The current outbreak of Covid-19 across the globe has changed consumers ability to shop, and changed their priorities on what they want to buy. For retailers, it’s accelerating what was already a challenging environment in the UK, creating a black swan event leading to surging demand and supply shock. Retailers are struggling to respond to this once-in-a-generation test of business continuity planning and supply chain flexibility.
As consumers get used to living in lockdown, they have no choice but to turn to online delivery for their shopping. Working from home is changing the priorities of what we all value too: some categories seeing 2X (computer monitors) to 5X (soaps) increase in demand. Early signals from China and Germany suggest that the channel shift will remain long after lockdown is lifted, as people become used to the convenience, and comfortable with the security of online. Given the shift of behaviour and demand, retailers who have a mature digital strategy and are well into their digital business transformation roadmap are doing better than other companies in their categories, eg Nike – 30% growth in online sales in Q1 2020 in China despite Covid-19 lockdowns.
While the impact of Covid-19 may last anywhere from 12 to 18 months, companies that are digital laggards need to reconsider their digital ambition in order to survive and thrive during and post Covid-19. Based on our experience working with the world’s leading online retailers, retailers will need to address four key components of the retail business model if they are to leapfrog to be digital leaders.
1. Online frontend vs brand proposition
Ensure that your digital front end represents your brand proposition (and, even more importantly, that you have a clear brand proposition for your business). This has always been true in retail, but in a digital world customers are more empowered than ever to switch to brands with a clear proposition that connects to their drivers (be that price, ethics, trends, demographic etc…). Frequently in traditional retailers, the digital presence is bland and generic and does not manifest the core tenants of the brand (if the brand itself hasn’t already lost its way). It’s essential that your entire digital ecosystem is in sync with your brand proposition
Ensure that your technology is scalable on demand, using modern architecture and cloud infrastructure to handle bursts of growth and the diverse needs of emerging omnichannel experiences. This is not just limited to what is traditionally viewed as ‘customer facing systems’. More and more systems that were considered ‘backend’ are playing a real time role in the overall customer experience (OMS, WMS, TMS, customer data platforms and even network modelling and planning systems). Retailers need to be asking themselves if their existing end-to-end platform supports the increases in traffic of the new normal. And not just retailers with high demand now, when the virus recedes, new consumer behaviours will likely extend the ‘spike’ to all types of retail, even in industries that right now are massively down in sales (eg apparel).
3. Supply chains
Inject agility and flexibility in all areas of the supply chains using digital interventions. Retailers will need to invest in the next generation of supply chain control towers, aka digital twins, that not just provide visibility but also can simulate and optimise delivery networks, inventory, cost-to-serve, and service levels across entire supply chains, breaking organisational silos, using adaptive AI leveraging petabytes of data and real time data streams. Retailers should use these tools to understand risks and weaknesses in the event of another Black Swan moment, and use the same models to make the desired changes. Other areas of much needed investment are in demand sensing and forecasting systems that use consumer preferences, weather etc.., real time inventory visibility across stores, and even inbound supply chains. These investments will allow retailers to deliver more products, and deliver (or return) them more profitably (higher margins), efficiently (lower costs) and effectively (customer experience).
4. Store operations
Revise the role of the store in the overall omnichannel experience and brand proposition. Retailers will need to relook at store profitability models in the context of an omnichannel world and understand better how they can play a part in maximising end to end customer connection and drive up profitability. Stores will need to be considered not just in their role as drivers of direct sales but also in the context of brand and marketing, customer experience, education and connection, and fulfilment and distribution centres. This in no way implies that sales through stores will go away, or that customers will no longer ‘go shopping’ but that cannot be the only measure of a store’s success metrics.
Beyond this, and most importantly, as part of transforming their overall digital infrastructure, retailers will need to transform their cultures to break down the silos and empower their employees to move quickly in response to customers’ needs (and world events), and to maximise their profitability while doing so. Ultimately, it’s the retailers that can do this that will succeed, and survive, in the long run.
Guy Elliott is senior vice president, retail & consumer products EMEA & APAC at digital consultancy Publicis Sapient