COVID-19: The 4 Shifts in ASIA Retail
Picture credit: https://milkeninstitute.org/covid-19-tracker
COVID-19 has impacted all sectors and industries globally and retail industry is no exception. As per the data from S&CF Insights, S&P Global as of April 2020 Apparel, Fashion & Luxury retail has seen more than 25% reduction in market capitalization, which has seen the highest impact in retail industry.
Due to the impact of COVID-19, retail has evolved into two key categories – the essential and the non-essential retail. The essential retail is grocery, supermarket, food, and pharmacy, while the non-essential includes everything else.
While essential retail is navigating the now, the non-essential retail is rethinking their strategy and planning the comeback after COVID-19. They both realize and know for a fact that there would be the new normal, but none of them can predict how exactly the new normal will be.
Both the categories have seen dramatic shifts in the demand and supply of their goods and services. They are seeing shift in consumer behaviour, shift in employee’s needs, shift in the supply chain, and shift to digital.
a. Shift in Consumer Behaviour:
Generally, consumers are more concerned about their health and safety. They prefer not to shop in physical stores. But if they must, they expect the stores to be safe, clean, and offer contactless experience. They prefer to shop for products that are healthier, organic due to their focus in keeping themselves and their family in best of health. While this is true for in-store shopping experience, it also applies to the delivery service. They expect the delivery to be contactless and safest possible.
They are spending more money to buy nutritious food and exercise gear to boost their immunity and stay fit during the current remote working situation. Consumers are no longer loyal to brands they previously were prior to COVID-19. Their loyalty is shifting to retailers who can deliver the products that they need at their preferred time and location. Therefore, their lifestyle choices have considerably changed where men are now more involved in grocery shopping and home cooking.
While they are spending more money on healthier food, exercise gear, in-home entertainment subscription and home office equipment they have reduced their expenses in non-essential items such as apparel, consumer electronics due to uncertainty in financial situation and fear of losing their jobs.
As per McKinsey & Company’s consumer pulse survey in late March 2020, Chinese consumers’ confidence have stabilized, with optimism that the economy will rebound in 2 - 3 months rising to 47% of respondents.
To get through this, in-store experience has to shift towards more digitization such as self-service check out, contactless check-out, scan & go, or pick & go technologies, while keeping the cleanliness, health safety of consumers as well as associates. This will also help retailers better understand consumer behaviour in-store in the new normal and make required adjustments to stay relevant to the new consumer lifestyle choices.
Retailers must rethink and optimize their assortment and pricing/promotion. Subscription could be helpful to retailers to provide a better customer service, predictable demand, and better manage their supply chain and cashflow. Retailers will need more sophisticated tools by leveraging AI/ML, IoT technologies and bringing external data to train their algorithms to accurately predict and forecast the new demand patterns.
b. Shift in Employee’s Needs:
The shift in employee’s needs especially employee’s safety and well-being is one of the top priorities for retailers in both categories. Some established retailers are coping well due to their previous investment in collaboration and communication technologies. Others are ramping up their investment on digital collaboration and communication tools to stay in touch with their employees, keep up-to-date on the health and well-being of their staff and have a regular check in with them to track the daily tasks. Most of retailers have implemented crisis management application so employees can report daily health condition for themselves and their family.
Essential retail is mass hiring and ramping up associates to support the drastic surge in consumer demand and keeping up with fulfilling the orders. At the same time, they are not compromising on the health and safety of their associates. Some retailers are forming consortiums and sharing human resources to cope with the rising demand in essential retail.
They must continue to focus on the well-being of their employees and set up in-house or partner with healthcare service providers to be prepared for any emergency situation. They can leverage digital technologies to track the wellness of their employees with wearables and deploy technologies that will keep their associates safe during store operating hours and deliveries. For example, deploy queue management, AI based computer vision technology to track the density and store sanity and giving alerts to managers. These contactless technologies will help safeguard the health of associates and protect the consumers.
c. Shift in the Supply Chain
When COVID-19 was declared a pandemic there was an immediate impact on the supply chain where consumers started panic buying and overstocking the necessities. This has put a lot of strain on supply chain, fulfilment, and replenishment. As the situation progressed, cities started implementing stricter measures to lock down, restrict free movement, encourage remote working, and limit the quantity of necessities each household can purchase.
Consumers resorted to online channels which put the supply chain to its biggest test. There is no visibility on inventory across channels, therefore many retailers had to temporarily take down their e-Commerce platform and relied solely on their physical stores. They are unable to predict the products that would be replenished the next day, as ports and some suppliers based in China started to close, and deliveries delayed due to the surge in global demand.
The supply chain planning and execution has shifted towards digital to increase transparency, and agility. The data that was used to predict and forecast the demand in the past is no longer valid during and post COVID-19 situation because the buying patterns, purchasing behaviour, and consumer lifestyle choices have dramatically changed.
There has been a tremendous surge in the demand for last mile deliveries. Trucking and logistic companies have run out of capacity which has led to delays. Retailers are forced to over stock essential items, which has put a strain on their cashflow and has increased their inventory holding cost.
It is now necessary for supply chain to rethink and digitize to create agility and have real time visibility into end-to-end supply chain network. For example, building supply chain transparency with blockchain technology, real time inventory visibility across all channels with AI/ML, warehouse automation with Robotics/IoT, and last mile delivery with drones, autonomous vehicles. In the short-term retailers could partner with ride-hailing operators for last mile delivery. This is a smart strategy for small-medium sized retailers who can’t invest heavily to build their own last mile delivery fleet.
Constant collaboration with suppliers is key to restock the products in a timely manner. We are also observing the partnership, merger, and consortium of retailers to share inventory, employees, logistics facilities to optimize cost, and reduce the risk in fluctuating demand. Retailers are testing different methodologies in supply chain, for example shifting towards white label items to optimize cost, have predictable restocking, to keep up with uncertain times and mitigating risk. Many of them are ramping up their digital capabilities and adopting automation in their supply chain to be more productive.
d. Shift to Digital
As we brace for COVID-19, there is an unprecedented shift to Digital in all aspects of Retail. Consumer behaviour and consumption has shifted to digital channels. They are consuming more online services such as online entertainment subscriptions with Netflix, Amazon Prime, Toggle, etc. They have shifted to virtual classes for health, fitness, home based learning thus buying more exercise gear and office equipment while working remotely.
The concept of “New Retail” in China, which was coined by Jack Ma, founder of Alibaba, is a tried and tested new business model in retail that is thriving in the storm of COVID-19. The idea behind new retail concept is the ability for retailers to give the consumers what (goods & service) they want, when (delivery time) they want, and where (delivery location) that they want. With these fundamental Chinese retailers have completely digitized their business from digital interactions via social, to receiving orders, to digital payment, to automated picking, and faster delivery. Most of the retailers boast 30 minutes delivery if the addressee lives within 3 kilometers radius from their stores.
To stay relevant and survive for the next 12 – 18 months, retailers must adopt and digitize their contents for consumer engagement because consumers are engaging more with digital contents, for example, online tutorial on how to cook healthy meals at home so consumers can order those ingredients from retailer. It is imperative that retailers must ramp up their digital content to cater to different stages of the new consumer journey.
In summary, ASIA is 4 – 6 weeks ahead of rest of the world in the stage of the pandemic curve. Retailers around the world should learn from ASIA on how they have navigated and are planning to comeback after COVID-19. Retailers in ASIA will surely contribute to the world in redefining the new normal. The “New Retail” concept is a tried and tested model which will be very helpful for retailers around the world to learn and leverage in order to define their own new normal. Consumer will be the north star to guide retailers into the new normal if retailers are able to harness the power of Data to predict and optimize their assortment and pricing strategy because consumers will most likely opt for lower cost and higher quality product to get through the pandemic.
Sources: S&CF Insights, S&P Global, April 2020; McKinsey & Company’s consumer pulse survey, March 2020