Retailers are currently concentrating on managing the short-term crisis caused by COVID-19. But, a 100% focus on the immediate situation may have unfortunate consequences when the world starts to exit lockdown, and return to something approaching normal.
Decisions and actions that retailers make now to manage the short-term, will be judged by all their stakeholder groups, and will determine their long-term success. This applies to employees, supply partners, landlords, lenders and ultimately, customers.
Taking a moment to think about the long-term, post virus world, will pay dividends. Acting without consideration for the future could ultimately destroy the company financially, reputationally, or both.
Employees: Remember, they will judge you (and so will your customers)
At such a disruptive and confusing time, retail staff may be predominantly viewed as a significant cost item on the P&L, that needs to be reduced, rather than the single most important differentiator a retailer has to drive customer engagement.
Clearly, the business needs to survive, and costs must be managed, and government support accessed. However, decisions made now that expose poor values, or even greed, will rebound very badly.
Choosing profit over the health and safety of employees, or doing the bare minimum for furloughed workers, when competitors are maintaining parity with business as usual, demonstrate how short-term strategies are unlikely to lead to long-term prosperity.
Employees will remember the actions you take now, for a long time. If you treat them badly, they will leave – starting with the most talented ones. Customers will hear how you treat your employees, and will make values-based decisions on who to shop with in the future. Given that most retailers will need the commitment, discretionary effort and loyalty of their staff to come out of this crisis in good order, think hard about how you act now.
Supply partners: Treat them as you would wish to be treated
Adopt a ‘we’re in this together’ mindset, and be clear which of your suppliers are strategic and essential to long-term success. Also remember that your customers will judge you if you put smaller suppliers out of business during the crisis by treating them unfairly.
We have seen some retailers cancel all inbound orders, leaving stock liability with suppliers. This has been viewed very negatively by the supplier community, and will impact future relationships. The burden needs to be shared; it is not sustainable to put all of the short-term pain at one end of the supply chain.
Retailers need to think strategically about supply base relationships, and how to come out of the crisis with the partnerships they need. This crisis is likely to have long-term impacts on assortment, sourcing strategy, flexibility/security of supply chain and inventory management. Those retailers that start thinking about this early, will be the winners in the long-term.
Landlords: An opportunity to change the game, but take care
This crisis will no doubt accelerate the channel shift already in play across the industry, and will heighten the pain that landlords are feeling – with some already offering deferred payment plans in excess of the government’s recommended three-month deferral. However, retailers need to think carefully before negotiating with landlords.
COVID-19 creates a commercial opportunity for retailers to get better deals on existing store leases, or to accelerate store closure programs already underway/planned. Once again, a ‘we’re in this together’ approach should be the most effective in the long-term, alongside open and constructive communication. But a prioritized and commercially savvy approach will maximize the cost/cash-saving opportunity. Being clear about which stores you definitely want to keep for the long-term, as housebound customers become even more comfortable with online shopping, is imperative.
Lenders: Government-backed liquidity is only part of the answer, leave no stone unturned
Most retailers have drawn down all available liquidity from their existing lenders - and this is sensible. Taking full advantage of the additional liquidity provided by the government through the business rates holiday, VAT payment deferral, Time to Pay scheme, and forfeiture relief on rent, is also a sensible move. Along with accessing the 80% wage support for furloughed workers, and finance options from the Covid Corporate Financing Facility if available/required.
However, two things are certain: Firstly, that these funds will not necessarily be straightforward to access, and secondly, you will pay for (most of) it later.
Effective planning, and ensuring you maximize the self-help measure to increase liquidity first, before diving into government-backed debt, is imperative. Embrace scenario planning and take on board the implications of what the data tells you, in order to ensure your business is ready to react. Leave no stone unturned to find cash/cost opportunities, and consider the medium to long-term implications of your actions.
We are likely to be in this for the long haul, and deferring a problem for three months does just that – it kicks the can down the road. That is a survival tactic, not a strategy.
Customers: This crisis will change consumer attitudes and behavior permanently
While the foundational components of Maslow’s ‘hierarchy of needs’ is strongly in evidence now (i.e. food, medicine and Wi-Fi/toilet rolls), it is a fairly safe assumption that demand for other product categories will return. Though some demand will be deferred, and some may be lost forever. Being clear about how people will shop in your category as the lockdown starts to lift, will enable you to plan inventory, promotions and customer communication to take commercial advantage.
And your short-term actions will be judged – doing the right thing for your customers and staying in touch in a helpful way (not just 50% off everything, plus free delivery emails) will be a key differentiator on the other side. Going the extra mile now – e.g. vulnerable/key worker opening hours, unique delivery options, honesty box retail etc. will pay back many times over in the long run.
Talking long-term
If, as looks quite possible, we are heading into an 18-month pandemic with multiple waves of lockdown across the globe, it is likely that consumer behavior will change forever.
Not just because they will be poorer due to a global recession, but that they will be even more comfortable with online shopping as the new normal. Even the most online-phobic consumer is likely to place their first grocery online order to avoid the crowds, and some will like it and convert forever.
Online retailers will of course benefit enormously, and channel strategies for legacy retailers and brands will need to radically shift as a result if they are to survive. Again, quickly working out what this means for your store and technology infrastructure, and pivoting your channels strategy fast, will separate the winners from the losers.
And don’t forget…
Competitors
One of the possible upsides for some organizations is an opportunity to consolidate the market, or acquire competitors or brands in distress. Those with the strongest balance sheets and best connection to the customer should emerge from this crisis stronger. Take action now to accelerate chances of emerging at the head of the pack, be alive to acquisition opportunities, and be ready to act at pace.
What’s next?
- Think long-term, even while ensuring short-term survival.
- Plans are nothing, but planning is everything – embrace scenario planning and be ready for anything.
- Act now. Success will come to those who can raise their heads, think strategically and emerge from the crisis paralysis first.
We are all in this together. If you would like to discuss any of the points raised in this article, please do get in touch.
Want to continue the conversation? Contact us.