We have been able to witness the diverging story of the retail sector over the last few months. As high-street stores had to close their doors, sectors like the fashion industry were hit hard, seeing a year on year sales drop of around 70%. Overall spending reduced as customers feared an uncertain future. While some customers moved online, this did not stem the overall drop in demand, as people held back on purchases.
However, some retailers fared much better than others. As people were forced to spend time at home, they focused on purchases that made lock-down easier, planning home improvement, buying home-office furniture and ditching the office suit for sports and leisure wear. Although homeware and DIY retailers suffered equally from the closure of stores, they were able to somewhat compensate through the expansion of online deliveries. Such has been the growth in home improvement online shopping that one retailer in this sector has seen online orders increase from 1,000 to 55,000! Even pre-Covid, this would have been an extraordinary feat, but under the social distancing requirements, this is a mammoth task, requiring agile fulfilment solutions. As restrictions lift, demand for online purchases is likely to remain above pre-crisis levels, requiring all retailers to adapt and learn how to operate effectively in this environment.
What’s happening in the warehouse
Warehouses are extremely busy places at the best of times, with often hundreds of people on any one shift managing inbound, put away, store picking, store outbound, online fulfilment and returns. Covid-19 has meant that extraordinary measures have had to be put in place to ensure social distancing requirements are met and employee wellbeing is protected throughout their operations at this time.
As warehouses are designed for efficiency, and space comes at a premium, we are seeing that retailers are having to review all areas of their operation, from checking people’s temperature at the entrance, to reduced seating in the canteen and social distancing at the dock doors. Many operators have taken effective immediate steps, including:
- Marking walkways and creating effective one-way flows
- Segregation of warehouse activities; separating areas which are in contact with the external environment (e.g., goods reception and shipping), from the other areas (e.g., storage, picking and order fulfilment) and avoid any exchange of personnel
- Organisation and fixing of shifts so that people who work in each shift never meet each other, even during shift changeover.
- Full sanitisation of any equipment used between shifts (e.g., trolleys, barcode scanners, manual devices and terminals)
- Reducing headcount where 2m distancing cannot be maintained
These additional steps have specifically impacted people intense activities, including the fulfilment of e-com orders and the processing of returns, which are all areas that saw exponential growth in demand, making it more challenging for retailers to maximise revenues.
Additional areas we would recommend
As many organisations and logistics teams have taken effective immediate actions, it is now time to take a step back and review how these activities can be optimised in the long-term, without compromising employees’ and customers’ safety.
Most retailers would normally be in the process of planning for their annual peak on Black Friday and over Christmas period. Understandably, this has dropped down the agenda, but this year’s peak will look significantly different. Retailers will need to review their current Covid-19 measures, ensuring they understand the implications on capacity and costs.
Taking a second look at all activities in the warehouse, reviewing implications on the overall product flow and identifying the most effective way to operate under the social distancing requirements will prove crucial. Market leaders will:
- Review capacity and product flows end-to-end to understand and resolve bottlenecks. This will include operational as well as non-operational areas such as toilet facilities and canteens. If necessary, additional communal space will need to be added through the use of portacabins and operational practises will have to be reviewed to regain lost capacity.
- Reviewing staff rotas to create permanently fixed teams, staggering shift start times and reviewing distanced management of teams. Keeping smaller groups of dedicated teams together will reduce the risk of infection and ease bottlenecks at key congestion points, such as entrances, locker rooms and toilet facilities.
- Understanding the implications on logistics costs is equally important. While cash flow and revenue retention will be the key focus for businesses, it is equally important to understand that the COVID measures have an implication on supply chain costs, as processes take longer, and productivities are reduced. Furthermore, omni-channel retailers have long struggled with the profitability of their e-com operation. The ever-increasing importance of this business segment is an urgent call to action to protect the bottom line.
What’s next for Next
Some retailers took the decision to shut down their online operations at the same time as their stores and Next was amongst that group. It is interesting to see now that they are positioning that decision, and two-week shut-down, as time used to make their warehouses into safe environments ready for reopening.
Next took the sensible measure to only make certain product categories available to customers, making it easier for them to control and manage demand. Despite choosing the home and childrenswear categories as areas to continue selling online, in their first week of opening up they had to shut down very quickly due to an initial huge demand from customers. This highlights that sales opportunities exist which require a well-functioning logistics and supply chain function. It will be important for retailers to communicate effectively with customers to shape expectations and improve brand image.
Retailers essentially have three choices
We’re seeing retailers who are continuing with online fulfilment go down one of three avenues to therefore manage capacity. Next have gone down the route of approach number two but all three are viable:
Limit visitors to the website through a virtual queuing system
This reduces the number of customers that can visit a retailer’s site at any one point to limit the number of orders that can be made throughout each day. While this will highlight to the customer that a retailer’s products are sought after, possibly increasing brand image, it also poses the risk that customers will find substitutes with competitors.
Shut the website down each day when it reaches the set capacity order level
The effects of this option have a similar effect to the previous one, however, this could increase customers impatience and leading to higher levels of defections as customer waiting times will on average be longer.
Continue to take orders but relax the delivery lead time promise completely
While this option allows a retailer to take the maximum number of orders, it risks customers dismay if the order lead time is not communicated effectively at point of check-out. Wickes took this approach with its home delivery option during lock-down. Many customers will understand that retailers face challenges and will be more accommodating to longer lead times, however it will be important to communicate the expected delivery date and achieve it.
All three options rely on a retailers understanding of its supply chain capacity, from taking in new products, through processing them in the warehouse, to shipping them to the customer. Once capacities are understood and proven, it will be the time to find ways to increase capacity and ensure profitability.
Laura Morroll and David Noll are managers at management and technology consulting firm BearingPoint