As we’ve entered month four of the coronavirus pandemic, it’s safe to say that the retail industry has undergone a series of dramatic changes before our eyes.
After the lockdowns began, big-box retailers faced significant economic challenges from store closings, declines in consumer spending, and supply chain disruptions. The unprecedented situation required immediate action.
While an increased e-commerce focus was the industry’s primary response, the off-price market hasn’t followed suit. In reality, the worlds of off-price retail and e-commerce aren’t two that typically align.
Consumers love off-price brick-and-mortar stores because they offer something e-commerce doesn’t: the invigorating thrill of a value hunt. There’s an unrivaled adrenaline rush associated with discovering a discounted dress shirt 20 to 70% below market value -- a feeling that can’t be replicated online.
Without e-commerce flexibility, off-price retailers have taken hits amid COVID-19. On March 19, TJX - the parent company of T.J. Maxx, Homegoods and Marshalls - closed all of its stores and supply chain distribution centers worldwide. This came after TJX’s stock dropped 42% in value from February 19 to March 23.
After reporting a net loss of $887.5 million in its first-quarter earnings, TJX started reopening on May 2 with strict reduced capacity, social distancing and employee PPE mandates in place.
As off-price retail relies heavily on foot traffic, the challenges won’t be going away anytime soon. However, the future still appears bright. Analysts have predicted off-price retailers like TJX will “outperform” in the latter stages of 2020 and into 2021 as consumers shift to a value-based buying approach. In fact, the 1,600 TJMaxx, Marshalls and Homegoods stores that started reopening on May 2 have exceeded sales performances from the same span last year, indicating an eagerness from consumers who desire to resume in-store shopping despite threats from the virus.
History is also in off-price retail’s favor. Following the 2008 Great Recession, the industry experienced same-store sales increases in 2009 due to new, innovative business models and quick adjustments to changes in consumer purchasing trends. Similar adaptation will be essential for another recovery post-COVID-19, although this time around it will require the use of advanced technology.
Assessing unprecedented excess inventory volumes
Full-line retailers are being faced with widespread cancellation of inventory orders stemming from low demand, supply chain disruptions and looming uncertainty about a resurgence of the virus. In turn, an unprecedented amount of excess inventory will be available for the off-price market.
It’s a unique opportunity with a risk-reward factor that can produce pathways to profitability, if executed correctly. However, questions remain about the industry’s lack of resources for handling enormous product volumes on the fly.
In order to navigate the process, off-price retailers should find additional resources through technology. One way could be partnering with brands that use enterprise software solutions, which streamline excess inventory assessment.
These systems optimize excess inventory selections with product imaging and detailed item descriptions all on one digital platform, which can allow off-price retailers to save time by quickly formulating purchasing strategies tailored to individual brands. And considering the amount of excess inventory that will be on the market in the coming months, time is of the essence more than ever before.
Digitizing supply chain logistics
It will be critical for off-price retailers to maintain a high level of efficiency in their supply chain logistics so they can adjust to increased levels of excess inventory. Remember that high inventory volumes require vast varieties of data to be analyzed, which is where advanced technology can serve as a valuable resource. It’s important to remember that increased inventory levels requires additional investments in technology to manage.
The ROI will be evident. Retailers can leverage supply chain digitization by using solutions and machine learning capabilities for managing and maximizing the ROI of their supply chain. Innovative digital technology is proven to drive supply chain agility, flexibility and productivity by allowing companies to gather and analyze data across multiple business systems.
Utilizing supply chain digitization further enables retailers to move individualized products at reduced costs, and with these tools at their disposal, retailers can take steps to ensure their supply chain logistics are equipped to effectively handle surplus volumes within tight budgets. Considering the fragility of today’s economy, every dollar counts.
The off-price retail industry traditionally has been slow to adapt to change, but amid an unpredictable global pandemic, there’s really no other choice. from both a retailer and brand perspective, preparations for the COVID-19 recovery period should start by integrating technology into their business practices and supply chain logistics. After all, using an optimized approach to profitability is a reason to be optimistic.
Ronen Lazar is CEO/co-founder of INTURN.