It is not the first time that the world has been shut down through the outbreak of a deadly virus. In 2003, SARS forced people in China to stay at home as well. It turned out to be the trigger for B2B start-up Alibaba to move into consumer markets. They launched consumer shopping website Taobao (similar to the Dutch “Marktplaats”). At the time, JD also was a small company with 12 electronics shops in Beijing. Revenues plummeted due to SARS as all but one of the stores had to be closed. The founder, Richard Liu, took drastic measures and turned towards a primitive version of ecommerce. He advertised his goods in forums, had employees manually write down orders, send text messages when the order was ready and personally delivered them to customers close to the office. Ever since, both Alibaba and JD have rigorously focused on offering consumers access to products from home. Today they both rank amongst the world’s largest retailers.
Just like SARS, the Corona outbreak leads to a drastic change in consumer lifestyle & behaviour with a strong boost in e-commerce – this time on a global scale. This blog addresses the opportunities and challenges this implies for retailers, and how to respond both short-term and long-term. In short:
- Corona accelerates the breakthrough of online shopping as ‘the new normal’
- Retailers struggle to quickly scale up e-commerce due to staff shortages, limited stock availability and inflexible logistics operations
- Key short-term opportunities include use of underutilized stores as ‘dark stores’, radically re-allocate the workforce and instantly optimize assortments
- Longer term, “think digitally” to reset your business model profitably(offering, stores and capabilities)
E-commerce is flourishing: the accelerated breakthrough of online shopping as “the new normal”
Due to the Corona outbreak, consumers stay at home and are looking to create safety and comfort for themselves and their families. Online shopping addresses these needs perfectly. China has seen the number of consumers shopping for online groceries almost double in February (source: South China Morning Post). In the Netherlands we see the same figures. In certain sectors online demand levels are already similar to the holiday season (Thuiswinkel.org). Drugstore and personal care products have grown between 50 and 100% in recent weeks. Items that make life more enjoyable, such as sports, DIY and garden items, show growth rates between 20% and 40%.
The massive switch to online is expected to (partly) be a sustainable consumer behaviour rather than just temporarily. In 2003, the SARS virus accelerated the breakthrough of digital telephony and Internet. Similarly, the heritage of Corona will be lasting confidence in online shopping and drastically enhanced adoption. New target groups such as elderly people are discovering the convenience of online grocery shopping. Sectors where online is still in its infancy are accelerating by offering new digital services. Examples are numerous and include e-health apps to track corona-related complaints, online (home) education applications and fitness video streaming as an alternative to gyms.
This crisis is creating new consumer habits that will likely stick. This means a hard reset in consumer behaviour: online shopping becomes the new standard in many areas. Therefore, now is the time for retailers to really take a leap forward in e-commerce.
Scaling up an e-commerce operation is not easy and meeting customer needs can be particularly challenging these days. For instance, for many retailers delivery times in e-commerce fulfilment have increased from same or next day to multiple days or even weeks. Why is this happening?
- Personnel shortage in warehouses and parcel depots: at present approximately 15% of own- and temporary staff have fallen out due to Corona measures. For manual operations, this often leads to a direct drop in productivity. Food retailers are getting priority for labour because of their vital function in the chain – affecting other retailers even harder
- Low stock availability: Supply chains have been severely interrupted leading to long delays in inbound replenishment orders from a.o. the far east. In addition, consumer needs have changed instantly, making forecasts unreliable. Taken together, this has drastically deteriorated inventory availability levels for many retailers.
- Inflexible logistic structure: existing DCs are often inflexible to switch between offline and online logistics due to fixed mechanization. In manually operated DCs it takes time to set up new picking locations with supporting IT. For many retailers, E-DCs are separate from retail DCs, resulting in additional inventory allocation and movement complexity.
Fasten your seatbelt: innovate around new customer needs
How can retailers better deal with the abovementioned challenges? We list some immediate actions that are already successfully being pursued in the market now.
Turn stores into ‘Dark Stores’
A ‘dark store’ essentially deploys an underutilized (or even closed) store as a picking and delivery point for e-commerce orders. By converting your stores into small e-commerce warehouses you open up your entire store network to online shoppers. Beside boosting product availability, this can offer a fast home-delivery alternative for instance via a bicycle courier. The effects can be significant: from improved customer satisfaction and additional revenues from an instant proposition, to lower pressure on central E-DC operations and improved working capital. Benefits that can last beyond the current crisis.
To set this up, a system must be installed that creates pick orders for store staff (linked with existing ERP and WMS systems). Store employees need to be trained as order pickers and a place is required where consumers or couriers can pick up orders safely. To manage this operation, it is essential to have dashboards with real-time availability information.
Re-allocate your workforce
Chinese retailers have been successfully redeploying store staff in a radically different way. Employees were used as online influencers to reach their customers. Communication platforms such as WeChat (Chinese variant of WhatsApp) and Ding Talk were used to help multiple customers simultaneously via live streams.
This setup was pursued earlier this year by a cosmetics company called Lin Qingxuan (>2.000 employees) in the Wuhan region where all stores were closed. Using store staff as online influencers, sales levels increased by 200% compared to the previous year (source: HBR). Other examples range from re-training store staff for logistics roles to expanding customer service teams.
In case of scarcity, the solution might be found at other companies. For example, Chinese tech supermarket HEMA resolved the need for temps through using employees of restaurant, hotel & cinema chains in China.
Optimize your assortment
When Corona set foot in the UK, Amazon immediately reprioritized and switched assortments online and in their DCs. Non-vital products such as spring clothing were exchanged with high-turnover products such as soap, detergents and household products. In this way, consumers were provided with essential products, while at the same time higher efficiency levels were achieved.
Beyond the crisis: improve the profitability of your business model to hit back
The big challenge in the long term is moving towards a radical digital proposition with a profitable business model. We see 3 main themes to move to an optimized omni-channel setup:
1)Re-think your e-commerce offering
Some key questions that should be answered are:
- Assortment: what new products or services does your target group need? What product (combinations) do you offer? How will you deal with Low-value products that are costly to deliver at home?
- Reach: how do you reach your target group online? what is your company’s story? what communication channels are most effective?
- Proposition: from what order-amount is free shipping offered? what kind of service window do you offer your customers? Like Amazon and bol.com can a subscription-based proposition increase your customers loyalty?
- Operations: a highly efficient and cost-effective fulfilment operation is an absolute pre-requisite to achieve business profitability. How can higher degrees of mechanization and automation help improve your operation? How can (partial) outsourcing and workforce flexibilization contribute to further cost optimization and service improvements?
2)Re-define the role of the store
As e-commerce continues to grow and demand shifts from offline to online, it will put more pressure on the profitability of traditional stores. In China, retailers have already made radical choices by cancelling offline campaigns & promotions and replacing them with digital marketing, chat programs and innovative O2O (online orientation and payment, offline pick-up) partnerships. Ultimately, stores are no longer just a place for inventories and transactions, but much more than this. Advice, experience, return, pick-up, introductions, consumption and promotion can be key elements of the (new) role of the store. What do your customers need and what will you offer? How will you generate value out of this offering and channel? What value can this provide for your brands and suppliers and how will they contribute (financially)?
3)Become truly digital
Retailers such as Amazon, JD.com and Alibaba have repeatedly shown the way towards a digital future. One of the most prominent capability that sets them apart is their extreme Technology focus. They deploy highly flexible systems, tooling and dashboarding that supports their way of working and ensures IT integration for seamless omni-channel experience. Additionally, their customer propositions are highly personalized and constantly updated by deploying advanced analytics and algorithms. All is enabled by a very flat organisation to assure maximum flexibility and fast decision making.
The Coronavirus is a tremendous challenge for all retailers, but one thing is certain: online shopping will be “the new normal”. When successfully setup, this can make the difference in how successful a retailer is coming out of this Corona crisis. And it will be worth it once the next crisis arrives.
Jasper van Rijn
Partner at IG&H
E: firstname.lastname@example.org T: +31653376760
Partner at IG&H
E: email@example.com T: +31653571666
Author: Evelien Kip (firstname.lastname@example.org)