What should business leaders of retail and consumer good companies look for in the coming weeks to turn crisis into opportunities?
When the lockdown was announced on 23rd of March 2020 in India, the next day, I tried to quickly order some essentials on Amazon’s “Prime” and I got back a promise of tentative 15 day delivery with 6 out of the 11 items being “out-of-stock”. On a usual day, this would have been termed as a serious technical glitch but that’s the true story across the globe with the e-commerce sites being barraged with orders, but the stocks are quickly depleting and hardly anyone is available to deliver the orders. The “kirana” store (neighborhood retail outlet) around the corner wasn’t of great help either.
Coronavirus has brought the consumer economy to a near-screeching halt and it’s hard to imagine where it will end. And honestly, no one knows what will be the full extent of the economic impact due to COVID-19 pandemic. When I scan through some of the reports from economic gurus, there are some numbers predicted by them (as mentioned below), however as days of global lockdown increase, these numbers are getting revised almost every week.
- As of March 2020, global stocks have seen a downturn of at least 25%  with a prediction that the global economy is projected to contract sharply by 3%
- A 20 – 30% plunge in market capitalization in automotive & assembly, consumer durables, apparel, fashion and luxury sectors
- Covid-19 to shave 1 trillion euro off from European brands, US Retail Sales hit a record breaking low, dropping a whopping 8.7% from Feb to March
- Nearly 17 million people filed initial claims for unemployment insurance in US, Asia-Pacific region could face a total and permanent income loss of $620 billion
These headlines make us nervous; many businesses leaders worldwide are scrambling for answers in this cataclysmic disruption. With concerns of cash flow and capital structure, leaders are most concerned about global recession, along with the financial effects of the coronavirus on company’s operations, consumer confidence, liquidity and capital resources. Like many top executives, Alan Jope, CEO of Unilever laid down his guiding principles of maneuvering through this crisis as “look after people”; “look after supply”; “look after demand”; “look after cash”, but the most important question that is in the back of our mind is – WHAT’S NEXT?
Beyond coronavirus: Getting Back to New Normal, Faster
Unpredicted times need well thought out solutions to navigate through the crisis, given that our defined and proven metrics do not hold good. We at Mindtree feel that that executive leadership will need to monitor this crisis over the next 12 – 18 months, while going through 4 essential stages: Managing Turbulence, Stabilizing, Reviving and Continuing to Accelerate.
While immediate short-term goals of most C- suite executives range from bolstering liquidity to reduce burn rates while they move to virtualizing their organization, and identifying areas where work can be brought back in-house while driving operational efficiencies and managing risks. It is observed that while product margins are up, additional costs of paying overtime to labors and collaborating with newer partners to meet the rising demand have eaten into the profit margins. We have seen many leading retailers like Arcadia canceling £ 100M worth orders because of huge unsold inventory, J.C. Penny furloughing hourly and variable labor to reduce costs with closure of stores, Hindustan Lever delaying operational integration with its merged entity GSK beyond 18 months etc. Almost all major consumer goods companies are working with retailers to slow down incoming orders and monitor inventory in order to reduce spoilage costs, thus avoiding bad debts.
Depending on the duration, severity of the outbreak and scale of government relief packages, the long-term goals will see further changes. Organizations need to continuously tailor their strategies to adopt to the larger macro-economic conditions and decide where to invest next. There would be a change in business models depending upon customer behavior patterns including but not limited to, number of trips to shopping centers vs buying online, cash transactions vs contactless payments, attending events physically vs virtually, including safety gears for employees as a part of their basket along with renewed commitment to health and wellness. While cost cutting measures were short term efforts, many CFOs will need to actively model scenarios for organizations to return to normal and define new budgeting guidelines, depending on recovery patterns. Organizations may need to focus on newer opportunities, rewire supply chains with companies looking for fresh set of suppliers to meet their demand. “Digital first” will be truly tested and strategic IT investments may be on the anvil, with a lot of focus on digitization and automation of business processes, especially on enhancing the resilience of supply chain and cyber security & networks with working from home and BYOD being the new norm.
Right now, none of us can say what the future holds, but it is essential that companies make the right move. Consumers will want to shop, travel, eat out, be entertained and provided with the experience, only the way the organizations deliver the same with new regulations will be the key to success. Right now, many businesses are in the early stages of crisis management, but they need to re-evaluate and find right answers to the questions that will shape the path to recovery.