Joel Rampoldt, managing director of retail practice at AlixPartners, lays out the basics of a survival strategy that retailers can follow, both now and after the pandemic has subsided.
Considering the challenges that it’s facing today, the retail industry has done an “amazing job” of coping with the coronavirus crisis up to this point, says Rampoldt. In particular, “the grocery industry is keeping American supplied with food.”
Grocery retailers will continue to struggle as they adjust to new patterns of demand and consumer behavior. For most people, eating out in restaurants “is not going to be an option any time soon.” That means elevated volumes of product moving through supply chains to stores. The state of affairs poses a particular challenge for fresh and perishable products, “a pinch point for retailers.”
On the positive side, sales are strong, as consumers flock to stores to obtain critical supplies. Many are also discovering the advantages and convenience of e-commerce shopping. Home delivery with “click-and-collect” options are making online transactions increasingly attractive.
The increase in deliveries, however, threatens the profitability of an industry that has long functioned with tight margins. Retailers are saddled with tasks that customers used to do themselves, and the result is higher fulfillment costs, order misfills and increased shrinkage.
With less slack in the system that ever before, grocers are having to become more efficient in their options. Annual inventory turns for the industry have increased from around 12 to 18, and with less safety stock in the system, an mistake anywhere along the supply chain can bring operations to a standstill.
Even after the pandemic is over, retailers will need to scale up their e-commerce operations. But they won’t necessarily have to built out that capacity themselves, says Rampoldt. Even some of the biggest players will seek logistics partners, or at the very least adopt a hybrid approach to fulfilling online orders.
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