5 minute read 22 Apr 2020
Impact of COVID-19 & rebound of the retail sector

Moving towards a resilient retail sector post COVID-19

By Pinakiranjan Mishra

EY India Consumer Leader; EY EMEIA Consumer Market Segment Leader

Photographer. Traveler.

5 minute read 22 Apr 2020

An EY perspective on the key retailer issues and the resilience strategies that they can build for now, next and beyond.

The COVID-19 pandemic continues to impact most industries at an unprecedented scale globally, including retail that has witnessed significant disruption over the past few months. Amidst widespread health concerns, travel restrictions and local movement limitations, retailers in India, where the crisis has just started playing out, are already feeling the heat.

Impact of COVID-19 on retailers: Now, Next and Beyond phase

Indian retailers are faced with a multitude of challenges – “now”, “next”, and “beyond”. We are currently in the “now” phase where most retailers are coping with a complete pause in business. Even food and grocery players and chemists, that deal with essential commodities, although allowed to operate now, are facing challenges. These challenges include managing consumer demand, ensuring liquidity, supply chain disruptions, management of store operations to ensure social distancing and proper hygiene, governance issues, and ensuring the health and safety of employees. While essentials (personal care, food and beverage, home care) would be the lesser impacted, health and economic concerns would reduce consumer confidence and their spend on non-essential goods (apparel, furniture) and high ticket items (consumer electronics, jewellery). In the medium term, or the “next” phase, where the government starts easing restrictions, retailers will need to focus on bouncing back from the current situation. In the long-term “beyond” phase, they need to focus on transforming to succeed in a new business landscape. The challenges would be to cater to consumers via their preferred channels and to build business resiliency to operate smoothly during any future crises.

COVID-19 and the evolution of consumer behaviour

We believe consumer behaviour (how they consume, shop, live, use technology, work and move) will shift across three horizons, leading from the “now” phase to the “beyond”. In the “now” phase, consumers are stockpiling essential goods and there is significant surge in e-commerce and digital payments, while kirana stores continue to host smaller crowds, in both urban and rural areas. In the “next” phase, daily life will resume, but health and economic concerns will reduce consumer confidence. Brand loyalty will diminish as consumers trade down and consume cheaper/private label brands. Focus on health will gain importance. New online shoppers such as elderly and rural consumers will continue to adopt digital. But, for rural consumers survival on essentials will continue. Online adoption will continue to accelerate “beyond” the crisis.

Resilience strategies for Indian retailers

To mitigate the disruption caused by this crisis, Indian retailers will need to devise strategies for the “now”, “next” and “beyond”. While they need to manage their costs through operational improvement and by evaluating the store portfolio, they also invest in service, experience, and omni-channel to serve the new consumer. As retailers react to fluidity of the “now” they also need to build resilience for the “next” when demand starts getting restored and think “beyond”. They should map a strategic journey to financial resilience at the same time plan for longer-term implications on their operating model owing to shift in external environment.

Speed and agility will be key levers of success and retailers will need to adopt a FASTER approach both to navigate the crisis “now” and to plan for the “next” and “beyond”.

  • Frugal in finance: With dwindling revenues for most categories and pending rental, salary, and interest payments, retailers across the board in India will face the heat when it comes to financial management. At this juncture, it will become critical for retailers to focus on optimizing cost so that they can maintain enough cash and margin buffer to help them survive in the medium and long term.
  • Agile in thinking: Given the uncertainty around the crisis it becomes imperative for retailers to have a cross-functional swift response team to handle any event that may follow. They must be flexible and adaptable to alter operating models and product assortment to meet the requirement that is most critical at the given point in time.
  • Spruced up in supply chain: Retailers will need to repurpose their supply chain to meet demand fluctuations within their categories amidst supply constraints. They must develop capability to plan inventory and logistics across stores in a highly dynamic way till business returns to normalcy. Digitization will help in reimagining company operations and meeting consumer demand for rapid fulfilment as market moves to more omnichannel and delivery-based models.
  • Tactful in talent management: Continuous leadership connect with employees, especially frontline staff, around their health and financial well-being during this time will generate a sense of trust that the organization cares. Once the business is operational, they need to focus on repurposing staff skills and deployment to meet the demands of the new business reality.
  • Effective in customer retention: Retailers need to ensure that they continue their communication with customers throughout the crisis period. They need to build trust in consumers’ mind that adequate steps will be taken to ensure their health and safety in the stores.
  • Responsible in regulatory and legal compliance: The crisis has already brought a heightened level of regulatory scrutiny and passing of multiple directives by local, state and central government to ensure public health and safety. While this can be quite consuming for any retailer (in terms of resources) to follow all the directives, it will be essential for them to cooperate with the regulatory authorities all along when lockdown is lifted in stages.

With the COVID-19 outbreak, which is continuously evolving, nobody can predict with certainty the material impact of this crisis on the sector yet. However, this pandemic should serve as a reminder to quickly build a flexible and agile business and operational model to take care of disruptions in the future. This will mean a significant focus on converting to a digital enterprise. Now is the time for retail players to get control of the current crisis and invest in the build-out of a more resilient organization.

Summary

The actual impact of COVID-19 and the rebound of the retail sector will depend on the period of the crisis and the resulting extent of behavior change. But what is certain is that it will test all retailers, and the ones who will be financially strong, agile in response, and effective collaborators will emerge as winners.

About this article

By Pinakiranjan Mishra

EY India Consumer Leader; EY EMEIA Consumer Market Segment Leader

Photographer. Traveler.