Join the IDC Retail Insights team for the How Retailing Will Shift in the Post-COVID Era webinar on June 2nd at 11 AM/EST to get a look into retailing post COVID-19 and how ‘essential’ and ‘non-essential’ retailers can respond in both the short and long term.
COVID-19 has sent shock waves across retail business and the entire ecosystem that supports it, and while overall, the United States recorded its largest monthly decline in sales in March, the pain is not equally divided, nor of the same type. Non-essential businesses are dealing with precipitous drop-offs in sales and employee layoffs while essential businesses are trying to ramp up quickly to manage significant sales increases and spikes in eCommerce fulfillment. For example, sales by apparel and accessories retailers that had to close up shop were down by more than 50% in March, according to the U.S. Census Bureau, while grocery sales were up by more than 25%.
Overall global retail growth estimates for 2020 have been halved from pre-COVID forecasts. The $720 billion global fashion industry will be negatively impacted with short-term declines as discretionary spending on fashion merchandise plunges. As a result of mandatory store closures and drops in spending, employees have been laid off, both at the store and corporate levels, and it is likely stores and some chains will go out of business.
Retail’s exposure to global supply chains is affecting supply as well: 20% of U.S. and EMEA market volume is tied to China factories, and factories globally have been operating at less than 50% capacity for at least 60 days. Logistics is facing challenges with port closures and workforce shortages. Tonnage has dropped by 20%.
Worldwide travel & tourism revenue was originally expected to hit approximately $712 billion in 2020, and is now expected to see a 35% decrease from 2019 due to the industry coming to a near standstill after a wave of corporations and individuals cancelled planned trips as more governments instituted bans on non-essential travel. It will likely be 12-18 months before the industry sees a recovery. Restaurants that have had difficulty in converting to online order and delivery, are struggling, with many going out of business.
While consumers are deferring from these types of purchases— the pandemic has simultaneously driven up sales for shelter-in-place entertainment products, like bikes and jigsaw puzzle. The $5.7 trillion global grocery industry has been positively impacted from a revenue (and loyalty) perspective but will need to invest in digital transformation to prepare for the future.
Responding to COVID-19: Opportunities and Challenges for Essential and Non-Essential Retailers
What should businesses do to survive and to thrive in the coming months and years? Actions will vary both in the short and long term and also depending on the impact of COVID-19 on your company, i.e. whether or not yours is an “essential” or “non-essential” business.
From an infrastructure perspective, both essential and non-essential retailers will need to think tactically and respond with a “swat team” approach. This means that retailers will need to scale up network infrastructure to reflect the new baseline surge capacity that the pandemic required, and to reconfigure and retool it for more resilience. In addition, they will need to consider likely constraint points of network, web architecture and security and determining where they might be prevented from being able to scale up by 2X to 5X within a very short time frame.
Within this short time frame, retailers need to consider which cloud resources can be leveraged to provide a surge capacity, identify where the online customer experience is breaking and determine if and how well the enterprise is enabling and supporting work-from-home employees with mobile, collaboration, security, and help desk tools.
The non-essential retailers that are facing financial turbulence because they are not able to adapt fast enough, they will need to look for an edge where they can compete while simultaneously shoring up their enterprises. They will need to slow net new expansion and close under-performing stores, leverage technology to reduce costs, market smarter, source more strategically and look for new suppliers of product and innovative partnerships. Unlike essential businesses that likely will be able to fire on all cylinders with a both/and strategy, these businesses will be faced with many either/or decisions. Vertically integrated apparel businesses will have to choose between doubling down on stores as a primary path to market or cutting their losses on the brick-and-mortar direct-to-consumer front while doubling down on department store and general merchandise relationships and partnerships.
Restaurants, hotels and airlines will need to become very agile, able to keep their organizations stable even during closures or skeleton operations. They will need to address issues including the reconfiguration of spaces to meet social distancing guidelines efficiently and cost-effectively; the scaling of contactless and automated options; the creation of marketing programs built around hygiene practices; and customizable service and housekeeping/sanitary options. Restaurants, faced with the forced closure of dining rooms, have been working to turn online ordering and delivery, previously an incremental part of revenue, into the primary business. As with other types of businesses, those brands that already had a strong digital ordering strategy and customer base have found it easier to pivot than those that relied largely on dine-in business.
In the long term, essential retailers will need to accelerate investment in technology capabilities and processes to remove the landmines that they discovered when trying — in the short term — to scale ecommerce, store-level inventory management, and fulfillment and delivery volume.
To be effective in these hyper-localization endeavors, retailers will need to implement and integrate order management systems. This will require in-store fulfillment, and other technologies to efficiently and quickly manage product fulfillment and last-mile delivery. Without the benefit of digitally enabled systems and processes, the benefit of offering more channels is lost to the high costs involved in inefficiently serving them.
Warehouses and fulfillment centers, often operating with skeleton crews to meet mandated social distancing orders, were not equipped to keep product moving swiftly. This has prompted many retailers in the past few weeks to quickly convert their dark, unoccupied stores to fulfillment centers to keep up with orders and to keep in-store inventory moving. Essential retailers are making similar moves, converting some stores into fulfillment-only locations and adding curbside delivery, demand for which is growing swiftly.
For example, Amazon has moved closer to the customer through its large network of warehouses, among many other retailers who have been suddenly forced to fulfill from their dark stores are gaining the ability to ship from a location close to the consumer. This has actually lowered the shipping cost and sped up delivery time for the customer. The new implementation of curbside delivery has also offered yet another option for the customer to receive what they want quickly.
While the pandemic has accelerated and changed the adoption of business models, such as fulfill-from-store, these quick evolution and adoptions will likely leave some retailers in a better position to navigate the new retail landscape that will emerge post-COVID-19.
In fact, we expect that when consumers return to stores after they reopen and when consumers feel safe doing so, it is likely that the increases in online shopping and alternative fulfillment methods will continue on an upward trajectory.
Retailers that were further along the digital transformation (DX) adoption curve will have been able to respond to the pandemic with greater resiliency.
These retailers have fared better in the short-term and now are well positioned to further digitally enable their stores and workforce through edge technologies- including sensors, computer vision, smart shelves, self-checkout, and workforce mobility, providing enhanced connectivity and visibility. In addition, sources of store-level data that can be analyzed for greater insights into customer behavior and inventory movement both have lead to better customer service and engagement.
Lastly and most importantly, both essential and non-essential retailers need to reassess their pre-pandemic infrastructure plans to determine how well their Emergency Operations Center (EOC) performed and what needs to be improved. As they rebuild their supply chains and ecosystems, they will need to take a fresh look at the risks posed by third parties and make shifts to protect themselves.
A Changing Macro Environment at Retail
Regardless of category, you can expect the COVID-19 outbreak to effect major transformative changes in the retail macro environment. Chief among them are: 1) the modernization of retail business; 2) a more collaborative and transparent culture; 3) acceleration of retail digital transformation; 4) the rise of contactless business and services; and 5) the acceleration of global multi-source supply chain strategy
As such, retailers making a successful transition into the post-COVID-19 era will be focused on improving their enterprises by making them faster, more efficient and more innovative to better serve and engage the customer. This will require these retails to complete the tall task of remaining (or becoming) resilient and better able to respond and manage and risk, all while remaining (or becoming) profitable. This will involve new thinking and changes in process and technology, all of which call for, and provide, greater visibility into the concept-to-consumer supply chain. It shouldn’t come as a surprise, then, that in IDC’s 2020 Supply Chain survey, (which, significantly, was in the field after the pandemic was well underway), respondents rank “overall supply chain visibility” as the no. 1 focus at their company (46.2%) from a supply chain risk mitigation perspective
Looking ahead, retailers should evaluate their ability to:
- Connect digitally and to use and analyze their data effectively for smart decision making
- Collaborate with the end-to-end ecosystem
- Enable stores to easily adapt advances in technologies
- Provide online education to their workforces
- Enable remote office work
- Enable 5G and edge applications
- Provide self-service commerce and services
- Provide BOPIS, curbside and other ecommerce delivery
- Efficiently orchestrate supply chains
- Automate distribution centers
AI Across the Enterprise
When it comes to harnessing the most from the data and systems that retailers use, analytics and artificial intelligence will be key for both essential and non-essential retailers, in both the short and long term, across the enterprise, to improve intelligence in a wide variety of operations.
For all retailers trying to optimize their labor resources, demand forecasting solutions could help in the short term by predicting which channels SKU demand will come from and how to allocate workforce if labor resources are scarce, or how to balance surges in demand with operational complexity and available labor. In the long term, AI overlaying automated tasks can reduce reliance on human intervention, freeing up people for customer engagement and other tasks.
AI also optimizes areas such as pricing, which can be effective in the short term for essential retailers to trigger markdowns on low-demand products to clear in-store shelves for higher demand products, and in the long term for intelligent allocation and fulfillment, ensuring that inventory goes to stores that need it the most and ships from optimal locations without exacerbating shortages
Essential and non-essential retailers have all been tremendously impacted by COVID-19. The world has been left scratching their heads while companies have shut down, unable to sell perishable stock and simultaneously other retailers have been prospering. Regardless of each unique outcome, all retailers will need to reassess their disaster recovery and business continuity plans, incorporating COVID-19 lessons into them.
In order to better guide retailers, we specifically developed the How Retailing Will Shift in the Post-COVID Era webinar on Tuesday, June 2nd at 11 AM/EST to discuss how retailers should respond to both the short- and long-term challenges they are facing by exploring new business models and the technology that supports them. The webinar focuses on the changes to the retail macro environment, including the modernization of retail and hospitality business, a more collaborative and transparent culture, the acceleration of retail digital transformation, the rise of contactless business and services and acceleration of a global multi-source supply chain strategy.
Leslie Hand, Group Vice President, IDC Retail and Financial Insights; Dorothy Creamer, Senior Research Analyst, Hospitality and Travel Digital Transformation Strategies; Robert Eastman, Research Manager, IT Strategies; and Jon Duke, Research Vice President, Product Merchandising and Marketing also contributed to this piece.