COVID-19 is hitting retailers hard

The world of retail has changed almost overnight.

I’m writing from New York City, where just over two weeks ago, life was pretty normal. I was working with one client on merchandising process reinvention, talking to another about how hyperlocal insights can drive footfall to their factory outlet stores, and beginning to craft a presentation on where retail is headed in the 2020s.

Then, everything changed. Inbound air traffic from Europe to the US was halted. The NBA suspended its season. “America’s Dad,” Tom Hanks, and other public figures shared their COVID-19 diagnoses. By the weekend, Europe had effectively shut down, as had many parts of the US. Worldwide, offices and schools were closed or shifting to virtual environments. The growing pandemic began to feel very real.

Within a week, the retail industry had bifurcated into two segments: “essential” and “non-essential.” 

For essential stores (grocery, pharmacy, and household supplies), every day was like Black Friday as consumers bought up disinfectants, meat, pasta, and lots of toilet paper. This drove herculean efforts to source products and override replenishment systems to get goods to where they were needed most. Many announced massive near-term hiring plans to keep stores running and ramp up deliveries.

For non-essential retailers (apparel, home furnishings, and malls), it was the opposite. As stores were closed, it became a drastic race to conserve cash. Orders were cancelled, projects were halted, and many associates were furloughed or laid off.

As our industry navigates through these unprecedented times, here are some initial thoughts on how we see it unfolding and what retailers are (or will be) doing to run their businesses, understand how their customers are feeling, take care of their workforces, and support their partners.

Thinking about the challenge

We see this crisis evolving over three stages:

1. Navigating the disruption (the first 30 days)—US retailers are going through this right now; Europe is two weeks ahead; China went through this in January. For both essential and non-essential retailers, the primary focus is on business continuity, setting up new ways of working, and communicating with everyone.
2. Managing in the not-so-normal normal (the next three to six months)—For essential retailers, this is about readjusting to quasi-normalized demand patterns. For non-essential retailers, focus shifts to driving sales while most or all stores remain closed. And for all, it’s a doubling-down on digital as a means of engagement, commerce, and operations.
3. The path to the next normal (too soon to tell)—As retailers see the crisis beginning to abate, they will begin working on “what’s next”: how shopping behavior will change; what consumers will expect from stores and brands; and the changes that will be required to their business operating models to thrive in the new environment.

The path forward

While it’s too soon to fully understand the implications COVID-19 will have on the retail industry, let alone on society as a whole, here are some things that are likely to occur:

1. Consumers come back. Unless we remain under “shutdown” conditions for 12+ months, many habitual behaviors will return. People will go out to eat, travel on airplanes, work in offices, go to sporting events, and yes, shop in stores and malls.
2. Except when they don’t. While there will be a return to the physical, it won’t likely get back to where it was. Many consumers will find that digital is just fine, and sometimes even better. We’ll see an inflection point in digital grocery and consumables as shopping, buying, and fulfillment become unbundled. And digital engagement will accelerate across the industry, driving a further round of store and mall closures.
3. Clean gets critical. As consumers equate clean with safe, retailers will have to step up their cleanliness efforts and proactively share this information. Third-party certification services will emerge as consumers rate and review store cleanliness on their own.
4. Traceability becomes table stakes. Basic package tracking is just the beginning.  Consumers will demand to know where their products were sourced, made or grown; or the track record (quality, timeliness, cleanliness, safety, sustainability) of everyone involved every step of the way. Full “farm to table” transparency will move from being “nice to have” to a critical requirement.
5. Corporate Darwinism rears its head. In times of crisis, companies quickly separate into those that thrive, those that survive, and those that disappear. The winners will leverage their advantage to acquire new businesses, brands, or capabilities in order to expand their businesses and/or create operating leverage.
6. A new wave of innovation. Every downturn produces a new wave of innovation that propels the next business cycle. Some will center around customer engagement (for example, associates selling via video), others on supply chain (hyperlocal demand forecasting integrated upstream with merchandising and production), and others around enterprise data and operations (voice-driven, real-time analytics).

Retail has always been local, largely centered around the physical store (location! location! location!). And location is still critical, but the focus needs to shift from the store to the customer. COVID-19 has shown the need to run the entire business locally, driven by the ability to predict neighborhood-level demand, and to adjust inventory and operations accordingly. To date, no one has been able to do this at scale. This will create a ripple effect that will transform the way the industry operates, creating opportunities to better serve customers and design more agile, resilient, and sustainable business.

We understand these are challenging times. As a 109-year-old company, IBM has supported our clients through many crises. To assist in this one, we are “all hands on deck,” deploying our people and capabilities wherever needs exist. We have compiled a set of leading practices and recommendations into our COVID-19 Action Guide and we welcome the opportunity to help you address any business challenge.