Blog 8 | Buckle up: Jump the curve to become a retail winner

By News, Retail

Within retail, the magnitude of disruptive trends typically increases during a crisis, while also speeding up their transformational impact by at least 3 years. For this blog post, IG&H specialist in digital transformation within retail and Piet Coelewij seasoned executive and board member in the retail and consumer sector have exchanged perspectives on how the Corona crisis may further transform the sector and how retailers can use this crisis to outperform their peers. Conclusion: Time to buckle up. In the Corona crisis digitally innovating customer experiences and jumping the curve is imperative to become a retail winner.

Crises accelerate the structural transformation of the retail sector
Reflecting on the 2008 economic crisis and what seems to be happening in the 2020 Corona crisis, we see each crisis accelerate the structural transformation of retail. In 2008, digital platforms proved themselves as a disruptive and superior technology-driven business model. This crisis demonstrated the resilience of platforms like Alibaba and Amazon as their business model is secured against economic fluctuation. In prosperous times they grow as a result of general economic growth, and in downfall they grow as a result of price transparency. Simultaneously, in traditional brick and mortar retail, the crisis set the stage for the further shake-out and consolidation driven by financially strong retailers (for example, the acquisitions of Super de Boer and C1000 by Jumbo). The crisis uncovered the weaknesses of the mid-market, particularly in non-food retailers. More traditional retailers differentiating in either the low-cost segment or the customer value-added segment were successful, whereas retailers that were stuck in the middle, encountered difficulties. Remember the news headlines of major store closures (such as V&D) during the recovery that followed? Since then, non-food retailers with a more differentiated positioning could grow, such as Decathlon, Rituals, and Action. In food, this crisis provided the market conditions for the accelerated emergence of Lidl.

The Corona crisis creates a new transformational wave
In 2008 we saw the end of the mid-market, with the further rise of digital platforms and growth of the differentiated low-cost and the customer value-added retailers. The Corona crisis will cause a transformational shift, very much driven still by platforms, towards true omnichannel.

‘We are now moving into the fourth phase of digital retailing. The first wave was about efficiency, where the capital employed in relation to cash generation of e-commerce was unprecedented. The second wave was personalization and customer experience. The third was the structural use of the network effect where an increase in parties linked to the network results in more value for the customer.’

Parties like Amazon and Alibaba have reinvested most of their profits into expanding their network and leveraging the network effect. Currently, we are in the fourth wave — the move towards omni-channel retailing, which will be accelerated by the current crisis. This means that retailers create (digital) one-on-one relationships with their customers and use the channels in an integrated way. E-commerce will have to become an integrated part of retailer, rather than a separate channel. As a result, we see pure players entering the realm of physical retail in a big way with examples like Amazon GO Alibaba’s Hema, and Amazon buying Whole Foods.

‘The next step in the blending of channels will happen as a result of customer-experience innovations that disrupt traditional customer journeys by integrating retail with other (online) aspects of life such as social media or entertainment.’

An example of this would be telling smart home system Alexa that you would like to purchase the jeans that a certain individual is wearing in a specific Youtube video.

The future is uncertain, but this crisis is more uncertain than others
The current pandemic is different from the 2008 economic crisis in multiple ways. In the 2008 crisis, there was a sudden and sharp decline of liquidity. Current levels of financial liquidity are high and interest rates are low. As a result, large (PE) investors will be driven towards higher risk investments which tend to be more transformational in nature. In addition, institutional financial systems (Central banks, IMF, ECB etc.) are currently significantly more resilient and are responding in a coordinated fashion, resulting a more stable financial environment.

During this pandemic, recovery is dependent on the speed and effectiveness of how we control the virus, making the duration highly unpredictable. In the case of a quick V-shape recovery, retail will experience a crisis, after which we will return to the preceding transformation path, but in an accelerated mode. In the case of an extensive U-shaped recovery, the crisis will be followed by great unpredictability, including the above mentioned opportunities for high risk investments.

‘In a U-shape recovery scenario, the balance in the market will be gone, which creates systems that are unpredictable.’

We see it as an overarching certainty that retailers, in this fourth wave, need to truly shift to a one-on-one relationship with customers and embrace a digital innovation mindset. The main goal, which needs to be worked towards continuously, is creating advantaged customer experiences and higher lifetime value. Speeding up these innovations must be facilitated through the use data and technology such as AI.

’Retail survival of the fittest speeds up during crisis periods’.

To provide some guidance to become an innovative retail winner, we identified several fundamental shifts that you need to strongly consider.

Shift 1: Overall value trends
How to enhance the overall value perception of your customer experience

Traditional retailers must run a different race than the big platforms. Since competing at the scale and price levels provided by the platforms is not realistic, a differentiated angle must be found through providing compelling and integrated value propositions to specific target groups addressing specific needs. Companies like Decathlon, Uniqlo and Trader Joe’s show a way to do this.

  • In the Corona crisis, personal hygiene and health trends are getting an instant boost.
    The nature of the current crisis has a significant impact on hygiene and health concerns. Not only do retailers need to take precautions in their operation that will impact how they do business, it will also impact what they sell. An increasing amount of health focused products are finding their way to the market. There was already a move towards more health-conscious purchasing behavior, and this will get a sizeable, and long lasting, boost as a result of the current pandemic
  • The ’new normal’ will accelerate the shift to convenience 2.0.
    New services facilitate the step-change towards next level convenience. In food, this crisis accelerates the shift towards constant and easily available (semi-)prepared meals at any time, offered at decentralized (smaller) stores or food delivery services. At the same time, convenience also means the shift from DIY to DIFM or a subscription form for recurring needs like contact lenses. In order to avoiding crowded places, this crisis increases the movement of customers towards retailers who provide a quick, nearby, and non-crowded environment, with technology as a key enabler. Concepts like pick-up points and stores without check-out (Amazon GO) will get a growth boost. You only need to look at more advanced Asian markets to see the full potential of convenience.
  • This crisis makes consumers demand retailers to take responsibility for people and planet.
    The Corona crisis accelerates demand for sustainable products, both in terms of planet and people.

    ‘The youths of today are the first generation who actually changed their buying behavior based on their ideology.’

    As a result, retailers need to re-consider topics like value chain responsibility and local sourcing. Retailers now innovating their products and experiences to build on these trends are likely to jump on a new growth curve.

Shift 2: Innovation of business models
How to differentiate customer experience through innovation of business models and services

In this crisis we see an accelerated transformation of technology-enabled customer experiences in retail. This trend was already underway, with platforms often showing the way. Here we reconnect to the fourth wave of digital retail laid out above. For example, marketplaces and platforms are facilitating product and price transparency and customer personalization whilst remaining flexible. This crisis further highlights the weaknesses of traditional players who struggle to (digitally) innovate.

  • The Corona crisis will accelerate the shift to personalization and true omnichannel.
    Once again, this crisis will shift how consumers perceive value. Where price and quality used to be a differentiating factor, it is nowadays conditional. You cannot compete when the price-quality ratio is no longer competitive. Retail winners of this crisis do not fall back to old ways to manage price and value perception, but rather will seek to customize through individualization and personalization. Retailers must enhance their customer experience through personalization of value to emerge strongly from the current crisis. As mentioned above, this means that as part of the fourth phase of digital retailing, retailers create (digital) one-on-one relationships with their customers and use the channels in an integrated way. E-commerce will have to become an integrated part of retailer, rather than a separate channel. As a result, we see pure players entering the realm of physical retail in a big way with examples like Amazon GO, Alibaba’s Hema, and Amazon buying Whole Foods.
  • Acceleration of e-commerce pure players at the expense of crowded retail areas.
    Shopping malls and high streets have been struggling with declining numbers that seem to be shifting towards e-commerce, for quite some time. The concerns surrounding the Coronavirus have magnified this trend and we can see fewer consumers going back to crowded retail areas in countries where quarantine restrictions have been lifted, like China. This crisis provides a tipping point for e-commerce, as we discussed in our 3rd blog post of this blog series. It accelerates the position of pure players like Picnic, Bol.com and Amazon, and is likely to be the basis for higher autonomous growth of players with advantaged e-commerce.
  • Create digitally enabled one-on-one relationships, become a partner for life.
    The relationship between retailers and their consumers was already changing. Brands that were becoming a partner for life by providing services, in addition to their products, that enhance the consumer experience have a competitive advantage in times of crisis more than ever. We see many examples of brands, for instance, in sports, fitness, and food service, who use this crisis to deepen their digital customer relationship. Large amounts of data and the ability to use that data to create personal profiles are needed for this shift. Whereas large platforms are constantly improving on their already existing capabilities in this field, these same capabilities are increasingly more accessible to other parties through means of Software/Technology as a Service business models.

Shift 3: Consolidation and collaboration
How to accelerate innovation of customer experience through consolidation and collaboration

Earlier crises gave way to further industry consolidation to build market presence and scale. This crisis will not be different because the sector is in a transformation towards digital enablement, blurring and moving towards the creation of larger ecosystem. Businesses are increasingly competing with one another, whilst at the same time being dependent on each other. Retailers no longer need to develop a fully standalone business with accompanying scale and capabilities. Collaborations, networks and platforms provide access to new costumers and skills, but also increase the level of direct competition. For instance, Zalando uses Amazon Web Services but at the same time is in direct competition with Amazon. We are moving from a fragmented landscape to interconnectedness. Here, the right to play requires data and technology to be on par. This does not mean every company needs to participate by themselves. Large investments in the in-house development of technology are no longer necessary, since advanced technology is widely available (TaaS). Therefore, ‘the questions retailers need to answer is how to use their own capabilities and how to acquire the capabilities they are missing to enlarge their competitive advantage on customer experience.’

  • Leverage the power of collaborations and networks.
    Prior to the crisis we already saw large ecosystems forming around the leading platforms. Networks were formed by increasing the amount of connected parties and thereby its reach and proposition strength. To take advantage of these networks and their beneficial effect, retailers need to position themselves within these networks and ecosystems and create partnerships When the number of players in a network rises linear, the value of the network will rise exponentially.’ Examples of gaining new ways to reach customers through collaboration can be found in the institutionalized partnerships between Albert Heijn & Takeaway.com, HEMA & Jumbo, and Wehkamp & BCC.
  • Acquiring new digital skills through collaboration or acquisition.
    It is a core capability of winning retailers to be able to identify and realize synergies through collaborations or acquisitions. This crisis however emphasizes the need to access new digital skills needed for innovation and different ways to reach your customer. For example, we see acquisitions of digital and data analytics skills such as Lidl by getting into cloud services with the stated intent to compete with Amazon Web Services, Nike acquiring data analytics companies, and brick and mortar retailers operating on the technologies provided by AWS and Alibaba.
  • Consolidation through Darwinian evolution
    Not all retailers will survive the crisis on their own. For retailers and Private Equity players with financial muscle, this crisis provides an opportunity to raise the game through acquisition and consolidation. Depending on the U or V shaped recovery the consolidation, the impact will differ. The strong will nevertheless eat the weak, yet the weak can indeed be very big. A rationalization in the number of retailers is a Darwinian consequence of the crisis. A very recent example of this is the fall of J.C.Penny, where Amazon has shown interest in (part) of their store network.

Buckle up, now is the time to act
Every crisis accelerates trends and creates opportunities. In that regard, this crisis is no different. However, there is a high level of uncertainty which is fully dependent on the effectiveness and speed of the measures against the Coronavirus. Even so, retail must prepare for the rapid development of one-on-one customer relationships to create a clear customer experience advantage. To be successful in doing so, you need to embrace digital business models and technology.

Jumping the curve is about creating a path of micro-innovations rather than big set innovations that take years to complete. Retailers that are able to integrate these micro-innovations and speed up iterations of improvement will become the winners of this crisis. The biggest challenge in doing so is changing the mindset of management to act now and alter what they are doing, rather than repeating more of what they have been doing in the past. Start now.

‘A digital transformation is a cultural transformation rather than a technological transformation. Just start. Every retailer can start a transformation and will gradually expand, where gradually can go on a fast pace.’

With special thanks to Piet Coelewij,

Robert Spieker
Partner at IG&H
E: robert.spieker@igh.com T: +31622791962

Authors
Myrthe van Hoek (myrthe.vanhoek@igh.com)
Jochem Jansen (jochem.jansen@igh.com)

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Blog 4 – ‘Ensure financial agility and make your business model future-proof.’

By News, Retail

A conversation between Henk Hofstede (sector banker Retail – ABN AMRO Bank) and Robert Spieker, Maarten Vaessen and Myrthe van Hoek (IG&H Retail), about how retailers can rebound from the Corona crisis.

Question 1: What are your most important observations on changing consumer demand in the retail sector, due to the Corona crisis?
In Food Retail, as the weeks of hoarding in which we reached ‘Christmas peak results’ are gone now, we are moving to the new normal. The online sales channel is quickly growing, which results in capacity problems and fully booked delivery timeslots. Most slots are used by existing customers who buy online more frequently, since only 4% of the demand increase comes from new users. There are ample new opportunities in food retail. Specialty stores are expected to benefit from the crisis in the short term. Customers like to treat themselves and spend more on home consumption, since they are not able to visit restaurants. However, if the crisis lasts longer, demand will shift towards the value segment. Food retailers facing a decline in demand, are the ones partly dependent on customers from Belgium or Germany, I.e. at the borders of the country.

In non-food, we see a large drop in demand, especially in physical stores. Industry associations report an average drop in demand of 70-80% with stores. With fashion’s seasonal collections, the ultimate mix between postponed and revoked consumer shopping and buying is decisive. Problems occur for retailers who are both not able to get rid of their current inventory and need cash to plan- and buy for the next seasons. DIY stores and garden centers do well, they enjoy significant sales increases. This is also true for drugstores, since we all foster our personal health. Online in non-food is increasing by 20-40%. However, this increase typically does not offset the offline decline. Thuiswinkel.org reports an online share within non-food of on average 17%. The crisis accelerates online growth, not only for its convenience, but also because it is considered to be safer. Time to invest in the development of online channels. If not alone, then with partners or through platforms.

Retailer take-away: Put yourself in the customers shoes and make sure you have a thorough understanding of the underlying shifts from offline to online, between postponed and revoked consumption and between categories and price segments.


Question 2: Which scenario’s in terms of crisis length and impact do you currently foresee and how do these scenarios differ for the retail (sub)-sectors?
ABN AMRO Insights, the economic bureau, currently foresees a crisis length of 3 months and a recovery of 3 months. However, implications of a crisis length of 6 or 9 months, instead of 3, are being studied. Therefore, we ask customers to make scenario projections of their liquidity, based on the base case (3 to 6 months) and stress-test and include darker scenario’s and timelines (6 to 9 months and beyond). We expect all measures to be quantified and agreed with key stakeholders such as government, banks and supply-chain. Of course, we will differentiate how we look at these plans depending on the retail sub-sector and the exposure to store versus online.

Retailer take-away:  At retailer board level, make sure you craft in-depth well thought through scenario analyses (3-6-9 months), including the impact on cashflow and liquidity, and revisit them at frequent intervals. All measures to be quantified, with stakeholder commitment.


Question 3: Due to the crisis, a lot of retailers are facing financial challenges. As for the credit applications you receive, do they mostly reflect financial distress or also retailers who are well positioned and looking for opportunities to invest to strengthen their position during this crisis?
Almost all credit applications reflect distress, these types of applications are getting the bank’s full attention. The most distressed cases have priority, these include the retailers who will get in trouble within two weeks without further action taken. All clients of ABN AMRO automatically receive deferred payment of interest and repayments for the next 6 months, to strengthen their cash position. However, we need to stay realistic, in the end, we cannot rescue everyone. We need to be selective and decide whether the retailer’s business model is sufficiently future proof. Is the company in liquidity problems, as a result of the Corona crisis, or did it already have problems before the crisis? Confidence in survival of the retailer for the mid to long run, with support of the government, the bank and commitment of suppliers and real estate partners, preferably without firing people, is needed.

With capacity becoming available to move beyond handling the most distressed cases, we are eager to process credit applications that reflect opportunities that emerge out of this crisis. When we do so, we assess if the business model is future proof and resilient as well as past performance. In the end, every retailer needs to make sure its financial position is robust and in good shape. Do your homework well. If you conclude being short on cash, we jointly assess if and where the bank can help. The willingness is there, but we always need to check be resilient for the uncertainty the current future certainly holds.

Retailer take-away: Pro-actively develop an integral, future- and crisis proof plan and make sure you build-in financial flexibility.


Question 4: A lot of retailers end up with financial challenges – which can only be overcome together with real estate, suppliers and internal retailer stakeholders. How, from a banking perspective, to best resolve these challenges with the different parties involved?
Closing the financial gap in this situation, is something you cannot do alone. You may need to involve government, suppliers, real estate. And, of course your bank.

Recent media discussions are focusing a lot on real estate. Retailers ask for a reduction in rent or even a stop, while real estate agencies have their own obligations towards banks as well. You do have to collaborate. If the owners of your store assets collapse, who is going to sublet the coming period? A “covenant” – a non-binding agreement – has been made by retailers and real estate companies, which advises real estate agencies to dismiss rent payments until the 20th of April. I think covenants like this are key, collaboration in the sector is a must. Other possibilities are deferment of payments or switching from monthly to quarterly based payments. All partners in your ecosystem are in the same game, you cannot just move the hot potato around.

Retailers must ultimately decide themselves how to close the gap. Cash is king in a crisis, but make sure you really reach and build commitment with your partners. You also need each other after the crisis. Last week, the media reported on credit insurers reducing the amounts they are willing to insure, implying wholesalers – who often already face uncertain demand – need to change their conditions. In other words, they expect their retail customer to pay more quickly. Of course, I understand these credit insurers, they have to reduce their risk exposure. It can be logically explained. If you want to prevent all of this from happening, then ultimately the government will need to also create a safety net under credit insurers. This week, the government announced that credit insurers will also be protected by government security, this will resolve this problem for now. Beyond this, there are also for example discussions taking place about the possibilities for a fund to support retailers that are future proof.

Retailer take-away: You cannot manage through the crisis by yourself. You must ensure commitment through collaboration and partnership within your retail sector with key strategic partners and competitors, including banks and government


Question 5: How would you recommend retailers, who both face significant demand uncertainty and need to buy their merchandise ahead of time (e.g. due to seasonal buying), to make their buying and financial commitments at this moment in time?
That’s a devil’s dilemma. Nobody knows what the situation will really look like in 3 or 6 months from now. A sold out or empty store will mean no revenues but having the wrong or too much merchandise put will put you in the wrong place also. Consumer confidence is critical, we need to see it recover. You need to look at smart buying, of course assuming you have the liquidity you need. Focus on buying the most current ranges, the runners and never out of stocks that will always sell. Lower your exposure towards more trendier ranges and collections. The role of buying will be more important and strategic than ever. You have to stay on the safe side, making the right agreements and commitments with your suppliers will pay off.

Retailer take-away: Smart buying now is more important than ever before, to make sure you can take the next hurdle through demand planning for uncertain fall 2020 and 2021 consumer demand.


Question 6: Before the crisis a lot of stores where already “under water”. The crisis causes a further reduction in sales per store, in the rebound we may not return to the level of sales per store we saw before the crisis. How do you currently look at the need to revisit the store network and footprint?
Until right before the crisis we indeed already saw store vacancy increasing to 7%. A lot of retailers where facing downward pressure on store profitability, due to on- and offline competition, increasing price pressure and often by falling behind in much needed innovation. For some retailers the Corona crisis will be the final push into the graveyard of retail. Part of offline sales will come back, but not everything. We certainly project further online growth. Before the crisis we projected an online CAGR of 15%, we see this accelerate. The implication is that we will see further store closures. We jointly have to prepare for thickening urban shopping areas. Retailers once again have to revisit how their store format can differentiate and remain relevant with clear value added to the consumer. You have to include the 1.5-meter economy perspective. What can I do in a store, where we need to keep 1.5 meter distance, does it influence store lay-out and merchandising? What to change? We already see a lot of creativity and examples which will help adjust to this new reality.

Retailer take-away: Reconsider how your store format and store network can remain relevant in the 1,5-meter economy, focus on differentiation and value added and be creative.


Question 7: For many retailers the safety and health of their employees has become an important priority. However, at the same time personnel cost are now even higher as a share of overall business, as stores have reduced opening hours and traffic has fallen dramatically. How do you look at this, what are the implications?
Both in business services and retail we see that healthy profitability is a result of a healthy company culture. Having the right personnel (customer oriented, with expertise and genuine interest in their customers) attracts consumers to the physical store. You should no longer regard personnel as a cost item, but rather as a source of revenue growth. Before the crisis, retail was facing problems to attract enough good personnel. A further rationalisation of the store footprint will take place in retail, hopefully the labour shortage will imply that people laid off will quickly find a new job in retail. This crisis will force us to look differently at the frontline, store personnel from now on. To give more appreciation and acknowledgment. Possibly, we may see pay increases. In the 1,5-meter economy personnel will be a differentiator and driver for revenue.

Retailer take-away: This is the moment for a robust plan and approach to develop skills, culture and align proper pay to retain and develop store personnel for the 1.5-meter economy.


Question 8: Looking ahead, do you see any major tipping points over time, that will cause certain types of retailers to no longer be able to keep their head above the water?
The longer the crisis lasts, the more the consumer will shift away from the high end, more luxury segments. Groceries, clothing and home entertainment are in a good place, but other retail segments will be at risk. The crisis impacts employment and therefore buying power and income. Price consciousness will increase. It depends on the situation of each specific retailer, on their financial position and the type of merchandise focused on. Retailers that have not been leveraged to the max and that still have financial muscle allowing them to take pro-active strategic and commercial decisions are advantaged. Financial viability and agility are decisive. Retailers that do not have this viability and are typically highly leveraged are at risk. They cannot handle headwind, they can only overcome their challenges by growing again. Which will be tough. The past couple of years we observed a sprawl of new retailers and formats. In the crisis, and in the rebound, a downward correction will take place. You have got to prepare yourself for all different scenario’s, not only the optimistic one.

Retailer take-away: Make sure you have both financial and commercial agility and resilience. Renew focus on the value segment and the value elements of your proposition including price, range, marketing communication and promotion.


Question 9: Which lessons can we learn from the Corona crisis regarding the retail business model?
Dual sourcing. For example, we have become too dependent on China. Retailers need to shift their supply-base and perhaps move it closer to their base markets and reduce over dependency. It is not all about the lowest price, but also about delivery reliability and quality. Step up investment in long term relationships along the supply chain. Strengthen eco-systems with your partners, because as already said, you will need each other after the crisis as well.

Retailer take-away: Intensify supply chain / strategic partner cooperation, shift to more locally sourced and less centralized supply, and prepare for the new.


Question and conclusion of the conversation: If you could give one piece of advice to retailers – for both the coming weeks and the near term – to rebound from the Corona crisis, what would it be?
Cash is King in times of crisis, but also do try to reinvent yourself at the same time. There are opportunities emerging all over, but decisions have to be made to stop or change certain activities and adjust elements of your proposition. The most important topics we discussed are future readiness, financial agility, creativity and cooperation in the supply chain with your stakeholders. Furthermore, it all depends on how fast we take control over the virus, how fast governmental measures are going to be eased and how fast consumer trust can be re-established. Prepare yourself for the new normal, for now we call it ‘the 1,5-meter economy’.

With special thanks to Henk Hofstede,

Robert Spieker
Partner at IG&H
E: robert.spieker@igh.com T: +31622791962

Maarten Vaessen
Partner at IG&H
E: maarten.vaessen@igh.com T: +31653571666

Author: Myrthe van Hoek (myrthe.vanhoek@igh.com)

How Retailers can rebound from the Corona crisis | 2) Fight now to take advantage later

By News, Retail

Five imperatives for retailers as they battle the Corona crisis, addressing most immediate challenges that simultaneously strengthen their future position.

It has been two weeks since the Corona outbreak has derailed the Netherlands through unprecedented measures to limit the spread. The Dutch government uses a ‘flatten the curve’ approach to fight the virus. Measures like social distancing, working from home and closure of restaurants are starting to have a stabilizing effect on the outbreak according to RIVM. Meanwhile, these measures are shaking up retail like never before.

The virus has major implications for every retailer. Both different immediate actions and preparation to rebound must be undertaken. We listed five immediate imperatives for retailers in their battle against Corona, that simultaneously strengthen their future position.

1) Use data to re-establish critical business performance

The Corona virus creates uncertainty. Uncertainty about the speed at which the virus spreads, about regulations that might be imposed, and about how long the current situation will last. For retailers, a key immediate challenge is how to deal with uncertainty in demand patterns. Customers show different and sometimes irrational behaviour. They are buying online instead of in stores due to contamination fear, they are hoarding in supermarkets out of fear for a total lock down and they are buying products to cook, sport and entertain themselves at home, since restaurants and sport clubs are closed.

In the meantime, retailers have switched to crisis mode and focus mainly on business continuity, trying to re-establish control. Decisions (e.g. around inventory) have to be made fast and are sometimes made based on business intuition or rule of thumb, rather than data driven. However, especially in these times it is of immediate importance to step up fact-based decision making. Step one is to establish access and structure to all available data (from the massive number of sources most retailers have) and turn this into sound business intelligence and relevant insight. With the level of uncertainty higher than ever, new well-structured insights are the only way to re-establish control. For retailers who do not yet have their data management and business intelligence capabilities in place, this is the time to rapidly set it up. A crash team can improve predictability of changing demand patterns step-by-step, even within few weeks. Such a team should include data science & IT and closely collaborate with buying & merchandising, and channels. Rapid roll-out of real time dashboards can facilitate decision making within critical retail processes such as online customer engagement, promotion management, supply chain planning and store merchandising.

2) Deepen customer understanding to rebound to the new reality

ING bank investigated the changes in Dutch card transactions. Their research shows a decrease in the number of transactions with 24% on March 20th this year, compared to a similar day last year. Toy stores, supermarkets and DIY see an uplift in the number of transactions (+10%; +5%; +2%), where all other retail segments show a decline, including restaurants & bars and clothing stores (-81%; -72%). This emphasizes that customer behaviour is radically changing, possibly structurally. Retailers must develop insight in demand changes to understand the new reality. Not having a grip on customer needs hurts everywhere in the business, from customer contact to product availability and prioritization of projects. For some changes, like the increase of online shopping, it is likely they will last not only during the crisis but also long after. However, other changes in demand will stay erratic and are dependent on the developments and measures the virus will bring us. In preparing for the rebound, retailers must not only respond to these customer demand changes but even outpace competitors in adjusting to the new reality. Time to find new growth opportunities.

The key to customer insight is understanding customer behaviour and identifying disruptive shifts in the customer journey. With customer insight comes the possibility to segment and develop tailored solutions. Think for example of a differentiated service for elderly people, where it is possible for them to chat or call with staff to place orders, instead of placing them online. At the same time, it helps control buying behaviour of your customers towards targeted outcomes. For example, a supermarket in Denmark came up with a pricing trick to stop the hoarding of hand sanitizers by pricing the second bottle of sanitizer 25 times as high as the first one.

To adjust the supply chain to the new normal, developing predictive analytics based on customer demand patterns is key. Since demand is erratic, only point of sale data is not a good parameter for future demand. Instead, predictive analytics reflecting new demand patterns are needed to adequately adjust buying plans, intake orders, stock management policies and allocation rules. Intensive cooperation between store planners, replenishment planners, category managers and purchasers, together with these data and analytics, makes it possible to prepare for the rebound.

3) Scale e-commerce by leveraging store network and investment in logistics capacity

Changes in demand as well as governmental measures have major implications on the utilization of retailer infrastructures. Food retailers suffer from an overburden of their distribution centres and reach their logistical as well as their technical maximum capacity for e-commerce. Conversely, various non-food retailers are closing their stores to protect their staff and customers’ health or because of a dramatic decline of traffic. Both situations ask for creativity and flexibility in the deployment of existing infrastructures.

Most non-food retailers face (a period of) further underutilized store infrastructure. To stay relevant to customers, focus shifts from offline to online sales. Not an easy task when stores used to be the main channel. If retailers succeed in having customers find their way to their website and shop online, they face a next challenge in scaling their logistics. A solution in this case might be to use the store network as customer fulfilment centres, so called ‘dark stores’. This relieves the existing logistics network. Alternatively, retailers can be creative and think about helping others. As does fashion giant H&M, who is offering up its supply chain to help hospitals reduce their medical supply shortages, by producing protective medical equipment. Moreover, food retailers reaching their maximum capacities for e-commerce, should try to leverage their store network to provide immediate capacity relief.

In parallel, this is the moment to develop a plan how to scale-up structurally and mature a true omni-channel proposition. Whilst today’s e-commerce hyper growth is driven by Corona regulations, it will likely turn out to be a structural accelerator of shifting demand from offline to online. This provides new growth opportunities for which online pure players are at pole position, just as SARS boosted Alibaba in 2003. Capturing these opportunities requires swift action (a topic we will discuss in our next blogpost). This can involve immediate decisions to prepare investment in mechanisation and capacity, in omni-channel IT integration and where possible leverage suppliers in the network.

4) Turn Corona crisis way of working into structurally more efficiency and responsiveness

Due to the Corona outbreak related governmental measures, people are working from home as much as possible. This requires virtual team collaboration with distributed team members, which was new to many of us. Meanwhile, a lot of retailers are already used to digital collaboration tools such as Microsoft Teams to work together from a distance. It starts to demonstrate core retail processes can be operated with greater efficiency, by fewer and less long meetings with only the minimum amount of people involved.

As a result, we see some immediate implications for retailers. Most retailers by now have re-prioritized and shortened the often very long list of projects that hostage the organization. Now it is time to establish a separate digital project innovation workstream, focused on a very small set of active projects. Think of 5 to 10 for the entire business. As there is an immediate need to deliver these projects within days or weeks rather than months or years, a digital factory has to be established. A combination of low-code software and data analytics is very well suited to cut through these project lead-times and deliver business relief quickly.

Moreover, in running the day to day business, we see an opportunity to use the Corona crisis to overcome traditional HQ functional silo’s and make a structural shift to virtual teams. Through digital collaboration, operating with suppliers in a well-integrated way (and directly on board) is finally possible as well. Making this work requires new dashboards to be created instantly whilst establishing a (new) well-working workflow for core processes like assortment changes, promotion processes and supply-chain planning and replenishment.

5) Last but not least, put people first and keep communicating

With Corona still not at its peak, the health situation of staff is a growing concern. Most obvious, it is important to facilitate frontline staff who are constantly in contact with a lot of different customers, and to optimally protect them against the contamination hazard. Next to that, pressure is high on staff working in the supply chain, with absenteeism expected to increase over the near term. Even at headquarters, where employee tasks seem to be more easily executed from home, concerns are high; if not about one’s own safety then about the safety of others. Day-by-day new insights arise, making it an uncertain time for all of us which should not be underestimated.

A lot of retailers are already taking actions to protect, inform and involve their people. Only if necessary, people work from the office where teams are mostly being split up in several work shifts to prevent spreading of the virus between them. Furthermore, CEO’s provide daily communication about the most recent developments and decisions made. Finally, in a growing number of cases, non-food shops are voluntarily closed to protect their staff. At some retailers, we see rigorous and detailed staff contingency planning to ensure continuity of all aspects of the business. All examples of difficult decisions or time investments to make, but ones that will not be forgotten.

Putting people first is the right thing to do, now more than ever. Customers will remember decisions companies make during this crisis and the effort they put in to deliver goods and services to the best of their possibilities. Being seen to put people first and communicate frequently will create a positive relationship between companies and their customers as well their employees, with long-lasting benefits after the crisis.

Interested in the implications of above imperatives in your organization? Please let us know!

 

Robert Spieker
Partner at IG&H
E: robert.spieker@igh.com T: +31622791962

Maarten Vaessen
Partner at IG&H
E: maarten.vaessen@igh.com T: +31653571666

Author:  Myrthe van Hoek (myrthe.vanhoek@igh.com)

 

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