Expert Analysis: Big Ideas in Time of Crisis
If you operate a retail business, your world just changed forever.
The executives who recognize this and embrace it will capture greater market share, improve profits and operate more efficiently. Those who think of COVID-19 like a global snowstorm that will be gone soon and everything will be back to normal, will find themselves struggling to explain negative comparable sales and increasing debt.
So, what’s your big idea?
Since there is no simple answer, let’s break this down into three phases and discuss how you should prepare for and operate going forward.
Phase 1: The Next Three Months
In three months, we will not be back to business as usual. We will have unemployment above 15 million. This will be the highest level we have experienced since the Great Depression. Although this unemployment record will be temporary as businesses reconcile the financial impact with operating and capital expense commitments, it will have a dramatic impact on consumer confidence and spending.
In addition, the inventory levels that had begun to increase relative to sales late in the fall of 2019 now have more variability than in recent years. This is more than a slowed or empty import pipeline, it’s a pipeline and DCs full of seasonal product, domestic consumables and intermittent selling product. This makes it extremely difficult to operate the supply chain and will result in higher inbound and outbound costs.
First, come to terms with the fact that your summer programs and product have been lost. If you’re fortunate, you may be positioned for back to school in August, but for most, the key campaigns that drive foot and online traffic will not happen.
As a result, you have to plan to flush inventory out of your supply chain as quickly as possible. You begin by analyzing how much of this product can be placed in stock until next year and then building models that allocate the rest of it aggressively to areas of highest forecasted demand.
Once you have done this, you need to rework your marketing plans. Your chief marketing officer and digital team need to get together and review the marketing calendar to look for opportunities to drive traffic to the allocated stores. This needs to be a concerted effort of messaging across all channels.
You need to be more creative online. Begin messaging now. Recognize that people are worried about their financial security, but that doesn’t mean they won’t be interested in your product at the right time for the right price.
Phase 2: Six Months from Now
Welcome to the holidays! Given the global nature of our supply chains, you’ve already made the majority of these purchases and commitments. You have forecasts, plans, budgets, etc. The odds are that you’re going to miss most of these numbers. You’re still going to be dealing with inventory, labor, pricing and P&L challenges.
This kind of financial shock to consumers takes time to pass. This will be compounded by high unemployment, likely to be above 8% in the fourth quarter, and stock markets that remain fragile. This will not be a spending year.
The one bright spot will be online. The consumer has been moving online for the past 10 years. However, any remaining hesitation on the part of the consumer to shop online is gone. This outbreak will be a tipping point for stores.
You need to solve for questions such as, “What would happen if 15-20% of our store business moved online?” and “What role can our stores play in supporting greater online sales?” or “Do we have the resources to pick, pack and ship online sales that grow by 100%?”
Phase 3: 12 Months from Today
I hope we don’t have to experience another pandemic ever again. But, the odds are against me. Since COVID-19 is a virus, the chances are that we will face it, or something like it, again in the future. This is not a pessimist’s point of view; this is a realistic business point of view.
If you’re leading a retail company, then you have a multi-year plan. It probably has top line targets, margin performance and store count metrics. It may also have targets against industry indexes. All of this makes sense. And, most of it just became unrealistic.
As you look out 12 months from now, you need to identify new sources of revenue, new categories of product, new partnerships, new distribution strategies and more. Your charter should be to make your stores important, but not critical.
As you plan for 2021, this is also an opportunity to put all of the major supply chain issues on the table: labor, drive shortages, role of automation, standards, slow-moving product, etc.
Clean Up Your Balance Sheet
This may be the best opportunity retailers have had in the last 20 years to clean up the balance sheet. Don’t miss this opportunity. Close stores, get rid of dead inventory, write-off fixtures and so on. Your shareholders have already discounted the stock. They will not punish you for taking this opportunity to clean up the balance sheet and take every opportunity to make your company stronger for 2021.
Mike Matacunas is a 30-plus-year veteran of the retail industry and currently the CEO of Five Hill, a private equity and professional services firm. Prior to this, he was the chief administrative officer of Dollar Tree and Family Dollar stores.