It is no surprise that the uncertainty of COVID-19 poses a series of unprecedented obstacles and business challenges that all industries will have to face in the months to come. While many of us have not dealt with a situation quite like this before, there are learnings we can pull from the past to inform the best path forward. More specifically, the Great Recession of 2008 poses economic similarities that retailers and brands across the industry can learn from to successfully overcome a COVID-19-driven economic downturn.
There are three key learnings from the Great Recession that brands can lean on to prepare for a post-COVID world:
1. During the Great Recession, off-price retailers not only survived but eventually thrived.
The economic downturn forced consumers to turn to value-based shopping, and despite growing unemployment rates, large off-price retailers, such as T.J. Maxx and Ross Stores, experienced same-store sales increases in 2009. Off-price outlets became a “new norm” for purchasing goods, and this time period enabled these key players to emerge as retail industry powerhouses. While the current shutdowns are impacting all retailers equally, a post-COVID recession period could show a fast rebound and similar strong sales growth period for off-price retailers as consumers once again turn to value-based shopping.
2. Off-price retailers had to adapt fast to changing consumer purchasing trends.
While the Great Recession enabled off-price retailers to see an overall sales increase, there were interesting consumer purchasing trends within that growth that may repeat themselves in 2020. According to McKinsey, T.J. Maxx’s same-store sales increases were driven by an increase in customer traffic, with as much as 75 percent of shoppers in 2009 never having shopped at a T.J. Maxx before. This increase in traffic was partially offset by smaller average transaction sizes across these customers.
Therefore, while more consumers turned to off-price retail to find “deals,” on average, consumers were buying less per trip and/or lower ticket items. And while the Great Recession showed a decrease in sales for home goods due to a poor housing market, the current situation will bring its own categorical shifts in consumer shopping trends to adapt to, potentially driven by an extended wave of remote working. The more brands can prepare to fill these needs in the off-price market, the better they will be on the other side of the recession.
3. Innovative retail business models emerged after the Great Recession .
Lastly, in any challenging time, one can expect a surge of innovative business models that are prepared to weather future potential storms. Coming out of the Great Recession, we saw the rise of the flash sale, re-sale and e-commerce-driven off-price retailers, bringing additional innovation to this growing segment of the retail industry and further fueling value-driven consumer behavior. While only time will tell which new innovative model in the retail sector will arise coming out of this economic downturn, it is inevitable that innovations to the off-price space will emerge again.
The learnings from the Great Recession noted above can provide brands and retailers with insights to prepare for the immediate and long-term challenges facing the industry in light of COVID-19.
Short-term: Build a competitive edge by keeping a tight pulse on the breakdown of your available inventory as full-price sales slow and most retailers halt orders.
Once key off-price players resume to normal purchasing, the market for selling inventory will be highly competitive. By proactively strategizing your inventory offerings and pricing now, your team can nimbly build relevant offers to off-price retailers as soon as their doors open. Keep in mind that off-price retailers, similar to the rest of the industry, will be experiencing potential demand shifts at a categorical level, and be prepared to offer and price inventory accordingly. If you believe you will eventually need additional outlets to clear through pilling inventory, begin building those relationships now where possible. The more prepared you are for initial go-to-market cadences once doors reopen, the more quickly you can turn sitting inventory into cash.
Middle-term: Stay on the forefront of innovative business models in the off-price space that will inevitably arise over the months to come.
While there will likely be short-term inventory saturation in the off-price space, there will also likely be new outlets for clearing inventory that emerge during this period. These new opportunities may even provide better recovery, speed, or brand protection for brands, similar to what flash sales sites, such as Gilt, did after the Great Recession. Most brands will find a need for additional outlets for clearing inventory both in the near term and through a potentially longer-term recession, and new digital retail opportunities could be a great way to fill the gap.
Longer-term: Re-evaluate your organization’s current processes and invest in new technology solutions.
Now is the time to evaluate whether your current processes are as efficient as possible and whether your current systems require refinement and/or advancement from additional technology. It is not too late to implement new ways of working that will enable you to understand inventory optimization and how best to clear through it over the challenging months ahead. Additionally, investing in tools that will make your inventory presentable with rich imagery and/or detailed product information will help increase the likelihood that inventory will sell in a competitive market. Proactively making these improvements now is critical to ensuring that you are set up for success in not only the post-COVID world but also should another challenging situation arise in the future.
Stephanie Rosenthal is the senior program manager, client success operations, at Inturn. Preparing for the next wave of disruption requires having the right technology in place. Inturn is the only enterprise software solution that empowers brands to efficiently sell slow-moving and excess inventory to retailers and recover cash faster. With Inturn, you have the tools to centralize your data, streamline your workflows, and optimize your margins.