Following the financial crisis of 2008 to 2010, the retail industry witnessed a change in consumer spending, with polarised in-store purchase habits from different customer segments. On one hand, customers reduced spending on essentials by opting for discount grocers, and on the other hand, they replaced spending at restaurants with lower cost premium ‘treats’ at home, benefitting the top-end grocers.
Although there are similarities with the current environment and predicted aftermath of the Covid-19 pandemic, we cannot simply apply the same historic data from 2008 to 2010 to predict future shopping habits. Instead, retailers should seek to identify current demand patterns and prepare a store go-live strategy targeting these customer groups for the first weeks after lockdown ends.
BearingPoint has identified three possible customer segments, based on differing circumstances and requirements during, and following, the lockdown period.
Many people will have felt the impact of the pandemic and will have reduced income going forward. This group will be looking for bargains and increased value.
Some customers will have had no change to their pay or will have had the opportunity to work overtime (for instance, workers in the NHS, grocery or logistics services). At the same time, they have had limited opportunity to shop – restricted to only online purchases – leading to an increase in spending power and pent-up demand, looking for reward purchases after weeks of isolation. It will be key to serve this group effectively, as they represent the biggest opportunity to regain revenue.
Continued restricted movement
There will be many people who remain restricted in their movement – including those in the above categories – either because they are among the 1.5m vulnerable or because restrictions will remain in place for specific groups for a longer time period. This will result in a lower store footfall, but demand for home delivery across a wider range of products is likely to increase.
What does this mean for retailers?
The changes in customer demand requires action to be taken to enable a quick and flexible response. By utilising key data points, either through existing Information Systems or through manual collection, companies will be able to react appropriately. Utilising a pragmatic approach for the first few weeks will unlock opportunities;
1. Getting to the information
Review how your existing reporting structures can identify the demand changes:
- Does your segmentation allow you to identify the key customer groups?
- Are you able to identify increased reward purchases and respective SKUs?
- Is your current store segmentation sufficient?
2. Understanding the art of the possible
Capacity constraints are likely to appear in different parts of your supply chain, starting from outstanding ecommerce orders, arrival of delayed deliveries and returns.
- Identify likely bottlenecks that limit your capacity and monitor these closely.
- Identify areas with likely spare capacity and how they could ease capacity constraints
- Prioritise constraints early
Employees will remain a key success factor for realising your strategy. Engage your teams early, ask for their feedback on your plans and ensure that everyone understands their tasks. This will not only ensure a successful execution but will likely lift your team moral as they can see the leadership taking actions to get back to business.
- Share your plan top-down and create a feedback loop for each level
- Be clear and concise in your communication
- Communicate before staff return to work
4. Create a dedicated go-live team
This team should drive the strategic planning of the go-live process and remain responsible until the business can return to the normal operation processes. Many businesses are already using a similar process during peak trading periods
- Ensure that information flows through this team allowing them to prioritise actions
- This team should be the key decision driver
- Be mindful not to overstep to avoid demotivating the operational leaders
- Define clear operating processes and share them
5. Hold inventory centrally
The first weeks will see varying demands in the retail network driven by a stores’ exposure to each of the customer segments. This will result in significantly higher demand on some stores over others. It is therefore important that stock is held centrally and allocated based on up-to-date demand information
- Review and update your stock allocation process day-by-day
- Prioritise stores based on current customer demand and footfall, not based on historic sales
6. Work collaboratively
Suppliers will face an equally unprecedented situation with less visibility of changed consumer demand. They will be relying on historic information to drive their decisions. A close engagement will provide them with valuable information, allowing them to prioritise production based on demand patterns observed by retailers:
- Proactively engage with key suppliers and share demand information actively and timely
- Communicate both, increased and decreased demand
- Review options of direct shipment from suppliers to customers to reduce overall order process
Lastly, we should not forget that this period is temporary, and business is bound to return to a normal operating process. While many businesses have faced existential questions over the last weeks, the go-live period will be a key opportunity to re-engage with customers and create an on-going impression in your ability to impress.
This is a Carpe Diem moment, use the time to seize the day.
Emile Naus is a partner at independent management and technology consultancy BearingPoint.