AlixPartners: Reset and restart, act now to prepare for a post-COVID world

The global COVID-19 crisis is causing sudden and unprecedented disruption. It’s impossible to predict the total impact – but these are turbulent and trying times, and dramatic action and resiliency will be required to navigate this together. People, infrastructure, small and large businesses, and economies are all being affected. With the immediate well-being and health of people rightfully being top priority, many retail and other businesses are functioning at reduced capacity or as online-only operations. While some retailers have seen sales increases and spurts in traffic, the overriding effect in general is that consumers have and will continue limiting store visits to buying essentials. Overall sentiment around discretionary spending is predicted to dip in the coming months, but consumer behavior will continue to change in light of new personal and professional dynamics.

Retail had already been bracing for severe delays to supply chains because of the virus’s initial spread in China and other Asian countries that are at the heart of production. And while that remains the case, there is now a more immediate effect on daily operations. For example, grocery and other related supply chains and operations are under pressure from overwhelming demand. At this tumultuous, and frankly confusing, time, what actions can retailers take to minimize and prepare for impacts to the business while also getting ready for a post-COVID-19 world? Here are some ways to think about managing organizations and operations during this unprecedented time:

Focus on health and safety

Keeping in mind the massive human impact, make decisions that prioritize the health and safety of both employees and consumers. This is the right thing to do, and consumers will notice how any individual retailer treated employees and will react appropriately. Expect to continue offering work-from-home arrangements to corporate staff in the medium term. Evaluate which other roles, such as sales and customer support, can also operate remotely and what training may be needed to enable their success. Retailers that intend to continue direct-to-consumer (DTC) operations must screen 100% of distribution center employees every day and prevent workers with even mild symptoms from entering. Failure to screen out at-risk workers may result in a full shutdown of DTC operations. While several retailers have announced two-week temporary closures of stores, consider – taking input from legal counsel – whether this time frame for reopening makes sense. Prepare to be flexible and make quick decisions based on the changing situation. In preparation for reopening, create new safety and sanitation guidelines, train staff appropriately, and ensure strict adherence.

Communicate as much as possible

Communicate regularly and transparently with all stakeholders, including vendors, employees, and consumers. Set up daily conversations with your largest suppliers of critical categories to understand their future supply chain constraints. Set up an easy system for employees to access information and ask questions as needed. Show empathy and understanding. Also communicate with customers via in-app or email marketing. Establish a small response team with the right network and experience to convey calm and concise messaging to the public. Review your content strategy and messaging to ensure that you are being authentic and appropriate in the current context of varying forms of emotions and remote or at-home interactions.

Make cash management a priority

Appoint a team that focuses on cash management, identifying cash balances and accounts, and establishing a new 13-week cashflow model. There is an immediate need to model scenarios for different levels of sales slowdowns and what the cost structure would be in each case. This must be followed by modeling new operating models and potentially a new organizational structure to get work done most effectively. Consider reducing general and administrative expenses to align with the new business plan and shifting expenses to variable wherever possible. Delay capital expenditures and new investments. If your inventory is perishable or aged, mark it down for immediate liquidity.

Solidify and expand ecommerce capabilities

While we do not yet know how demand may permanently shift online versus in-store, ecommerce will likely be more important for the foreseeable future and will continue to change the role of the store as part of an omnichannel model. Strengthen your online platforms and stress test apps and websites for increased traffic. Determine what changes are needed for delivery and pick-up capabilities and prepare inventory for a dramatic channel shift. In-store marketing spend will, of course, reduce during this period. Reallocate budgets to online and actively manage spend. Monitor conversion funnel performance and determine tactics for nurturing existing and new customers, while also planning to reacquire lost customers. There may be a need to shift promotion tactics daily as demand adjusts and inventory fluctuates, especially for retailers trying to sell through product previously meant for in-store sale. While discounts and promotions will be needed in the near term, consider how you can adjust future markdowns as business stabilizes. There may be a need to reassess return policies and adding flexibility. This includes expecting a higher volume of returns based on historic ecommerce return rates. Tailor overall messaging and interactions so that they are relevant and empathetic in context of today’s dynamics and as factors improve.

Adjust labor capacity and capabilities

Most retail stores around the US and Europe are temporarily closed or have changed the hours they are open to the public. In cases such as apparel this means a true closure. In others, their role has greatly shifted – restaurants are closed for dining in but open for delivery while grocery stores are adjusting hours to allow for restocking and supporting access for elderly and high-risk customers. Each of these will result in significant traffic adjustments and reshape labor models. This will be especially critical in the likely scenario where there is a contraction in labor availability due to illness or extended closures. Many retailers also need to adjust their customer care and support to align with increased ecommerce sales. As health and economic conditions improve, it will be critical to assess customer behaviors and determine what level of rehiring is required, and in which roles and locations.

Manage inventory and buying

Retailers need to decide which upcoming buys to halt as they optimize existing inventory in stores, at distribution centers, and/or currently processing through the supply chain. Make quick assortment and buying assessments and conduct a thorough ecommerce inventory review, which may result in reallocating inbound product. The next few weeks will be crucial in assessing how distribution centers are impacted – this will depend on truck driver availability, other supply chain logistics, and feasibility of keeping your own warehouse operational and staffed. Be prepared to make quick short-term strategy pivots, for example, assessing if you can ship directly to the customer from vendor partners.

Add flexibility to product development

Use third-party relationships to rapidly drive flexibility in development, for example, partnering with vendors to free up capacity for smaller product runs. Streamline the development process to spread existing designs across smaller modules. Think creatively about the design process: this may be a good time to implement a much wider use of digital design tools as it both reduces the need for people to travel and helps with expenses.

It is not yet clear how long or how severe the COVID-19 impact will be. There is, however, no doubt that a current focus on staying afloat, a flexible mindset, and preparedness for when operations pick back up will be the keys to survival and resiliency. Use this as a chance to challenge areas that you may not have been willing to challenge in the past. Think creatively about partnerships. Continue to be customer-centric and focus on creating clear feedback loops to understand market dynamics and consumer behavior. Take action now to shape how you will reset and restart operations as the post-COVID world emerges.

AUTHOR:
• Alexa Driansky, Retail Consultant, SVP at AlixPartners

Compliments of AlixPartners – a member of the EACCNY.