Coronavirus has wreaked havoc on retailers around the world. The issue with situations like we’re currently facing is that it will quickly expose the parts of a retail business which are most lean.
Quite naturally, for many, it is proving to be a once-in-a-generation test of business continuity, planning and more importantly, supply chain flexibility.
Unlike previous disruptions (SARS, H1N1 and 2008-09 global financial crisis) in the past two decades, the disruption from coronavirus is having an impact on both the supply and the demand side.
On the demand side, already we have seen changes, with visits to retail shops dropping considerably. With stores still representing more than 80% of revenue for most retailers. we expect a significant decline in sales in many categories of goods as footfall is reduced. At the same time, we expect digital channels will very rapidly jump to capture these sales for the next four to eight weeks, putting pressure on IT contingency planning.
But given the low consumer sentiment levels, sales outside of the core products are not likely to match peak holiday or Black Friday transaction volumes. In terms of sectors, grocery and big box particularly will experience this variability most keenly.
Retail businesses are a complex network supported by an equally complex supply chain infrastructure and one critical area that will be tested by this crisis is the degree of flexibility and redundancy in retailers’ supply chain. While digitally-focused businesses will have greater efficiency in their supply chain management and respond faster to unexpected circumstances, what the coronavirus crisis has laid bare, is the need for retail transformation, and more importantly, supply chain automation.
Indeed, the investments in technology and data have never come into more into focus than now.
Digitally-focused retail businesses with inventory visibility across the distribution network (e.g. distribution centers, stores, vendors, third-party providers and wholesale inventory) will benefit from flexibility and transparency in this environment given the supply limitations.
Product forecasting is at the core of an ecommerce model and supply chain management. Using AI and machine learning, retailers can make better assortment decisions to horizontally scale systems.
While retail transformation will bring efficiencies, at a business level, the current situation will likely see more retailers question their sourcing strategies.
Balancing sourcing resilience and flexibility with cost was already on the list for many retailers. The spread of coronavirus might just be another reason for retailers to consider introducing more supplier flexibility with speed to market becoming the key determinant as retailers will look for sourcing near-shore as well as offshore.
We will also expect new versions of established tools, such as supply chain control tower solutions to play a critical role in helping supply chain managers have an ongoing view of potential risks and issues to help take corrective actions and better serve their customers.
In addition, investments in fulfillment optimisers and store picking algorithms will allow retailers to deliver more products and deliver them more efficiently - in terms of both price and customer experience.
Situations like coronavirus have also highlighted the importance of real-time view across supply chain (inventory, order management etc.). While data and AI can drive product forecasting, using real-time inventory data can enable better assortment decisions and designing ways to reduce order turnaround times to be able to react quickly to changes in demand.
Technology to aid social responsibility
With the current coronavirus situation, we can expect consumers to demand more socially responsible behaviour. Indeed, technology can aid social responsibility that will also bring tremendous long-term dividends to retailers with large supply chains. Here's how.
1. AI-enabled demand and supply chain planning
An efficient supply chain can leverage AI/machine learning for retailers to accurately predict product demand spikes as consumers move from preventative health management, to pantry preparation (stockpiling), to quarantined living, to restricted living, and finally to living the new norm. This will help to ensure that essential products are available in the right place at the right time.
AI/machine learning can also \be used to proactively identify breaks/chokes in the existing supply chain resulting from the restricted movement of people and goods as well as quarantined factories, farms, etc. By identifying potential supply chain disruptions, such as those resulting from the spread of the virus, retailers can begin to identify and organise alternative supply chains to ensure the continuous movement of goods.
2. Price transparency, an ethical responsibility
What we’re seeing now is a lot of price gouging on high demand products like hand sanitizers, toilet paper and certain cleaning agents.
As economic uncertainty begins to place greater pressure, families may find themselves in more financial stress with the inevitable economic downturn resulting from the spread of the virus. It is fair to assume that certain consumers will experience a greater challenge in purchasing the necessary products to keep themselves safe from the virus.
Retailers may well be asked to demonstrate ethical responsibility on how they are preventing price gouging, especially when demand greatly exceeds supply. Retailers can partner with their suppliers to provide more transparency about where consumers can buy essential products at the cheapest price and to ensure that lower income families and more economically deprived regions can stay healthy.
3. Dynamic pricing
This is the practice of varying the price of a product or service to reflect changing market conditions. Many consumers simply can’t afford to purchase the recommended products to prevent the spread of the virus (hand sanitizers, high quality cleaning agents etc. are outside the household budget of many consumers). Retailers should give back to those in need and create online communities that get people engaging and encourage them to help in these efforts to give back.
4. Education, the need of the hour
We’re seeing a lot of consumers panic buying and instead of feeding this frenzy, it would be helpful for consumers to know how much and what type of products they should be buying based on their circumstances.
Situations like coronavirus offer a tremendous opportunity for retailers to step up to guide and educate people and become that trusted source of information that help people understand their health and wellness options through social media and their brand websites. By partnering with brands, retailers can help consumers make smart decisions about the products they could buy to increase personal hygiene and prevent the spread of infection.
As mentioned above, social responsibility may well become an expectation emerging from coronavirus as retailers will be expected to play a role in ensuring that the community continues to thrive and they aren’t disproportionately affected by such circumstances in the future.
5. Corporate citizenship
There is an opportunity for brands to repurpose their factories and production focus to address product shortages in certain categories.
For instance, the French luxury conglomerate LVMH announced that it will repurpose their factories where it usually makes fragrance and cosmetics for the likes of Dior, Guerlain, and Givenchy and instead produce hand sanitizers. This is a great opportunity for brands to put aside short-term profit aspirations in an effort to help people fight the spread of the virus and become a better corporate citizen.
We have always known that technology is an enabler. The coronavirus crisis has shown how retailers and consumer product brands can achieve purpose by playing a role in their fight against COVID-19. People, in the long run, will remember how companies behave, particularly in times of economic and social crisis.
Tyler Muñoz is retail client partner at Publicis Sapient in Singapore.