7 minute read 9 Jun 2020
How can retailers adapt for sustainable growth after COVID-19

How can retailers adapt for sustainable growth after COVID-19?

Authors
Olivier Gergele

EY Asean Consumer Products & Retail Leader

20+ years of consulting, consumer and retail industry experience. Deep knowledge of developed and developing markets. Lived and worked in Asia, Europe and South America. Warwick MBA. Husband. Father.

Vikram Chakravarty

EY Global Strategy Connected Capital Solutions Leader; EY Asean Strategy and Transactions Leader

Experienced strategy advisor. Thought leader in Asia business. Wine connoisseur, avid squash player, ardent cricket fan and doting father.

7 minute read 9 Jun 2020

COVID-19 has drastically changed consumption habits and retailers need to recalibrate their strategies to emerge stronger from the crisis.

Southeast Asia’s retail sector has not been spared by the COVID-19 pandemic, with notable shifts across purchasing channels and categories. The crisis has disrupted daily life and led to massive dislocation of the global economy, with the International Monetary Fund estimating real global GDP growth for 2020 to be -3%. Despite facing huge challenges, what can retailers do to seize opportunities during these trying times and position themselves for sustainable growth after the crisis?

With an almost complete halt in all activities except the most essential services across the world, certain channels, such as e-commerce and convenience stores, have seen significant growth, while department stores and malls have been negatively hit. Similarly, product categories relating to well-being and home convenience, such as consumer health, packaged foods and homecare, are enjoying a boom, and discretionary spending on luxury goods has slowed.

EY expects three key shifts to happen with this crisis:

Acceleration of online retail penetration in next five years

With social distancing measures in place to curb the spread of the virus, online retail penetration will accelerate. We expect to see a threefold to fourfold growth in Southeast Asia’s e-commerce market size, from US$30b in 2019 to US$90b–US$120b in 2025.

According to an eMarketer survey, 70% of shoppers avoided going to crowded places during February and March 2020, resulting in a sharp decline in brick-and-mortar retailer sales of up to 30% year-on-year.

Continued emergence and expansion of new business models

Dark kitchens are an emerging business model that lowers costs by eliminating seating, air conditioning, lighting, and the need for centralized admin staff, while providing quality customer service and customization of curated menus. We expect the crisis to accelerate the expansion of this model across the region with investment by key food delivery market players.

Another innovation is the development of community platforms, which enable multichannel engagement directly with consumers through gamification and personalization. Nike has fully embraced its community platform through its “Consumer Direct Offense” strategy, enabling them to achieve a 38% digital growth in the second quarter of their financial year 2020. The company now has 170 million active users across its five different apps.

Dark kitchens and community platforms have allowed retailers to accelerate their growth even in challenging times. As the COVID-19 disruption unfolds, we can expect more of such innovative business models.

Greater profit growth prospects for online retailers and platform-related businesses

We expect e-commerce to take off faster and large e-commerce players in Southeast Asia to turn profitable in the next few years as they scale up operations.

Five key areas for retailers to drive sustainable growth after COVID-19

According to the March 2020 EY Global Capital Confidence Barometer report, 73% of more than 2,900 C-suite respondents globally expect COVID-19 to have a severe impact on the global economy in the form of supply chain disruption and declining consumption, and a transition of consumer demand toward health, safety and online shopping. As these behaviors play out, the gulf between retailers that thrive and those that decline will widen. To drive sustainable growth in this environment, retailers need to recalibrate their strategies and operations to emerge stronger from the crisis.

We prioritize the following five steps that retailers can take to position themselves to make a strong recovery.

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1

Chapter 1

Adopt an omnichannel strategy and invest in online presence

How can retailers take an omnichannel engagement approach to enhance online competitiveness?

Engage your customers consistently online via social media and text messaging, and shift marketing investments from offline to online. To that end, investing proactively in back end operations to support customer fulfillment and experience will put retailers in good stead.

Retailers should take a holistic and comprehensive approach toward enhancing online competitiveness. Non-exhaustive key interventions are required at each phase of the approach:

“Where to play?” phase
  • Double down on omnichannel strategy, ensuring consistency across online and offline channels
  • Engage with customers online via new-age channels like social media and P2P messaging
“How to play?” phase
  • Scale up product portfolio and increase online visibility, especially for high-demand and profitable categories
  • Shift marketing investments from offline to online
“Enablers” phase
  • Proactively invest in back-end operations to be consistently ahead of increasing demand
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Chapter 2

Drive supply chain resilience with diversified sourcing

What can be done to hedge against international trade disruptions and accommodate the latest demand trends?

More than ever, regularly review product sources to reinforce supply chain resilience and agility. Take the opportunity to secure reliable local sources and plan for long-term collaboration to hedge against disruptions in international trade. This also helps with reinforcing the sustainability agenda.

Execute good demand planning by increasing stock levels for items in high demand, identifying substitutable brands or products, and collaborating with principals to match supply with demand. Regional inventory hubs can mitigate supply disruptions and, where necessary, direct shipments to high priority distribution centers and stores in high-risk areas.

Given possible resource constraints, embrace technology to reduce dependence on labor and iteratively fine-tune automatic replenishment algorithms to accommodate the latest demand trends.

Execute good demand planning by increasing stock levels for items in high demand, identifying substitutable brands or products, and collaborating with principals to match supply with demand.

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Chapter 3

Expand offerings to meet evolving consumer needs

How can businesses seize opportunities arising from growing demand for specific product or service categories?

In times of increased demand for specific product or service categories, take the opportunity to further drive private label penetration to deliver value for both consumers and the business. Enhance your target value proposition by driving customized promotions and offering value packs for economies of scale.

For food-related products, enhance and diversify ready-to-eat offerings and introduce products with a longer shelf life. It is also opportune to focus on grocery home delivery and expand into the cloud kitchen space, capitalizing on the growing demand for food delivery.

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Chapter 4

Consider strategic acquisitions for faster growth

Past crises have shown that M&As can fuel growth in a recovering market.

Even with the current pandemic, deals remain a powerful way to reshape portfolios and accelerate the transformation imperative. Experiences from SARS and the global financial crisis showed that in a recovering market, the M&A landscape often presents high-quality acquisitions at lower valuation multiples to fuel faster growth.

In the EY Global Capital Confidence Barometer report, 43% of executives stated that they will focus on new investments in digital and technology, and 42% will prioritize capital allocation across their portfolios to more quickly reimagine, reshape and reinvent their businesses for long-term value.

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Chapter 5

Drive agility by empowering decision-making

How can businesses prioritize speed over perfection in response to volatility?

Shifts in consumption patterns, regulatory changes, resource fluctuations and competition in the local markets necessitate speedy decision-making. To achieve this, establish and empower a senior cross-functional local leadership team with a defined ambit to manage issues on the ground. The goal should be to execute agile plans and prioritize speed over perfection in response to volatility.

The leadership team will need to galvanize support from stakeholders externally to reinforce close relationships with existing partners and identify high-potential partners beyond the current portfolio. It will also need to do so internally to manage the morale and motivation of the workforce.

Summary

The COVID-19 pandemic has led to massive dislocation of the global economy and Southeast Asia’s retail sector has not been spared.

Retailers can drive sustainable growth after the crisis by adopting an omnichannel strategy, improving supply chain resilience with diversified sourcing, expanding offerings, making strategic acquisitions, and empowering decision-making for greater agility.

About this article

Authors
Olivier Gergele

EY Asean Consumer Products & Retail Leader

20+ years of consulting, consumer and retail industry experience. Deep knowledge of developed and developing markets. Lived and worked in Asia, Europe and South America. Warwick MBA. Husband. Father.

Vikram Chakravarty

EY Global Strategy Connected Capital Solutions Leader; EY Asean Strategy and Transactions Leader

Experienced strategy advisor. Thought leader in Asia business. Wine connoisseur, avid squash player, ardent cricket fan and doting father.