Among the systemic shocks COVID-19 has delivered to the retail and consumer world, particularly on the discretionary side, an entire season or more of merchandise has gone unsold in brick-and-mortar stores across the globe, unallocated in distribution centers, and even left half-produced in factories further up the supply chain. Indicative of that, U.S. retail sales in March 2020 plunged 8.7 percent, rescued from double-digit freefall only by the unprecedented sales lift the grocery sector experienced.
Consumers have experienced their own multiple disruptions: their day-to-day lives, school schedules, working hours and in many cases furloughs and employment. Finances and their health and that of their loved ones are all up in the air. For many, the concept of shopping has shifted from a leisure activity or pure consumption to sustenance and survival. A Coresight Research report forecast that it would be September, 2020 before discretionary spending would start to approach pre-COVID-19 levels and level off in the ensuing months.
For leaders of retail businesses, the unease, unknowability and pressure are just as fraught. Stores are shuttered, corporate personnel and sales associates have been furloughed or fired. Inventory is aging, capital is expended without the revenues to match, and day-to-day activities are being run remotely with varying degrees of success. In this state, retailers can’t expect to simply flip a switch and turn things back on.
The situation is very different to that of the 2008 financial crisis, when the underlying cause was a set of structural economic issues. This time, it is a health crisis that has caused economic turmoil, simultaneously driving rapid social change.
Among the consequences, people are suddenly far more keenly aware of their public interactions with others. A YouGov study found a sharp uptick, even in the first month of the crisis, in actions such as avoiding public places, more frequent hand washing, and refraining from touching objects in public.
Following decades of trying to delight the customer, present an over-the-top shopping “experience,” bricks-and-mortar will have to reinvent itself. Companies that emerge from this with strength will have recognized that even though they may have had healthy businesses prior to the pandemic, for them to successfully reemerge, they must have new operating models. The very definition of a healthy business will have changed.
Some leaders are staring into screens, waiting for an alarm to go off, so they can return to their normal. And perhaps they nurture the hope that things will go right back to where they were pre-COVID-19. Others are keeping an ear to the ground for new and different opportunities, and in the best of cases, looking for ways to help meet the unfamiliar, variable and sometimes unpredictable needs of a country in crisis. The most successful are acting like wartime generals, focusing on what they can control, actively risk-adjusting plans and creating strategic mechanisms for further adjustments.
One thing is certain: There will be a post-pandemic era, and preparation for this New Abnormal must start now.
Preserving Cash and Cutting Expenses Is Not a Go-Forward Plan
Now is not the time to stand still. “Reemergence” will not be uniform or consistent. It will be a spate of starts and stops. As we are now beginning to see, leaders must prepare for inconsistency in state-by-state and county-by-county reopening rules and regulations, not to mention the public’s fear of resurgence of the novel coronavirus. This period will be characterized by a customer base that will have differing needs, divergent levels of ability to pay for them and a varying degree of appetite to spend. Nonetheless, now is the time to plan for “reemergence and reopening.” It is time to prepare an actionable roadmap for the uncertainty ahead — not only in the c-suite, but across the entire organization and direct-to-consumer (DTC) network.
Prepare for a Long Battle Before Predictable Economic and Customer Indicators Are Back
Reemergence will come along with a struggle to understand the economy, other businesses and consumer indicators. Executives will need to address these unfolding developments in stages, and adjust operating models and expectations, as a period of continued constraints and barriers to economic operation and normal daily life is accompanied by uncertainty and heightened safety concerns. Reemergence will surely have fractious bumps in the road, impasses and inconsistencies across regions and geographies. It will take some doing for consumer confidence to rebound, given the current restraint being exercised is in part due to loss of discretionary consumer income.
Through this time, retail leaders will need to keep their eye on returning their supply chain to new, post-disruption efficiencies; rehiring and retraining employee teams, revaluing inventory, rethinking their real estate footprint, and, regaining their existing customers. It’s going to be a long uphill climb to reach a post-virus world — made possible by widespread vaccination — of a return to daily routines and reinvestment in innovation.
Companies that will succeed post-COVID-19 are those whose leaders who show up ready for battle, focused on what they can control and strategically building operating models with agility and flexibility. The c-suite will focus unrelentingly on maintaining visionary leadership and an agile approach to managing human resources, workplace safety, health and benefits, technology, particularly sprinting to digital, marketing, merchandising, operating hours and labor costs, as they develop strategy, manage risk and generate growth. These leaders are already asking the right questions and working to improve outcomes, and with it, recapture and even expand their market share.
Matt Katz is managing partner at SSA & Co., a global firm advising companies and their c-suites on strategic execution. He can be reached at email@example.com.