As talk of reopening the economy picks up steam, retailers and consumer packaged goods manufacturers face a whirlwind of decisions about how to maintain cash flow, turn inventory, and seed growth for the ongoing recovery. But certain things that are key to the success of a restart should already be in motion.
Assessing the impact to supply chains from an unexpected crisis is never easy. However, there are several critical elements to consider, starting with what to do now.
Just like after a natural disaster like a flood, hurricane or earthquake, stores need to be reset. That should be happening now. But the biggest challenge for businesses today is dealing with a crisis that isn’t restricted to a particular region. Its impact has been global, and has affected American retailers nationwide.
It’s wise, if they can, to start now on post-restriction resets. For retailers that have either closed temporarily or gone to delivery or curbside pickup, the lack of shopper traffic in stores allows for daytime reset and social distancing of employees. Another option worth considering is to shift slower-moving inventory into a reverse-to-forward distribution model, or even a reverse-to-e-commerce flow, keeping saleable returns and overstocks with a chance to sell at full price.
Resets can and should be happening now as states open. It’s both an opportunity to put people back to work, and prepare for eventually opening the doors to the public.
One of the most important reasons to get resets started now is to deal with an unprecedented volume of unsold product on shelves and in stockrooms. With the spring retail season lost in some product categories, decisions must be made for how much spring inventory can stay on shelves and sell into summer. But before that, retailers must deal with what they know has lost its chance to sell.
Overstocks aren't just in the way on shelves and in stockrooms. Cases and pallets will be taking up space in warehouses — space that’s needed for the forward flow of inventory on which recovery is riding.
Forbes reported recently that many retailers selling fashion items will likely face choosing between mothballing spring inventory or marking it down 70% to 80% just to move it out of stores. While that seems like a good way to move it quickly, keep in mind that they’ll be using store space and personnel to do it, further reducing recovery value.
Liquidation to a secondary market is a fast and efficient way to avoid additional losses. Marking down below cost begins to flirt with liquidation values. So if the objective is simply to get it out of the way, in many product categories, it’s worth thinking about liquidating instead.
On the returns front, it’s oversimplifying to say that “no one has been buying, so we expect low returns.” There are two reasons why some retailers can expect a spike in returns after restrictions are lifted.
First, a lot of retailers have extended return policies. Recent Forrester research indicates that 40% of retailers have relaxed their return policies, and 27% more are considering a change in policy. And when people can get out again, they’ll come back with returns. As a corollary to that, when store traffic experiences a post-pandemic surge, an increase in returns can be expected to accompany the sales uptick. We’re seeing more returns initiated online than we’re actually receiving. That indicates that people are holding the package, waiting until they can make the trip to drop it off with the carrier.
Secondly, the shift to online buying shouldn’t be ignored from a return’s standpoint. The fact that online purchases experience higher return rates should be factored into the current circumstances, as well as be considered the “new normal.”
According to numerous media reports, although consumers are shifting to e-commerce, omnichannel retailers aren’t seeing enough of an e-commerce boost to bridge the gap in losses they’re experiencing in stores. A March, 2020 survey of 1,900 consumers by PYMNTS.com indicates that only 35% of respondents have made the shift to online buying, and 51% said they’re doing less retail shopping overall.
Those who have been able to get some lift from online sales could still face challenges in handling the volume of e-commerce returns. Omnichannel retailers suddenly faced with high volumes of spring overstocks will see a new burden on their reverse infrastructure. It will be challenging to handle overstocks and still process e-commerce returns in a timely manner. Lapses in that capability will likely not please shoppers, who will be less patient about waiting for their refunds during times of economic uncertainty.
As shoppers remain concerned about the economy and their own financial security, they will likely be quicker to return discretionary purchases and expect refunds on discretionary items.
Will there be a reluctance to source products from China after the pandemic? We already see a strong desire to make that shift in the pharmaceutical industry. During the pandemic, healthcare enterprises heavily dependent on China for personal protective equipment (PPE) are already looking for different sources. Forbes recently reported that the Japanese government is offering loans to companies that shift production back to Japan.
Trade wars already had some American companies with production in China looking for production opportunities in other countries to avoid tariffs, and a pandemic might just give them an additional reason. However, a March, 2020 survey by PwC China and AmCham China showed that 70% of companies with production in that country have “no plans yet to relocate production and supply-chain operations or sourcing outside of China due to COVID-19,” and 68% said they foresee a return to normal operations in China within the next three months.
The one simple factor that brings so much business to China — cost — will likely be the one that makes it difficult to give up on China quite so quickly. Shifting sourcing is one thing, but the cost of moving production can be prohibitive, especially in difficult economic times following massive losses during the pandemic.
In the final analysis, the disruption caused by the pandemic has forced us all to pivot in ways we hadn’t imagined. We’ve found creative ways to continue to supply stores and serve customers. Think about it: six months ago, how many retailers expected they’d have curbside pickup or delivery services? It’s quite possible that these shopper conveniences, coupled with a new sensibility, if not abundance of caution, might become permanent new services.
Multiple media reports show Instacart, Grubhub and Uber Eats all hiring new drivers during the pandemic, as restaurants and stores try every possible way to stay open. CVS includes delivery drivers in its hiring efforts nationwide, and has even tested drone delivery.
It’s certainly conceivable that this current crisis will prompt retailers to build new levels of preparedness and resilience. Their efforts might include the adoption of new e-commerce tools, as well as marketing and promotional engagement strategies built for “crisis loyalty.” Such moves will help help retailers become more indispensable to their customers.
The hope is that the lessons learned will leave all retailers with better contingencies and operational flexibility that prepares them for the next “new normal.” Perhaps the next global disruption will find them more prepared, more resilient and even more creative than they realized they could be.
Rob Zomok is president of global operations at Inmar Intelligence.
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