As major retailers release their financial results for the year 2019/20, we notice threads of commonality across them all. Firstly, it is clear that the retail world has been turned upside down over the last two months and all previous financial forecasts have had to be scrapped and rewritten.
The latest financial results also make it clear that shopping will never be the same again.
This is an important message for retailers – one that could be an existential threat or an enormous opportunity, depending on what they decide to do.
Once the furlough scheme ends, we predict there will be a significant wave of redundancies and restructurings. This is why it’s more important than ever to not only act on short-term priorities, but also to think ahead and plan for the long term —those that do will steal market advantage.
Short-term actions: Intelligent re-opening
Non-essential retailers are all scenario planning for when the lockdown is lifted in time to reopen stores on 15th June.
At this stage, retailers can benefit from a detailed, data-based model to help map clearly and accurately when to reopen stores based on profitability and likely consumer demand. This will help decision-making around when and how to reopen, considering rent and staff costs in each unit.
They must also consider how to make stores safe for customers and employees – from sanitation to monitoring social distancing.
Consider also the importance of a contingency plan in case of a second wave of infections this year or next, using lessons learnt from the first lockdown to ensure mistakes aren’t repeated and mobilisation can happen quickly should the worst happen.
Long-term thinking: Capturing opportunities from the crisis
The pandemic is obviously wreaking all kinds of havoc for the retail sector, but for those with the courage to look ahead, there are also opportunities that should not be missed.
1. Accelerate store closures and estate optimisation
Now that consumers have shifted shopping habits dramatically towards digital channels it is likely stores may never be able to attract the number of customers they saw previously.
This is therefore the ideal time to think about how to really optimise your estate to suit your customer base. This could include channelling investment into creating better store formats to increase relevance as well as the acceleration of store closure plans and really nailing the link between stores and e-commerce.
2. Reassess head office costs, people and structure
The lockdown has forced many businesses to embrace the idea of remote working—with all the benefits and drawbacks that come with it.
You’re therefore in a good position to reconsider the makeup of your head office on a ‘needs-only’ basis: who needs to be in the office all the time, who is only needed in one or two days a week and who could continue working entirely from home? You may then find some people aren’t needed at all.
This is an opportunity to work more flexibly and be more productive. You can make savings not only by reducing staff numbers but also office space (and therefore rent costs) for your head office.
3. Rethink your digital channels…
The consumer mindset has had to adapt to trust online commerce even further, and it is becoming the new normal for many. According to Neilson, from mid-April to mid-May, UK online grocery shopping made up 13% of the overall market—nearly doubled from 7% this time last year. In this time, 7.9 million British households placed an online grocery order, up from 4.8 million last year.
However, unless you’re a digital-first retailer (either very advanced or pure-play), your digital infrastructure will not be profitably set up for e-commerce at this scale and the cost to you will be significantly more than operating out of stores.
Therefore, it should be top of mind to invest in improving infrastructure so that the digital side of your business becomes a cash cow not a loss leader.
4. …and your distribution costs
The UK’s logistics infrastructure is really being put to the test, so retailers have had to innovate (or at least be bolder) with delivery options.
There has been an acceleration of options for ‘last mile’ delivery—from Deliveroo to Sainsbury’s own Chop Chop—an expensive venture for them and widely ignored when it first launched, but now a model that has been copied by many other supermarket chains.
Following the lockdown, it’s likely that consumers won’t want to return to stores, but will nevertheless expect the same prices, convenience and customer service as their online experience. It is a change that will not roll back, but retailers will need to consider the P&L impact of this change.
5. Finally, capitalise on the crisis
The canny retailer will also be looking around at competitors to see who is struggling and recognising opportunities to consolidate their market share by acquisition.
There are already examples of brands being swept up as forward-thinking firms have their eye on the future—for example, T.M. Lewin was recently bought by private equity firm SCP with a view to making a single operating model for multiple brands (Torque Brands).
This kind of dramatic world crisis does not happen every day. While it is a struggle for many, be careful not to waste the opportunities it presents and begin thinking ahead to the long- term before it is too late.
We are helping many retailers create playbooks for how to most effectively restart their businesses. If you would like to discuss any of the issues raised in this article, please get in touch.
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