the damage from the shutdown that’s now beginning to ease in Spain and elsewhere.
Nurturing insights and data
How far the impact of COVID-19 will extend beyond 2020 is unknown, but an impending recession will create cautious customers in the medium to long term. Retailers need to quickly develop operational insight and data analysis techniques, engaging operational experience and technology expertise to redesign and execute new ways of doing things. Only then will they increase efficiency and reduce costs.
For example, some retailers are using social media mining and analytics to understand customer sentiment towards those instore policies adopted by stores open during lockdown. In turn, this might influence how much PPE is built into instore processes. Another example is how Amazon is using AI and video analytics to enforce distancing in warehouses.
Rethink, re-energize and re-engage
There is no business as usual in sight. Retailers need to constantly rethink, re-energize, and re-engage. Our Operations Rebound offer answers critical questions through a global retail insight platform, building new insight capabilities to empower retailers. It forms a key pillar of our post COVID-19 retail restart strategy. To explore new ways to stimulate and evolve the future of retail, connect with our authors and visit our Restarting Retail webpage.
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