On the day that Covid-19 was declared a pandemic by the World Health Organization, we published an operational checklist for retailers confronting the virus. Our aim was to assist executive teams with framing their initial response to the outbreak and tentatively planning for a recovery. In the weeks that followed, a swath of countries and states told citizens to stay home as the public health emergency deepened.
The US, Europe, Australia, the Indian subcontinent, Southeast Asia, Latin America and Africa are now deep in Phase 2 of our three-phase model for retail’s response to Covid-19. Governments have taken drastic action to control the virus in these regions, massively disrupting retail operations. Retailers of nonessential products have had to close physical stores temporarily and furlough staff; grocers, on the other hand, have striven to manage unprecedented demand spikes. Unable to serve meals on-site, some restaurant operators have turned to takeout and delivery—a sidestep that requires them to compete with a renewed appetite for home cooking among consumers.
Few retailers, if any, are still in the initial response phase. As the virus established itself in all but the remotest territories, the industry has acted rapidly and decisively to ensure business continuity amid panic buying and employee absences, drawing on lessons learned in the earliest battles against the pandemic in China and other frontline countries. Some nations are now emerging into Phase 3—a time of early recovery and a lasting shift in customer relationships and competitive dynamics. In China, for instance, the easing of the outbreak has allowed stores to reopen after lockdown—a reminder that recovery will come, even in countries that have yet to see a peak in new infections.
With this in mind, we’ve updated our guidance to executives to aid their ongoing crisis response. The coming weeks will test the stamina of many Phase 2 companies in a variety of ways, particularly those hyperkinetic grocers: The recruitment of even more temporary workers to meet surging demand. The ongoing need for protective equipment in stores, distribution centers and warehouses. The imbalance between online demand and delivery capacity (and the stress it causes customers). The duty to prioritize the vulnerable. The list of challenges goes on.
Even retailers in Phase 3 can’t afford to slacken their efforts, given the possibility of fresh waves of Covid-19 infections in places where it seemed to be in abeyance. Nor do we know exactly what retail’s “new normal” will look like.
However, we are at a pivotal moment when leadership teams need to devote more time to planning for recovery and retooling. They need to explore how to adapt their value proposition, their capabilities and their ways of working to the new realities of the market—making their best forecasts of what these new realities are likely to be. That’s not to say that retailers can focus less on protecting people and ensuring the short-term continuity of their businesses. Executive teams know these are nonnegotiable priorities. But companies that can both “act now” and “plan now” will be best placed to weather the remainder of the crisis and accelerate into the recovery.
Act now: Best practices
In our initial checklist, we recommended action in six areas to help executives frame their short-term response. Below are updated summaries that reflect best practices, creative problem solving and an enhanced focus on defending sales.
1. Empower your emergency response team
Most retailers have set up a “war room” with a dedicated senior team. Some teams have increased their impact by communicating informally when necessary. Above all, support the team to work at an intense and sustained pace, and encourage the adoption of Agile decision-making processes.
2. Communicate and collaborate
Keep talking to employees, customers, suppliers, shareholders and local authorities. Some companies have damaged their reputation by mishandling interactions with one or more of these stakeholder groups, albeit in exceptionally trying circumstances. Showing empathy (through actions as well as words) is paramount; many retailers have done that with charitable donations.
3. Protect people above all else
Retailers have risen to the challenge of protecting employees at stores, head offices and distribution centers. Actions have included distributing face masks, taking employees’ temperature as they report to stores, waiving co-pays for workers accessing telehealth services and expanding paid sick leave. Retailers are also taking decisive action to protect customers, installing “sneeze guards” at checkouts, creating one-way aisles to assist social distancing and encouraging card payments. Dedicated shopping hours for the vulnerable are now widespread as well.
4. Protect the top line
Focus top-line initiatives on e-commerce. Divert marketing spending to attract traffic to online stores. Use social media and other channels to test ways of improving conversion. Be creative in increasing online fulfillment capacity—Kroger, for instance, has converted a supermarket to pickup only to meet click-and-collect demand. Staying relevant to customers (through smart CRM plays, digital marketing and engaging editorial content) is vital, particularly for retailers enduring store closures.
5. Put operations into crisis mode
Retailers still selling from physical stores have hired in bulk to cover absences and meet demand; they have also moved workers from nonpriority locations or HQ. Aldi even struck an ingenious agreement to “borrow” staff from temporarily closed McDonald’s outlets in Germany. Grocers have cut complexity to gain time and efficiency, simplifying their assortment by focusing on larger pack sizes and limiting promotions. In some cases, they have moved to local suppliers for key SKUs, or started sourcing from food-service distributors. They have also collaborated closely with suppliers to streamline manufacturing, deliveries and merchandising.
6. Save cash for survival
Sales may have surged for many grocers and mass retailers, but costs have too, in areas such as payroll, distribution and technology. Near-term “handbrake” measures to conserve cash include cutting nonessential marketing spending, drawing down existing credit lines, and freezing non-frontline hiring. More radical “break glass” measures will include permanent store closures, exiting markets, sale-and-leasebacks and selling inventory to other retailers.
Plan now: Recovery
Bain & Company has been evaluating Covid-19’s effect on global business through a Situational Threat Report Index, combining official data with our own modeling. The index grades the impact from 0 (a negligible threat) to 10 (severe global recessionary conditions lasting for a prolonged period). The threat level was raised to 7 on April 13 (meaning that companies should activate second-level contingency procedures) and is under constant review (see Figure 1 for the latest threat level).
Evaluating the effect of coronavirus on global business
Amid this continued turbulence, the right moment to engage deeply with recovery planning will depend on the markets in which a retailer operates (and the severity of the crisis in those countries). Many retail executives will find it difficult to broaden their focus to planning; that’s understandable given the intensity of the operational challenges and the heavy load placed on many employees. However, executive teams shouldn’t assume that every manager is working flat out—we’re finding that some are likely to be underutilized and able to pitch in.
We recommend the following checklist to assist with the key tasks of remobilizing teams and restarting business processes in the early stages of recovery.
- Prepare to welcome back employees, retraining or releasing new hires as necessary and maintaining focus on health in the workplace and in the supply chain.
- Prepare to welcome back customers, thinking through what safety measures need to continue through recovery (such as increased store cleaning and physical distancing).
- Reactivate consumer relationships and woo people back into stores through marketing and CRM tools. Consider marketing through traditional channels again. Launch recovery-focused promotions. Put empathy at the heart of a comprehensive communication plan.
- Adjust planograms, promotional plans and inventory to the new normal, reducing inventory in “stock-up” categories with long shelf life and working with suppliers to ramp up production of items that experienced low demand during the outbreak.
- Gradually restart automatic or algorithmic buying systems and develop commercial revitalization plans to reactivate demand in subdued categories.
- Reset the 2020 plan with new objectives, budgets and operational plans (plus a renewed commitment to silo-busting).
- M&A and partnerships can help to increase the resilience of your business and plug capability gaps exposed by the crisis; update near-term target lists in both areas.
- Codify lessons from the outbreak to improve readiness for a possible next wave of Covid-19 or other external shocks, such as recessions, terror attacks and natural disasters. Ensure that an emergency response team can be activated quickly for future events.
- After this period of reflection, gradually wind down crisis management resources.
Plan now: Retooling
After the initial recovery phase, the most resilient and adaptable retailers are likely to rebound faster. They’ll have gauged how demand has changed, using that knowledge to reshape their appeal to consumers.
We’re starting to get a sense of how Covid-19 is likely to change consumer behavior or accelerate existing trends. Society’s increased reliance on e-commerce is already apparent. Convenience, speed, reliability, cleanliness, community, trust, empathy, health—these are likely to be even more valuable and desirable qualities. Cautious spending and an aversion to conspicuous consumption should favor private-label products and models based more on usage than on ownership. A rise in nationalism—coupled with a renewed sense of community and a localization of supply chains—could boost local brands and disadvantage global ones. When allowed to return to physical stores, shoppers are likely to want more of an experience, albeit one that feels safe.
Many retailers will need enhanced data and analytics capabilities to track changes in demand and consumer behavior as they crystallize over the coming months. When they review recent customer data and market share fluctuations, they should pay close attention to how the highest-value customers fared (and how to nurture or repair those relationships).
Other things to watch for include innovations and new business models that helped locked-down consumers and might still appeal in the new normal, as well as changed attitudes to price, quality, online retail and sustainability. It could pay to overhaul your approach to segmentation and personalization, as new subniches may emerge to reflect the fragmented way different demographic groups experienced the crisis. Retailers should also consider exploiting advanced software for customer relationship management and customer experience, and moving to a more test-and-learn marketing approach.
Retooling will require corporate transformation as well as consumer understanding. The acceleration of e-commerce is a case in point. Companies will need to define their boldest vision for e-commerce and remove obstacles to that goal, such as functional silos, clashing incentives across physical and online channels, and fragmented customer tracking. Realizing that vision will often require an IT systems overhaul, among other initiatives. Crucially, retailers must ensure that their online channel is structurally profitable, given its increased operational contribution. That will require a rethink of revenue models, pricing and costs.
In recent years, we’ve often found that retailers have had more room for lowering costs in general than they appreciated (see the Bain Brief “Funding the Future of Retail Through Cost Transformation”). Now, more than ever, a companywide drive to zero-base costs can release the funds needed to build financial resilience and hasten your digital transformation.
Even as they labor to unlock the full potential of e-commerce, omnichannel retailers will need a plan to adapt their store network to the new realities of the marketplace. On one level, that means closing the worst hit, least productive stores or online fulfillment points. To fill gaps identified by the crisis, they should consider three other actions: opening new stores, online fulfillment points or distribution centers; repurposing existing space (for instance, by converting store space into a distribution center to accommodate click-and-collect demand); and swapping assets with competitors. All retailers will have to decide which capabilities they will need to thrive in the altered landscape—and whether to develop them in-house, through M&A or via partnerships.
The pandemic has forced retailers to experiment at scale with Agile ways of working. When the short-term disruption has faded, another challenge will be to stay nimble by retaining and extending the best of those practices: streamlined decision making, a flexible approach to working from home, more virtual meetings and collaboration, and less tolerance of unproductive business travel.
The volume of decisions coming at executives during this planning stage will test the newfound agility of many retailers. But they can’t afford to let fatigue lead to a safety-first approach. After all, the sector’s depressed valuations are likely to spark an upsurge in investor activism. Those who don’t contemplate bold moves might well have radical decisions forced upon them.
As part of their strategic planning, executive teams will need to understand the impact of the crisis on their leadership positions and those of their competitors, including sector-wide changes in cash positions and costs. To rebuild strengths, they might have to alter planned capex or buy and sell business units. Bold changes to capital structure or ownership could be necessary.
Overall, industry consolidation is likely to accelerate as some companies emerge weakened and others, particularly digital natives, build on their strengthened position. Buyouts are likely to flourish, and scale should become increasingly important, although the answer to the question “how big is too big?” will depend on how regulators balance the need to maximize competition with strengthening the industry against future shocks.
Granular beats macro—and a learning mindset trumps all
Retailers are playing a valuable role in supporting society’s high-stakes struggle with Covid-19. They are committed to protecting both human life and human livelihoods, and it’s hard to begin the task of recovery planning while maintaining that focus on safety and business continuity. For one thing, the macro picture keeps changing drastically, with evolving government stimulus plans, fluctuating forecasts for vaccine deployment and other variables that are impossible to control from the C-suite.
Given the high degree of turbulence, planning can proceed more smoothly if executive teams focus less on very broad indicators, such as unemployment or inflation, and more on consumer-level “microdata” that emphasizes the behavior of individuals and cohorts. Likewise, when applying lessons from one country’s Covid-19 experience to another, it’s vital to pay special attention to country-level differences that might refute your thesis. In general, averages are likely to be even more misleading than usual given the extreme circumstances.
Most important, leaders need to learn constantly from their experiences, as well as the experiences of others. This disruption is more abrupt, more severe and more global than anything we’ve seen in our lives. We simply don’t know how long it will last. Yet retailers can be confident that a learning mindset will strengthen their planning at this pivotal moment—and allow them to adapt more nimbly as the situation evolves.
Marc-André Kamel is a Bain & Company partner and leader of the firm’s Global Retail practice. Joëlle de Montgolfier is Bain’s global practice senior director for the Retail and Consumer Products practices. Both authors are based in the firm’s Paris office. They would like to thank Stephanie Puzio and Emily Harris for their contribution to this brief.