When the coronavirus made its way around the globe last year, words like “unprecedented” became instant buzzwords. No one knew what to do. Nonessential stores were forced to close, millions of workers had to set-up home offices overnight and online shopping was put to the test.
Crisis managers and retail consultants were quickly called upon for advice. But without a blueprint, even the most seasoned experts were using a mix of their experience and best judgment to navigate the path forward.
“If you look back a year ago, all of the world was more or less divided into two parts, with the essential retailers versus the non-essential retailers,” Craig Johnson, founder of Customer Growth Partners, told WWD. “Everybody had challenges, but the challenges were different for different players.”
What was critically important for everyone in those days was preserving the health of the business while keeping both employees and customers safe. To do that, retailers had to focus on the immediate. And with landmark events unfolding on almost a daily basis, planning for the long-term proved fruitless.
A year later, with consumers mostly assimilated to the remote world, vaccines have begun to roll out around the globe, prompting a renewed sense of hope. Still, the knowledge gained from a year gone awry cannot be overlooked.
WWD caught up with a few experts to find out what they’ve learned during a year of lockdown, what tips they have for retailers moving forward and what will likely be the pandemic’s lasting legacy in the world of retail and fashion.
Flexible Supply Chain
One of the biggest problems at the start of the pandemic was the surge in e-commerce. While online shopping has steadily been increasing its penetration each year, the sudden need for social distancing and store closures meant many people who were still reluctant to try online shopping suddenly became converts.
But problems arose when there were too many orders to fill at once. In fact, a massive shift to e-commerce didn’t translate to increased profits — even for the biggest firms. Target Corp., which was deemed an essential retailer and therefore allowed to stay open throughout the pandemic, fell short on bottom-line profits last spring, proving the sudden surge online was expensive.
The big-box retailer was able to iron out the wrinkles. But smaller companies — with fewer resources — might have a harder time keeping up.
Johnson said the key is in having a flexible supply chain, with fulfillment centers in multiple locations.
“People have been diversifying out of China — not exiting China, but reducing their dependency on China — for a good six or seven years now,” Johnson said. “Instead of relying on China, or Bangladesh, for some place that needs a 21-week lead time, find sources that can get products to you in 10 weeks. You want to have sources that are both different from China and much more responsive and closer than China, so you can tap into new supply chains and new products on a quicker basis than waiting for something to sail across the Pacific.”
Fostering relationships with a wide range of manufacturers and vendors will come in handy on a rainy day, he added.
“The idea is to have this flexibility and resilience in place,” Johnson said. “That’s sort of the key factor.”
Amazon has mastered this model. But lately, retailers such as Target and American Eagle Outfitters have been implementing the same strategies. Both firms have successfully leveraged regional distribution centers to help fill e-commerce orders during the pandemic. The result is better inventory levels, less promotional activity and reduced shipping costs.
Cash Is Still King
Last year, after stores were forced to close down to prevent the spread of the coronavirus, thereby eliminating in-person revenue streams — at least temporarily — experts said retailers needed to have their finances in order. Number one: find out how much cash and other liquid assets the company had in reserve.
Much like a consumer checking his or her bank statement to determine available funds, retailers needed to know how much cash they had at their disposal. Many companies took out revolving credit lines — sort of like an emergency credit card — to secure additional lines of credit. Others tried to negotiate rent abatements or deferrals. Unnecessary expenses were eliminated (furloughs, layoffs, reductions in compensation and decreased capital spending were a few strategies.)
“There was a hunt for ready cash,” said Johnson, adding that the same action plan should be considered moving forward. “You want to maximize your cash position.”
Daniel Binder, a partner at Columbus Consulting, a retail advisory firm, added that cash and asset management includes having control over inventory levels to align with current sales forecasts.
“Buying more than you need — that you can’t sell — is just mismanagement of cash and, of course, puts your business at risk,” Binder said. “In this world of retail, clearly there’s so much change and you really need to ensure that you have enough cash on hand to ensure that you are always fine tuning your technological infrastructure investments. Because, as things change, you have to be back or ahead of it.”
Continue Innovating and Upgrading Business
Similar to having enough available cash, Binder said one thing his firm learned during the pandemic is the need for continued investments.
“Companies need a robust amount of investment to ensure that their businesses are moving ahead,” he said. That could come in the form of technology, merchandise and design, or physical locations, among other things.
Target, Walmart and TJX are just a few retailers on board with this. All have committed to investing millions of dollars into their supply chains, stores and workforce over the next few years.
“You have to upgrade a lot,” said Gerald Storch, chief executive officer of Storch Advisors, a retail advisory firm, debunking the notion from the bears on Wall Street that too many investments too fast is risky.
Earlier this month, after Target revealed it would invest $4 billion annually to continue upgrading its ecosystem, the company’s stock immediately fell. Some critics thought the retailer was setting itself up to fail with overly ambitious plans for the future. (The stock reversed course the following week.)
But Storch said those same investor fears can be used to remind retailers what they should not be doing — namely, skimping on investments.
“Target has always had a clean and inviting store environment. And what can be better during the pandemic? But that costs money,” said Storch, who formerly served as vice chairman of Target. He’s also the mastermind behind target.com.
“They have to keep renovating the stores on a much more frequent basis than the competition, keep building brick-and-mortar, or keep renovating their [existing] brick-and-mortar in order to succeed,” he continued. “And, of course, they need to invest in e-commerce. Those are exactly the investments that brought them the great success that they’ve had lately. I think it’s very short-sighted to think that they should just milk it now and refuse to make those [future] investments.”
Have a New — Updated — Recovery Plan in Place
The pandemic isn’t over. And even as vaccines roll out around the world — and a new sense of optimism is instilled into consumers everywhere — retailers need to be aware that disasters still happen.
And that advice isn’t just for pandemic-related emergencies. Retailers need to prepare for all kinds of crisis events, from riots to store closures to the power outages, like the situation in Texas this year.
“In a situation as severe as this, hope is not a strategy,” said Johnson, stressing the need to always have a plan of action on hand. “You want to have an emergency plan, or a crisis plan, that sits there on the shelf that you can test out once a year and update. The plan should lay out ‘here’s our temporary organizational structure as we get through this, here’s who’s going to be in charge of what, here’s the things we need to do,’ whether it’s communications, whether it’s consumer, employees, vendors and so forth.”
Establish Long-term Goals
A year ago, experts advised retailers to focus on the near-term. The advice made sense — at the time. The whole world was navigating a situation that had never occurred before. Trying to plan out events or scenarios a year in the future was hardly a practical approach.
But 12 months later, playing the long game, while still having one eye looking at the present, may be a better strategy.
“Obviously, a lot of your attention is going to be focused on the immediate here and now,” Johnson said, “but you also want to make sure that you don’t do anything stupid that imperils your long-term strategy.”
Part of a company’s growth, Binder said, is understanding the customer journey and where he or she is going, whether that’s online, in stores or somewhere in between.
“It’s no longer just going to your own e-commerce site or visiting your store,” he explained. “It’s really understanding all the different touch points that the customer is engaged with. Your plan needs to accommodate that.”
Equally important for growth is using the downturn in the market to secure your position in the greater retail landscape. That could come in the form of negotiating real estate lease deals, or for bigger companies to seek out opportunities to acquire smaller brands. Morris Goldfarb said G-III Apparel Group is taking advantage of the current climate to maximize his firm. American Eagle Outfitters’ Jay Schottenstein hinted at the same.
“When everyone else is running for the exits and there’s a recession, the smartest companies will basically use that opportunity to build market share,” Johnson said. “The advantage of doing that when you’re in a downturn, you can build market share much more cheaply from an advertising and marketing and investment point of view, much more cheaply during downtime, than during up times. So there’s much less cost involved over each share point that you gain during a recession.”
Another long-term strategy is to stay connected with consumers in ways that both make life easier for them while setting them up to be lifelong loyal fans of the brand.
“You do want to maintain continuity,” Johnson said. “Ideally, you want to find things that you’re doing in the short-term that help your customers, but that will also build loyalty and retention for those customers when the good times return. You want to help them out, be a solution for them.”
Binder said text messaging will likely be more widely used between retailers and consumers in the future.
“Customers see that much more efficiently than waiting for an email,” he said. “They’re embracing that today and it will play a bigger role [in retail] in the future. And it’s not inhibiting sales. It’s actually helping sales in a lot of cases.
“And it’s certainly bringing speed to the selling process,” Binder said. “Go-forward, those things will be critically important. All of that changes what conversion and average basket [size] look like. And that’s all growth ahead that has to be planned for and considered in one strategic plan.”
He added that companies should also consider new ways for store employees to connect directly with shoppers, both in real life and online, becoming not just sales associates, but brand ambassadors as well.
“It’s driving as much traffic as possible to your site and leveraging your physical store as much as possible to be part of that ecosystem,” he said. “And it’s really about ensuring at the same time that you’re strengthening that personal connection with the customer, from a loyalty standpoint. So it’s really bringing that offline, online experience together.”
But Johnson warned, retailers need to steer clear of becoming a nuisance.
“Nobody likes getting another spam email every day from whatever company,” he explained. “The old motto is, never make it hard for a customer to give you their money, whether it’s in-store or online or a hybrid, like curbside click and collect. You want to make it a painless, quick process that saves them time and eases the hassle factor while getting whatever products they’re trying to buy.”
Ultimately, Storch said the most important element in a retailer’s go-forward strategy will be to make sure it offers something that the competition does not.
“But that doesn’t mean you’re going to win,” he added. “You have to have an economic model that makes sense to you and you have to have a sustainable competitive advantage. Ask yourself, ‘How can you beat the competitor? And why would someone choose you?’ And that’s the whole problem with the department stores, [for example]. The customer doesn’t want to shop there anymore.”
COVID-19 disrupted nearly every industry. In the retail world, the lasting legacy will include a continued need for hygiene (think hand sanitizers and contactless payments in stores long after the pandemic is over). But there are other permanent changes.
Distanced shopping options, such as clienteling services and curbside pickups, will be used not just as defense mechanisms against the coronavirus, but simply because they’re convenient for time-strapped consumers.
Online shopping will continue to grow. (Overall, online shopping makes up about 22 percent of total retail sales, according to Johnson. But he said the numbers will continue to grow by about 1 percent a year.)
And those numbers stand to grow both online and offline with the recent round of stimulus checks and federal tax returns.
“Going forward, the American consumer is very resilient,” Johnson said. “People pulled back a little bit on their spending [during the pandemic]. But they still spent.”
One caveat is minimum wage increases to $15 an hour at some companies. While more money in consumers’ pockets might seemingly provide a boost for the economy, increased labor costs will likely result in more retailers opting for automated self-checkout machines, Johnson said.
Target, Walmart and Costco already have them. So do some Urban Outfitters and Five Below stores. This will undoubtedly cut into retail jobs in the future.
“There’s going to be more and more of that going forward, including in some places that you might not expect it,” Johnson said. “You still need human beings in stores. But you’re able to operate your store with more efficiency with [some] automated self-service from a labor staffing point of view.”
In addition, Binder said the pandemic reemphasized the importance of the omnichannel model.
“As retailers, we have to serve the customer from wherever they are,” he said. “And they’re everywhere. They’re at home; they’re online. They’re in store. They might be in their offices or in their cars. They’re on social media. They are in marketplaces. That’s just the reality.”