- Retailers harness online platforms to drive sales while reducing costs through managing overheads and back-office expenses
- Retailers seek short-term cash relief through working capital optimization, rental negotiations and balance sheet restructuring
- Retailers should consider accelerating transformation across five key areas to drive sustained success post-crisis
With physical store closures and online platforms being the key sales avenue for retailers during the COVID-19 pandemic, retailers are seeing digitalization as the way forward to achieve growth in a post-COVID-19 era. This is according to an EY poll of 263 retail business leaders across Southeast Asia (Indonesia, Malaysia, Philippines and Singapore) conducted in May 2020.
The survey reveals that over the next 12 months, the majority of retailers will be looking to digitalize their business (59%), followed by restructuring the business (23%), exiting non-performing businesses (11%), and acquiring and merging with another retailer (3%).
For now, improving topline performance through online sales and market listings i.e., creating seller accounts on e-commerce platforms, is a clear immediate priority (57%), followed by promotions and markdowns (9%), updated product portfolio (7%), and partnerships and loyalty programs (7%).
At the same time, 40% of the surveyed indicate that they are facing resource constraints. To better manage their margins, retailers are working to reduce overhead costs and back office costs (43%), implementing in-store cost reduction and store portfolio rationalization (33%), as well as managing cost of goods sold (10%) and cost of supply chain and logistics (7%).
For short-term cash relief, retailers are turning to working capital optimization (61%), rental negotiations and profit-sharing readjustments (23%) and balance sheet restructuring (4%). 7% of respondents do not know where to focus on for their immediate cash needs.
Mr. Olivier Gergele, EY Asean Consumer Products & Retail Sector Leader (elect) and Partner, Strategy & Operations, Ernst & Young Solutions LLP, says:
“This crisis is fast-evolving consumer’s preferences, behaviors and values. Online retail penetration is expected to grow at an accelerating pace, and the industry’s economics will shift with e-commerce gaining a fair share of the profit pool. While digitalization is a very visible option in current times, an online strategy alone may be insufficient for retailers to stay profitable or successful in the long run. We are seeing a fundamental shift in the retail industry that demands a rethinking of business and operating models.”
Five key areas of focus
The five areas in which retailers should consider accelerating efforts in order to emerge stronger after the COVID-19 crisis are:
- Drive omnichannel strategy: Focus on winning online while integrating multiple channels for improved customer experience
- Drive supply chain resilience: Ensure diversified and local sourcing, and perform demand scenario planning to prevent disruptions
- Expand offerings: Adapt to changing consumer needs and behaviors
- Engage in timely M&A: Take advantage of low valuation multiples to make strategic acquisitions
- Drive agility: Empower the organization for fast and local decision-making in volatile environment
Mr. Gergele comments:
“The challenge facing retailers is in balancing current survival needs such as cash flow and operating costs with making investments to pivot their business for the future. From what we have seen in previous crises, retailers that embrace change are more likely to emerge as leading businesses while those who persist in conducting business-as-usual may fall behind. Yet, unlike previous crises, the unprecedented disruption from the COVID-19 pandemic may require retailers to undertake a whole-of-business transformation that goes beyond simply implementing digital initiatives in silos.”
The EY Enterprise Resilience Framework identifies nine areas that businesses, including retailers, can address to build a structured and comprehensive approach to crisis management and business resilience. Find out more here.
Notes to Editors
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation is available via ey.com/privacy. For more information about our organization, please visit ey.com.
This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.