Data from our global business-to-business network of supply chain payments, marketplaces and apps shows retail activity cratered at the beginning of April, dropping 68 percent. The industry seemed to recover in the first week of June, when activity surged by a whopping 58 percent — only to plummet 29 percent again by the end of the month.
What’s behind this uneven recovery? Regional reopenings may cause sudden jolts to retail activity — for example, many European countries began reopening in mid-May, explaining the early-June uptick in transactions. But underlying weaknesses in the industry remain, and are likely to keep progress piecemeal for a long time. Fortunately, you can take steps now to counteract these influences and accelerate your recovery from the pandemic.
What’s slowing down retail’s comeback?
For most businesses, the “new normal” is still highly unpredictable. In some areas where stores reopened, new outbreaks of the virus have triggered localized lockdowns that shut those same retail stores again. And just because shops are open doesn’t mean that customers feel safe returning to them — as of early July, retail foot traffic in the U.S. was still down 40 percent year-over-year.
Some of the shift away from brick-and-mortar may be permanent. The pandemic has accelerated the trend toward digital that already threatened traditional retail business models. For example, Amazon posted a 40 percent revenue increase in the second quarter, while the store-heavy retail sector experienced several high-profile bankruptcies. Traditional retail isn’t dead yet, but economic uncertainty has accelerated a fundamental shift in the consumer mind-set that will continue to gather momentum. Retailers that cannot adapt to these changes quickly enough will fall.
Retailers are also dealing with significant disruption to supply chains, which hampers their ability to recover even as demand begins to increase. The shutdowns had a particularly devastating impact on suppliers, many of which are based in developing nations. For example, at the onset of the pandemic, U.S. and European retailers canceled $1.5 billion of garment orders from just one country, Bangladesh, affecting more than 1,000 individual suppliers.
Canceled orders and late payments mean many suppliers lack the working capital to ramp up when retail stores reopen — if they’ve survived the pandemic at all.
Here are three ways to smooth your business’ recovery in 2020
The challenges facing retailers in the rest of 2020 are considerable, but not insurmountable. Here are a few measures you can implement right away to make the next phase of your company’s recovery as smooth and sustainable as possible.
Don’t stop at front-end digitization
In the wake of store closures and lockdowns, many traditional retailers large and small have managed to pivot part of their businesses to e-commerce. They made the pivot successful mostly by investing in front-end systems that enable improved customer experience. For example, the surge in setting up online storefronts drove a nearly 50 percent revenue increase for e-commerce enabler Shopify in the first quarter.
Investing in the front end doesn’t solve the larger issue with a lack of back-end digitization. Order delays have been common as retailers depend largely on manual processes, and the surge in online orders has worsened the problem. To ensure your burgeoning e-commerce business can continue to grow at an efficient clip during the pandemic and beyond, invest in back-end digital technologies that will keep your processes running smoothly and make day-to-day operations more efficient.
Help your suppliers recover, too
“Business as usual” is likely a pipe dream for the foreseeable future, as business and market requirements continuously change across the world. This creates ripple effects throughout the entire supply chain ecosystem. If you don’t have visibility into that ecosystem, you can easily get caught by surprise by order delays and shortfalls affecting the end consumer. It’s also not enough to have insight into your tier-one suppliers, since the issues often happen further down in the supply chain.
Your supply chain — and the products you bring to market from it — are what makes your business unique. Anything you can do to support your suppliers will also help your own business. First, look at your entire supply chain to determine how you and your suppliers can recover together. Suppliers’ access to working capital is vital, and your contribution can help the supplier survive. Digitizing your interactions with suppliers enables you to provide optionality with regards to financing, including solutions such as supply chain finance.
Digitization increases visibility into your supply chain, which helps head off future issues. When shortages, quality issues or shutdowns affect your downstream suppliers, this gives you enough advance notice to address the issue or quickly find alternative suppliers to fill the gap. This increased flexibility will benefit you long after the pandemic ends.
Do the right thing
For retailers, the pandemic has highlighted the failings of a traditional supply chain model that prioritized low costs over environmental stewardship and social issues. It’s no coincidence that businesses with the best environmental, social and corporate governance scores have fared better during the crisis. Consumers are looking to ESG-friendly retailers. A narrow focus on cost not only carries reputational risk — it also makes supply chains more fragile.
People have long memories when it comes to the ways businesses act during a crisis. Companies who are unable to pay suppliers or workers are already making headlines in several countries. These issues affect sales and can be a direct cause of revenue loss. When we emerge from the pandemic, businesses across all sectors will be held to high account in terms of social and environmental responsibility. Businesses that successfully embed ESG principles into their wider supply chain objectives — starting with fair treatment for suppliers — will be best positioned to recover.
A defense against uncertainty
The economic effects of COVID-19 have been far-reaching and unpredictable, particularly for retailers. You can shore up your company’s defenses against ongoing uncertainty. Taking steps now to streamline your operations, strengthen relationships with suppliers and embrace ESG principles puts you in position for a smoother recovery — and a much brighter post-pandemic future.
Mikkel Hippe Brun is senior vice president of APAC and cofounder of Tradeshift.