Retailers around the world are grappling with the appropriate response to the coronavirus for their employees, customers and their businesses. For many, it is shaping into a once-in-a-generation test of business continuity planning, elasticity of digital ecosystem and supply chain flexibility.
Unlike previous disruptions like SARS and Fukushima over the past two decades, the disruption from coronavirus is having an impact on both supply and demand. Southeast Asia has particularly suffered on the supply side. On the demand side, Europe and the United States are seeing changes in demand pattern, with retail sub-sectors experiencing different shifts and outcomes based on the longevity of the ongoing public health crisis.
We have identified three distinct scenarios for retailers:
- Low Scenario: Mostly four to eight weeks of disruption, with significant social isolation and lifestyle changes. Lack of store traffic: 8 weeks
- Medium: Medium-term disruption through July and August with gradual recovery after that point. Lack of store traffic: 16 weeks.
- High Scenario: Long-term disruption, with the U.S. economy largely shut down through November to December. Lack of store traffic: 32 weeks
At Publicis Sapient, we have seen retailers experiencing a significant decline in sales in many categories of goods as footfall declines or comes to a screeching halt (stores still represent more than 80 percent of revenue for most retailers). However, according to business intelligence company Facteus, consumer spending seems to be on a slow path to recovery. By mid-April, spending hovered between +5 and -5 percent, compared to -35 percent in March when compared to 2019.
The fallout – and recovery – of the retail industry will vary by sub-sector, which have faced different supply and demand challenges in the wake of the crisis.
- Grocery: In grocery, we’ve seen a major uptick in digital demand in the wake of ongoing social distancing and stay-at-home orders. Grocers are now putting plans into place that have been developed, refined and tested over the past decade. However, this pressure is fundamentally different from past regional emergencies. As the pandemic slows, grocery will gradually shift back to more normalized shopping patterns, with an increased revenue shift attributed to digital channels.
- Apparel & Specialty: With non-essential retail largely shut down and a shift in consumer focus to essential items, apparel and specialty stores should expect to see a projected 80 percent drop in revenue during the initial eight week of the crisis, before a partial recovery. This represents a projected permanent loss of 11 percent of annual revenue. Moving into recovery, apparel and specialty stores will begin to see an uptick as consumer habits shift back to accommodate more discretionary spending, with an emphasis on expanding omnichannel experiences.
- Big-Box Retail: Big-box retailers saw initial increases in both in-store and digital traffic as stores remained open and offered a variety of products to meet consumer needs, both discretionary and non-discretionary. Looking ahead, retailers must brace for economic recovery, which will drive big-box retailers to consider strengthening their own brand or embracing marketplace models to drive sustainable growth.