The 4As to Reinventing Retail and Supply Chain Systems in the New Normal: Part 1

Article
By
MathCo Team
November 11, 2020 12 minute read

Assess & Analyze how different businesses are dealing with pandemic disruption

When coronavirus fears intensified around early March 2020, globally, consumers resorted to panic buying – the news was abuzz with the way people were stock-piling toilet paper rolls, sanitizers, and other essential products. However, in April, the trends changed again. Having stocked up, people were slowly transitioning to a relatively normal purchasing pattern. But with more and more cases cropping up with a fresh surge of the virus in July, countries like the US re-imposed lockdowns and, as a result, the purchasing patterns changed again. Many experts opine that the further the pandemic outbreak drags on, a lot of the recessionary behavior will come up and consumers would shift their focus to essentials.

Calling this presently oscillating nature of consumer behavior daunting would be an understatement. Retailers and supply chain systems are trying their very best to change their working patterns and align with the volatile marketspace created by the pandemic environment in the last four-five months. Through this two-part article we will address the concept of the ‘new normal,’ what it signifies about consumer behavior, and how retail and supply chain systems can reinvent themselves and ensure sustenance in the new normal.

Part 1 will delve into the ways in which the new normal can be assessed and analyze the methods that different businesses are employing to deal with the pandemic disruption.

A quick summary of the article:

1) COVID-19 has and will continue to drastically alter consumer behavior. Investments in e-commerce are likely to increase, Work From Home set-ups will result in long-term changes, and the instances of stock-piling and panic buying have proven that we can ‘run out of essentials,’ indicating that sustainability will be the focus for retailers, manufacturers and consumers alike, in the future. [1]

2) Newer technologies will enable us to better weather the economic storm. Geo-location for instance, is slated to be an up and coming trend. A recent report revealed that the global location analytics market size is touted to be valued at $22.8 billion by 2024, with companies leveraging the technology for “data route optimization, asset tracking, customer location tracking, etc.” [2]

Assess: Post pandemic disruption, what is the new normal for retail and supply chain systems?

About half a year into the COVID-19 pandemic, we now have a fairly good understanding of what the new world will look like. We know now that change is the only constant in the new normal and it will take a while before the economy can fully recover. And consumers are aware of this too. A consumer survey conducted in the United States revealed that “15% believe the crisis will last longer than six months, 65% said the economic impact related to COVID-19 would stick around well into the third quarter of 2020. [3]” And this is not a far off estimate given that countries did reimpose lockdowns when the virus spread to newer locations and sections of the population.

Given that the present scenario does not offer a strong, unwavering foundation to enable predictions about future behavioral patterns, there are some learnings we can leverage from the last time such a chaotic market scenario unfolded – the 2008 recession. And a closer look will prove that certain behavioral patterns are reappearing:

Rise and fall of consumer sentiment: Consumer Sentiment Index, which measures how optimistic consumers are about their individual finances and the economy they function in, has undergone a sea of changes in the last few months. According to the University of Michigan Surveys of Consumers [4], while “majority anticipated improving conditions,” consumers were convinced “that bad times financially and high unemployment would still dominate the economy well into 2021.”

A similar trend was observed in the 2008 recession. A mid-2010 study by The Organisation for Economic Co-operation and Development (OECD) noted that by the “end of 2008 and the beginning of 2009, a trough was reached for the OECD area and most OECD countries. Since then consumer confidence indicators have shown improved sentiment. [5]” In the United States, for instance, the lowest levels were recorded in February 2009, followed by a minor improvement in December 2009, which continued to the first half of 2010. This only proves that slowly but surely, consumer confidence will increase and market levels will improve. While no two economic downturns are similar, these trends are a testament to the fact that we have managed to sail through these rough waters before and will be able to sail through again.

Cutting back on non-essentials: This was the trend during the 2008 recession with close to 70% consumers resorting to this behavior, and the same trend is coming up in the current scenario as well. Store closures have also contributed to this, to a certain extent. Given that consumers are looking to cut cost wherever possible, and most of the work force is working from home, in lieu of social distancing norms, they have a lot more time on their hands. For instance, Market Research Future estimates that “The DIY smart home market 2020 is on track to gain a phenomenal valuation of approximately USD 54 Billion by 2023.” Therefore, there has been a surge in DIY products, across industries, to cut back on money spent on professional labor expertise. There is an expected increase in consumers investing more in hobbies, or other products/services that can help them connect with their near and dear ones, as it is physical proximity and cultural gatherings that people are deprived of this most in this pandemic.

That said, spending on essentials might resume in the event of a second wave of the pandemic, but what those essentials refer to might not be the same as when the pandemic first broke out. Needless to say, it will be a long while before consumers resort to splurging on luxury items.

Brand reliability: According to the 2009 Edelman Trust Barometer [6], a trust and credibility survey, after the 2008 recession, trust in brands dropped by 20 points in the US, customers expected more leadership from existing brands. An article by CEO Today Magazine notes, “The brands that weathered the storm of the 2008 financial crisis responded swiftly to [the] shifts in customer needs and outlook, with strategies that saw them do everything from double down on what was most fundamental to their existence in order to regain trust by being consistent and dependable, to acting fearlessly as innovators at a time when it might have seemed foolish to launch a new product or service. [7]”

Brands today, must therefore “become the very people they’re trying to reach,” [8] and have humanity at the core of all their operations, in order to build brand reliability in a world of pandemic disruption.

Dynamic supply chains: The volatile nature of demand and supply in the last few months has thrown supply chain plans into a state of flux. There has been a steep increase in demand, and there is bound to be subsequent drop as well, and companies which have aligned themselves to the increased demands, might find themselves in possession of excess supply. In cases where stock shelves are empty and the supply chains cannot keep up with the intermittent high frequencies of demand, factors such as brand loyalty get cast aside. However, once the stock piling behavior cools down, brands will become the focal point as consumers will turn to trusted brands that are abiding by safety measures, and are leading the way by swiftly adapting to the changes in the market.

Analyze: How are retail and supply chain businesses dealing with pandemic disruption in the new normal?

Coronavirus has changed the projected course for the retail and supply chain industry. Consider how in 2019, just 4% of grocery sales in the United States was online, but in the aftermath of the pandemic, 41% of customers were shopping for grocery online, for the very first time. Alternative shopping options like Walmart’s curb-side pickups, automated mini-warehouses, i.e., “locations that look like supermarkets but are closed to customers — to make deliveries and prepare pickup orders, [9]” have transformed the industry in the last quarter. As the pandemic persists, it will continue to disrupt markets. Being more informed and up-to-date as to how organizations dealt with and are continuing to deal with the excessively dynamic nature of the market will be vital to figure out the way forward.

The decline of a ‘just-in-time’ economy: The capitalistic nature of the ‘just-in-time’ economy, which gained prominence in the 1980s and 1990s, and aimed to reduce production costs and wastage “ by procuring and delivering everything just when it’s needed — or “just in time”, might not suffice in a pandemic-stricken world.” [10]

Now that supply chains have been completely disrupted, many companies have deduced that there are two downsides to this working style – a product/component deficit due to stockpiling or a product/component surplus due to severely reduced demand. In the first case, firms are potentially losing out on possible business opportunities, and in the latter, many might put up stock clearance sales in the coming weeks. Now is the time to cut back on losses and reanalyze working styles, to skillfully weather the turbulent market conditions.

Hyper-localization: With restrictions on travel and commuting still in play, sourcing resources, raw materials, services, or talent from different locations would prove challenging. As a result, many consumers are going hyper-local, [11] not only to increase their accessibility of the product, but also to help the local seller. In that stead, companies should also channel their business efforts to turn their global presences into hyper-local presences.

One example of a global companies channeling its efforts to hyper-localization is Xiaomi. During the lockdown in India, the brand enabled the option of ‘Delivery on Call’, [12] a door delivery service where consumers call up the brand’s nearest retail and have a new smartphone delivered to their doorstep, while ensuring that delivery executives keep up with the hygiene standards and norms. And with lockdowns being reinstated, having hyper-local presence will become vital to ensure sustenance.

Shorter cycles of planning: The future course of the pandemic is unpredictable. Sticking to traditional methods of planning that rely on demand will not suffice as demand can no longer be defined as easily. There is a need for new, succinct planning cycles. Those that do not have to order or manufacture items and need only source from suppliers are ordering in more frequent time intervals and employing supply chain strategies such as push vs pull.

And in this chaotic market condition, supply chain managers need to be ready to cut more from their own profits, and plan more effectively such that they can account for the spillage of excess supply, and cut back on their costs as much as possible.

Frictionless Retail: With traditional physical store set-ups posing issues of proximity, retailers functioning in e-commerce or creating a near-continuous shopping experience between physical and digital stores are best servicing consumers now, given the need for social distancing and contactless transactions. Consider how as a response to the pandemic, Walmart launched Express Delivery, where customers could shop online and the products would be delivered within 2 hours. [13] Decisions like these that leverage existing resources and staff potential, and collaborate with pertinent services, will prove fundamental to ensuring that retailers can continue operations and sustain through the pandemic.

In the last four-five months we have seen how COVID-19 has altered the market and created a new normal where change is the only constant. As the consumer behavior changed, different organizations adapted swiftly to the change by leveraging different methods. But just assessing and analyzing the new normal is not enough to reinvent ways of working and ensure sustenance. It is also necessary to anticipate future challenges and learn how to adapt swiftly and turn the pandemic disruption into an opportunity for growth. Stay tuned for the next and final installment in the series to learn more about the same.

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