Life After COVID-19: What’s Next for Retail?

Retailers around the world are grappling with the appropriate response to the coronavirus for their employees, customers and their businesses. For many, it is shaping into a once-in-a-generation test of business continuity planning, elasticity of digital ecosystem and supply chain flexibility.

Unlike previous disruptions like SARS and Fukushima over the past two decades, the disruption from coronavirus is having an impact on both supply and demand. Southeast Asia has particularly suffered on the supply side. On the demand side, Europe and the United States are seeing changes in demand pattern, with retail sub-sectors experiencing different shifts and outcomes based on the longevity of the ongoing public health crisis.

We have identified three distinct scenarios for retailers:

• Low Scenario: Mostly four to eight weeks of disruption, with significant social isolation and lifestyle changes. Lack of store traffic: 8 weeks
• Medium: Medium-term disruption through July and August with gradual recovery after that point. Lack of store traffic: 16 weeks.
• High Scenario: Long-term disruption, with the U.S. economy largely shut down through November to December. Lack of store traffic: 32 weeks

Our Outlook

At Publicis Sapient, we have seen retailers experiencing a significant decline in sales in many categories of goods as footfall declines or comes to a screeching halt (stores still represent more than 80 percent of revenue for most retailers).

The fallout – and recovery – of the retail industry will vary by sub-sector, which have faced different supply and demand challenges in the wake of the crisis.

• Grocery: In grocery, we’ve seen a major uptick in digital demand in the wake of ongoing social distancing and stay-at-home orders. Grocers are now putting plans into place that have been developed, refined and tested over the past decade. However, this pressure is fundamentally different from past regional emergencies. As the pandemic slows, grocery will gradually shift back to more normalized shopping patterns, with an increased revenue shift attributed to digital channels.
• Apparel & Specialty: With non-essential retail largely shut down and a shift in consumer focus to essential items, apparel and specialty stores should expect to see a projected 80 percent drop in revenue during the initial eight week of the crisis, before a partial recovery. This represents a projected permanent loss of 11 percent of annual revenue. Moving into recovery, apparel and specialty stores will begin to see an uptick as consumer habits shift back to accommodate more discretionary spending, with an emphasis on expanding omnichannel experiences.
• Big-Box Retail: Big-box retailers saw initial increases in both in-store and digital traffic as stores remained open and offered a variety of products to meet consumer needs, both discretionary and non-discretionary.  Looking ahead, retailers must brace for economic recovery, which will drive big-box retailers to consider strengthening their own brand or embracing marketplace models to drive sustainable growth.

What’s Next

Regardless of the scenario, several truths are beginning to become clear for retailers as they look ahead to conquer challenges in a post-COVID-19 world. Companies further down on the path of digital business transformation will be better equipped to handle this disruption.

A profound shift in sales: Retailers are going to have to invest in digital channels as the primary mechanisms of collecting orders and delivering those orders in order to survive. Stores will shift to being employee-only dark stores or fulfillment centers supporting click-and-collect mechanisms of meeting customer demands.

In the medium and high scenarios, we expect digital channels to have an opportunity to capture more of those sales for the next 8-to-12 weeks, putting pressure on IT contingency planning. In terms of sectors, grocery and big box particularly will experience this variability most keenly.

Digital revenue growth: We believe retailers will have to focus on accelerating their digital sales as shoppers stay home and use online channels to meet day-to-day needs. This puts additional strain on the supply chain and exacerbates the situation that retailers are already expecting.

Retailers can also positively affect their brand by activating online and offline strategies that not only get product to customers fast but also to those that are most in need. Strategies such as promotions which donate products or money to care homes or people in need will help elevate brands in the mind of customers – driving continued loyalty and customer retention through strengthened brand affinity.

Data, algorithms AI/ML and the supply chain

This crisis will test the degree of flexibility and redundancy in retailers’ supply chain. One survey from B2B e-commerce market research firm Digital Commerce 360 found that many of the challenges retailers mentioned they face in our interconnected world are supply chain-related. Product delays (44 percent), consumer confidence challenges (42 percent) and inventory shortages (40 percent) topped the list of retailer concerns.

Variability puts stress on supply chains, increasing storage costs and inventory carrying costs, while simultaneously increasing costly faster delivery for in-demand items. The application of technology and data can provide a useful solution to some of these issues retailers are likely to face over the coming months.

Retailers will need to leverage next-generation AI/ML based demand and supply planning to forecast product demand spikes resulting from the spread of the virus as consumers move from preventative health management, to stock piling, to quarantined living, to restricted living and back into normal life. This will help to ensure that essential products are available in the right place at the right time.

For example, technologies that provide inventory visibility across the distribution network (e.g. distribution centers, stores, vendors, third-party providers and wholesale inventory) offer major benefits on flexibility and transparency in this environment to serve customers in best way possible given supply limitation. In addition, investments in fulfillment optimizers and store-picking algorithms will allow grocery retailers to deliver more products more efficiently - in terms of both price and customer experience.

Apparel, specialty and big-box retailers will also benefit from having a returns optimization solution in place to deal with increased return levels as people who have hoarded merchandise start returning them. New versions of established tools, such as supply chain control-tower solutions, will also play a critical role in helping supply chain managers have an ongoing view of potential risks and provide framework to help take corrective actions to better serve their customers.  

The retailers who will survive through the COVID-19 crisis are the ones who look at the current situation as an opportunity, regardless of which scenario they are face on the road to recovery. Leveraging data and technology to accelerate innovation of digital channels, supply chain optimization, and in-store capabilities will help retailers develop strategies that address challenges head on, while transforming their organization for the future.