As retail businesses look beyond the day-to-day of dealing with the COVID-19 crisis, they are discovering that change will be necessary to effectively restart and rebuild their businesses on the other side. But what are the most effective ways to respond to the new normal of consumer behavior? And how can they move into new operational models with agility and at speed?
What has become apparent since the COVID-19 crisis began is that some trends in retail are accelerating, some are changing, and others remain the same. And it is the accelerating trends in particular that are causing a more dramatic split of the retail sector into winners and losers.
The retail businesses that are currently thriving are those providing necessities (such as groceries or pharmaceutical products), and those with an already strong online proposition. But for other retailers not in these spaces, potentially terminal problems are arising.
One trend that has seen a particularly fast ramp-up is the collapse of the mid-market apparel space. The sector has long been stuffed with uncompetitive clothing businesses that are either poorly capitalized or have weak propositions in an over-serviced market; or both.
These businesses are at risk, but in normal circumstances – partly supported by low-interest rates – may have continued to trade for another three to five years. But the crisis has sped up that process, highlighting their weaknesses and pushing them over the edge.
“The tide’s gone out and we’ll soon see who is wearing trousers”
One thing that’s clear is that the crisis will expose how weak the weakest retailers are. But we can also predict which businesses will be the most resilient and the quickest to recover.
Take Primark; a retailer unique for entirely rejecting e-commerce, which has been absolutely decimated by the crisis. On 21 April, the company reported that sales dropped from £650m a month to absolutely nothing. And until stores open again, Primark – which also has an enormous cost base – won’t see a penny of revenue.
However, despite this unparalleled turn of events, Primark’s chances of survival are good, because it came into the crisis with a highly relevant proposition. It also has a strong ownership structure with low debt, and it is supported by owners who are heavily invested in the business and believe in it.
So, what does this mean? In a nutshell, the retailers that will survive and thrive are the ones with highly relevant propositions, solid balance sheets and the agility and scale to adapt. In particular, the speed at which retailers can reduce cost now and scale up as we return to a new ‘normal’ (while not incurring new costs) will be a deciding factor in their survival.
One of the few benefits of the crisis is that it has provided a de facto opportunity to reassess overhead costs. Critically, having the ability to reconfigure supply chains at pace to overcome challenges presented by a highly disrupted supply base and obtain products will help retailers take advantage of shifting demand patterns.
Lean into the acceleration: how to react to a changing marketplace
But what about the businesses that have been grappling with channel shifts and changing consumer behaviors, but have been slow off the mark?
While the temptation may be to shut up shop and wait for the storm to pass, these retailers should firstly take the opportunity to accelerate some of the plans or channel restructuring they already had lined up.
For example, if they were considering investment in digital capabilities while cutting their number of stores, now is the time to bring forward this work in order to hit the ground running as lockdowns lift. They must also think entrepreneurially and innovatively about managing their inventory, to maximize cashflow.
The retailers that will come out of this the crisis in a good position will also be considering the medium and long-term impact COVID-19 will have on the wider retail space, and by extension, their business.
Consumer behavior is changing even faster than before. Reputation will play a much bigger part in consumer choice as they may (in part) base their future spending behaviors on how retailers act during the crisis. Additionally, hygiene and safety factors – which disrupt the consumer journey – will make it a tough battle to entice customers back into shops once lockdowns are lifted.
Supply bases may also be permanently changed by the crisis. In the long term, retailers need to consider how to quickly build a more resilient supply chain, considering using dual sources, or near-shore suppliers rather than far-shore.
At the same time, cost structure implications need to be taken into account. Short-term business preservation decisions, like canceling orders, will seriously impact suppliers, and could well rebound later in the year.
Seizing opportunities in the post COVID-19 retail landscape
Retailers who hope not just to survive, but to thrive, as we move into a new post-COVID-19 era, will be looking to maximize any opportunities. As weaker players leave the market, there will be chances for fast-moving competitors to consolidate their market share in the resulting void.
This could mean claiming defunct brands, customers or relationships with suppliers, or picking up assets that add value but have been overleveraged in the past.
This new landscape won’t be an easy one for retailers, and there is likely to be a battle for consumer attention, with less discretionary spend to share around, and a glut of promotions due to stock build-up and poor cash propositions.
But the sooner retailers decide where they fit in this new order, the sooner they can start rebuilding and making their businesses stronger for the future.
We are helping many retailers create playbooks for how to most effectively restart their businesses. If you would like to discuss any of the issues raised in this article, please get in touch.