The COVID-19 pandemic is a double-edged sword, wreaking havoc not only on our health, but also our economic well-being. While some retailers are experiencing record sales, many more have come to a near standstill. Understandably so, future uncertainty has driven most consumers to become extremely conservative financially and quickly reduce normal consumption of most discretionary goods — and some non-discretionary too. This is especially evident as unemployment claims continue to skyrocket in the US and around the world.
The result is utter devastation to the retailers who cater to the discretionary spending of the general population. When income is cut, only the essentials become important. Surviving this pandemic will prove to be a tricky endeavor for many retailers. To make matters worse, the ripple effect of the virus has already impacted the retail supply chain in the months to come.
Essentially, the problem has three nasty barbs
- The seasonal product in the stores today — closed stores that cannot move it (even if there is demand).
- The product on its way from the factories right now — some may be replenishment orders for the current season or early floor-set merchandise for the upcoming season, with nowhere to go since DCs aren’t shipping existing stock (assuming the factories actually shipped; many core producing countries were dealing with the peak of the pandemic when orders were scheduled to ship).
- The future season — the products in the final stages of design right now. While the sources may have returned to a sense of normalcy, how do you predict the return of demand? This is both a question of timing, and of appetite.
Let’s take a deeper look.
The Current Season
As we are in the heart of the spring season now, the challenge is twofold. First, incentivize demand. Second, find a way to fulfill that demand. Let’s discuss each in succession.
To drive demand, promotions will be required. While the consumer has drastically cut discretionary spending, some will still open their wallets for the right deal. In addition, the shopping process is now completely remote, and browsing isn’t as simple as going from store to store. Aggressive marketing and innovative promotions or even value added services are critical to getting a share of a seriously diminished demand pool.
Most retailers have implemented capabilities to support buy online, pickup in store (BOPIS) or even using the stores as local distribution points for shipping directly to customers. Now is when the early investment and adoption of unified commerce processes and capabilities can become the difference between not surviving and thriving. Actual distribution centers should be able to remain safely open.
The key with moving current product is being able to quickly:
- Direct the order to the optimal distribution point,
- Access the inventory regardless of where it exists, and
- Direct fulfillment teams to process and ship the orders when they are received.
While labor in the DC is centralized, store labor is widely distributed—and likely already furloughed. Retailers need to be thinking now about creative labor models that will be able to efficiently restart in-store staffing to ensure access to inventory, regardless of where it is, and enable commerce to continue freely.
Supply “In Play”
For the product that is in transit to the DCs, the challenge is different. While many future POs may have been cut or cancelled, much is still coming. Question is…where to put it? Perhaps the DC has capacity, but with reduced outbound fulfillment, that’s sure to fill up fast. Furthermore, since so many retailers are struggling with the same problem, the buffers are also starting to clog, making it that much more difficult to manage the flow. Some retailers are even considering a “pack and hold” strategy for a future season, which of course comes with its own unique set of risks like off-trend merchandise and increased holding costs.
Whether its demurrage fees at the docks or yard capacity at the DC, space will come at a premium. This makes it crucial to plan and prioritize the receipts that should be processed, and visibility to shipments and containers are the critical link in order to make the right decisions. Leveraging integration points with freight forwarders and carriers and micro-managing each inbound shipment is essential. Connecting this information with updated demand signals is imperative to ensure the right product continues to flow.
The Future Season
What to buy for next season (or the one after)? This is likely the season that follows the one in such disarray. Planning this assortment will be tricky, as it may be in the best interest of the retailer to selectively carry forward items from this season that contain more neutral traits, thereby allowing a more focused spend. This future season is further complicated because it’s still too early to tell when (or if) “normal” will actually return. For many retailers, the “easy” POs have already been canceled, and that still might not be enough given the uncertainty. Same goes for long term fabric and component commitments and/or projections. It’s a delicate balancing act determining what should be canceled and what should remain in order to support a seasonal assortment that resonates with a newly cautious customer. Clearly budgets will be slashed as sales now are draining cash resources, yet robust assortments will be necessary to drive demand from the consumer.
The first component to this success comes with robust forecasting models that are able to consume updates in a near real-time basis. Never before has the future been less certain, as so many factors are at play that will ultimately dictate when we come out of this pandemic — and how ultimately devastating it will be to our country and the world. These models will help determine the “what and how much.” Strategic and nimble demand forecasting capabilities will never be more welcomed, with the critical need to analyze changes in historical demand and accurately predict future demand.
The next step is figuring out how to turn on a dime to resume the supply chain. Here, flexibility with sources is required. Managing the supply chain more deeply, as well as developing a more rapid fulfillment cycle is a key to success. This is a more strategic play. Incorporating a combination of raw material management and tiered sourcing options — enabling a faster reaction to the demand when it returns. In other words invest in materials that have flexibility across products, design “into” them, and consider “near sourcing” to get the factories closer to the consumer. Additionally, true end-to-end supply chain visibility, leveraging solution-specific tools and/or collaborative processes can become a key differentiator for retailers to effectively adapt to the short, medium, and long-term challenges that this environment thrust upon them.
Retailers that succeed in the long run will address these specific challenges now. Not only to provide immediate benefit, but to prepare the organization with the tools and processes that will enable it to overcome other potential disasters.
These unprecedented times require both decisiveness as well as flexibility. Most importantly, a comprehensive approach is needed — with the understanding that the present, near term and long-term are interdependent.
I invite you to join us in our live, interactive webinar series, Reconstructing Retail, where we will discuss additional realistic strategies retailers can employ to navigate their way out of and beyond the pandemic environment. Click here to view the topics and to register.
Covr image by Alexander Kliem from Pixabay