We open this space where experts retailers will share their views on how to deal with the current crisis situation.
Our first guest is Alberto Cebrián, Planning, Distribution and Logistics Manager at EL GANSO.
THE COMEBACK BEGINS
Retail companies are up against a real challenge as we find ourselves in an unprecedented situation: recovery after a pandemic.
This has not occurred globally in the last 100 years, but at the same time, it looks as if the basic retail model is going to change for the first time in history. Having customer and seller separated by a counter does not look so obvious any more.
In our sector, it appears that work has begun on sketching out key strategies which will have to be pursued to restore consumer confidence and lift sales.
Firstly, we need to recall, and be fully aware, why each of us is in the market, what product or service we offer and whether it will be relevant in the near future.
Because if not, and we are not going to satisfy the needs of the “new consumer”, we will have to reinvent ourselves and adapt to the new reality. In fashion, the latest trends will be put back on the table: timeless production, sustainability, traceability, personalization, etc.
In general, there will be less disposable income and less eagerness to spend on fashion (24% of consumers say they will spend less on fashion over the next few months), and to ask the customer to spend, we will have to offer them rather more value than before. It’s not just a question of keen price: we will have to arouse them in some way.
- Moreover, we will have to build a trusted environment for our activity.
In retail, it will be key to convey the assurance that we comply with all the safety measures recommended by the authorities. This is a new reality. While before, we liked shops or spaces which are well-designed and tasteful, with good customer service, with good music, or very clean, now we are going to prefer those that ensure social distancing, using masks and gloves, disinfecting products, or new services offered to the customer such as “try it at home” or a rapid checkout without human interaction.
- In addition, in case this was not already clear, ecommerce is, and must be, the keystone of our businesses, supported by the physical shops.
Not only has it salvaged the cash-flow of many businesses during the lockdown, but it is going to be a key sales channel in the foreseeable new, contactless way we will consume. We must review the entire process of ecommerce, from the packaging, the last mile, the in-store collection and returns, to make them more “social distancing friendly”. The main investments of our companies should be centered on this aspect.
- On the cost side, we will have to rework the optimal cost structure for each retailer.
What will be the optimal cost structure of a shop and which criteria will determine whether it is profitable? Relating this point with the previous one, we need to analyze how much each open shop contributes to the growth of ecommerce sales.
The shop needs to cater to the overall sales of the company, and if we can offer the stock at that shop and the service of our sellers to sell a product remotely, we will be able to optimize the profitability of shops. A single stock is going to be a must.
- Austerity is also going to be fundamental.
This is always true in any company, and more in retail where we are so exposed to the business cycle, but we cannot get this wrong now. We need to detect all the expenditure of the company which is superfluous, or which did contribute up to now but will not be essential to surmount the crisis in this new reality.
We must review our strategies and our business plans, and also our capex budgets. We are at a critical point, and what is surely going round and round in everyone’s minds is: Short-term or long-term? I think there is no one right answer here, but we need to seek a balance between prioritizing cash-flow and the long-term projects of the company, which should not be forgotten.
There may be areas where it no longer makes so much sense to invest, while the need for investment is enhanced in others (product innovation, ecommerce, CRM, single stock, logistical automation). Or perhaps there are projects which can be put on ice and taken out in 6 months, and others which should start now. This is for each individual to think about, depending on their business and how healthy their balance sheet is.
- Managing working capital is another key aspect, as it has an immediate impact on liquidity stresses.
It seems clear that 2020 is the year of liquidity and not of margin, at least for a large number of retailers. We need to design a good strategy and explore new channels to avoid generating too many overstocks in our current inventory.
Sales will start earlier and the campaign will be longer. This means that the following campaign will be shorter and later, and there will be efforts to pivot toward an on-demand model of production and match campaigns to the weather of each season. We need to be cautious with our purchasing and see if we should prioritize margin or flexibility.
We can buy less and meet future needs by leaving a wide open-to-buy margin, purchasing or making locally. An absolute commitment to margin in an environment of so much uncertainty could be a double-edged sword. We need to try to produce where and how the balance between quality, working capital and margin offers the best solution.
- We need to understand clearly that we will not be able to weather the storm without the people who make up our companies.
Talent and, specifically, the ability to recognize priorities, rapid response, devising ideas for the situation and thinking outside the box are going to be key attributes in adding to our companies during this stage. Proceeding on autopilot will no longer do. We have to engage actively.
- Finally, it has now become even clearer that all of us in companies in the retail circuit need to cooperate.
Brands, providers, logistics companies, carriers, proprietors, franchisees, and any others, must collaborate and help each other mutually, sharing out the impact of the crisis to give us all the best chance of getting through this situation. If we support each other, I am convinced we will come through and all of us will win in the long run.
Written by: Alberto Cebrián, Planning, Distribution and Logistics Manager en EL GANSO