With declining consumer demand and the threat from online discount models, the retail sector is an already troubled sector in many countries. To this end, as the COVID-19 outbreak becomes more widespread, retailers are faced with collapses in both supply and demand. Given the spread of the virus around the world, it is unlikely that the collapses in both supply and demand would smoothly occur simultaneously.
The main concern for retailers is whether they can respond to these diametrically opposed challenges in an agile manner, adapting their operations and commercial decision-making rapidly to reflect the new day-to-day reality. In so doing, strong leadership will be needed, not just to attain stability, but to make the necessary decisions, cutting across traditional boundaries and thinking.
Shift from Business continuity to crisis management
During this pandemic period of COVID-19, businesses need to revisit their continuity plans to reassure customers and colleagues by managing the inevitable supply chain constraints and demand shocks, and by prioritising critical business activities and creating contingency plans for disruption. Businesses must plan to build a flexible, nimble, crisis management capability now, rather than when it becomes a necessity.
After the initial set of actions that business continuity plans prescribe, management need to steer their responses based on the actual situation that is unique to their operations, which situation would evolve each day. The challenge is to adapt to ever changing circumstances, where the right decisions on store operations, colleague management, logistics and pricing would vary day by day. Existing reporting frameworks, management information tools, and annual or quarterly planning processes are unlikely to be sufficient to provide the necessary visibility and command and control.
Scenario plan to the survival minimum
Most firms at this point are in the early stages of their response: managing the immediate issues for their own staff, announcing travel bans, cancelling large-scale events, and implementing quarantine periods. This is critical, yet inadequate. Businesses need to rapidly consider a range of scenarios of how COVID-19 could impact their customers, suppliers, and their own operations. In this regard, at least three scenarios should be considered:
1. Worst is over in two to three months: acute crisis largely resolved within this time frame, where businesses are back to normal quickly after a material bump in the road.
2. Six months to regain control: more extensive period of disruption over a six-month period leading to a no-growth scenario for the economy, or a limited recession.
3. Twelve-plus months’ ongoing pandemic: virus spreads widely and public remains in heightened state of anxiety, triggering a global recession.
Manage for Supply Constraints
As shortages start to appear (either through stockpiling or supply constraints), firms would need to understand which products are most at-risk, and proactively manage their pricing, promotions and logistics to ensure availability of supply for as long as possible. Businesses are naturally doing this already, given their logistics’ expertise.
Deal with the decline in confidence
As demand drops, with consumers tightening their belts, retailers would need to focus on the basics: Managing short-term costs; and optimising choice and pricing, while continuing to deliver a “reason to shop” with that retailer. There are opportunities for smart-thinking retailers to make the best of the situation.
Cope with staff shortages and demand drop
As the situation worsens, retailers would need to make harder decisions about which activities, stores and channels to maintain and which need to be stopped. At this point, many longer-term investments would no longer make sense, and retailers would need to start making tough decisions about what they can no longer afford to do.
Move to the survival minimum
In the most extreme scenarios, retailers would need to retain only those activities which directly support the day-to-day operation of the business. If physical stores are closed, retailers could see volume declines of between 80% and 90%. Without a clear view of what is the bare minimum activity needed for survival, retailers run the risk of incurring excessive costs and losing position to those who can operate more leanly. Of course this needs to be done with care. Cutting investments that are needed for medium-term survival ends in the same place.
No matter what happens over the next few months, the world of retail is becoming ever more complex, and requires faster and better decision-making across all functions. Taking the right steps now to respond to this new threat would inevitably help retailers survive the new normal.
This crisis management series will be continued next week and in the forthcoming weeks.
