How Retail and Ecommerce can Anticipate Future Scenarios based on the Coronavirus Outbreak

Global crises like the coronavirus outbreak add a new dimension to uncertainty. For the last couple of weeks near-term survival has been the most important agenda topic. Once the dust has settled and organizations have found a way to cope with the most acute problems, retail and ecommerce organizations will have to think of scenario management and what-if analyses.

Governments are taking measures to restrain the virus from spreading. Although the statistics of some countries are starting to show stabilization or even cautious negative trends, there is no guarantee yet of a long-term positive effect. There is also insufficient information to conclude the virus is only seasonal and will not mutate. It makes it hard to predict how long the measures imposed by governments will last. As such organizations should anticipate what to do in various scenarios.

The Netherlands Bureau for Economic Policy Analytics (CPB) uses four scenarios to outline the possible economic impact of the coronavirus outbreak in 2020 and 2021. The four scenarios fall into the two main scenarios delayed recovery and prolonged contraction.

Delayed recovery
If measures last for another three months, organizations should consider maintaining production capacity, possibly with funding support from governmental institutions. Recovery may be expected during 2020. The need to cut in resources is minimal.

If measures last for another six months, industries will be hit harder as the world economy suffers. A recession in 2020 is to be expected, as well recovery in 2021. The job market for starters will become more difficult and temporary contracts might not be extended.

Prolonged contraction
If measures last for another six months, severe problems in the world economy and financial sectors may impose a longer and deeper recession that can last until mid-2021. Organizations will need to decide if cuts are needed to remain existent and how they can increase their efficiency in the mid-term.

If measures last for another 12 months or longer, the recession will continue, and recovery is expected after 2021. Unemployment rates may increase above the level of the previous economic crisis and the consumer outlook will be negative.

The uncertainty of the ‘new normal’ requires organizations to carefully plan ahead. Organizations should consider and anticipate on all four scenarios, develop multiple what-if scenarios and always be prepared for the worst.

In the short and long term, retail and ecommerce organization will need to anticipate the rattled equilibrium of (future) demand and supply to minimize the (economic) impact on the business. As already mentioned, there is no blueprint of what the ‘next normal’ could entail and how to act when the status quo of your daily business is turned upside down. Data and trends might however give a lead in how to prepare for and position in the restructured economy.

In a response to the precautions governments are taking to relief the pressure from our health systems, consumer behavior changes. How these changes in consumer behavior will impact differs per industry. Some industries suffer more from the severe measures, such as the aviation and hospitality industry, than others. In assessments performed by McKinsey & Company in an early stage of the crisis, the retail- and ecommerce sector focusing on consumer products, consumer electronics and semi-conductors seems to escape a long term (economic) impact on their business (see figure 1). These figures are mainly bolstered by a rather positive consumer sentiment: consumers expect a recovery towards the second half of 2020.

If the above holds true, only moderate decline in private consumption and export of services are expected. But especially for the traditional retail, sales are hugely impacted (see figure 2). The government-imposed measures have led to store lockdowns, stores that are out-of-stock due to hoarding and lower demand due to consumers that are confronted with a tighter budget. The revenues of high-demand product segments however may compensate for the losses of products that are in low demand and online channels might compensate for offline.

The quickly increasing demand for online products and services, might lead organizations to shift even more rapidly to ecommerce. Organizations will need to anticipate on future strategic moves and a multi-channel supply chain.

Looking at the global trends, research by the Growth for Knowledge (GfK) institute showed China – as the first country affected – suffered heavily. The numbers of other heavily impacted countries, like South-Korea, Japan and Italy, show a massive rise in consumption of for instance freezers and air cleaners. In Italy, and all other countries, a significant shift in purchased goods can be observed (see figure 3).

In the same research, GfK also stipulates a boost in sales of tech items. These items were already in high demand, and sales continue to rise. Sales numbers in China show a drop in tech sales as the news on the coronavirus outbreak spreads over the country (see figure 4). This trend is followed by a strong increase as soon as the government puts into effect a total lockdown. The same trend is expected for countries in Europe and (North-)America.

This more pressing shift to ecommerce and the demand to act more flexible and be scalable requires organizations to invest in a rapid acceleration of the future. Make wise decisions on where your business should focus on. Respond on emerging trends like an increase in online shopping, and higher sales of products in high demand. This may open new doors for future business and an opportunity to reposition in the market.

Adapting your business model

During times of crises, bottlenecks of business processes are exposed. It offers organizations an opportunity to analyze what the (technical) shortcomings are. The coronavirus outbreak may lead organizations to implement fundamental and structural changes. Investments that were inevitable anyway have become necessary much quicker. Organizations need to rethink their mid- to long-term strategy and possibly adapt their business model so that it is less vulnerable to unanticipated crises. Those organizations that are not afraid to invest for the long-term and are able to turn the crisis into opportunity can become the market shapers and might even define the next status quo. In adapting your business model reflect on the things you have learned during times of crises:

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Those organizations that are not afraid to invest for the long-term and are able to turn the crisis into opportunity can become the market shapers and might even define the next status quo.

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Offices: if business has continued successfully while working remotely, why not encourage employees to work from home more often? As a result, are you able to cut down costs by minimizing the physical office space you need? What are the pros and cons of establishing a decentralized work model? Can you offer the required cyber security? What technology do you need to facilitate remote management, training and communication?

Ecommerce: should you reconsider to actively reassign offline investment budgets to a more sustainable e-commerce focused business? Are you embracing online shopping sufficiently to anticipate on future market demands? Do you have the resources and technology required to put more weight on online channels?

Supply chain: should you rethink investments in automated (planning) optimization software and other software? Can the use of data improve your decision making to increase your business’ efficiency? Can software and technology in warehousing and transportation reduce your business’ dependency on human resources?

Third parties and subcontractors: Are your able to smoothly cooperate with subcontractors and other stakeholders in times of unanticipated events? Do you have the capacity to quickly reallocate your resources when the situation calls for it? Are your partners sufficiently capable of scaling their activities to fulfill your demand? Is technology available to support you in cooperating with partners? Should you engage in new partnerships?

Stores: Do you have the tools and technology to prepare your stores to be cashless? Are you able to decrease human dependency of your business by launching for instance self-checkout desks? Is it worthwhile to make use of technology to understand real-time on-shelf availability? Are you able to immediately respond, for example automated replenishment, to unforeseen real-time stock availability?

To conclude

Crises when they occur have at least this advantage, that they force us to think. These words of wisdom from Jawaharlal Nehru undoubtedly strike home in times that we’re redefining the ‘new normal’. Once the dust has settled and organizations have found a way to cope with the most acute problems caused by the virus outbreak, they will have to anticipate what to do in various scenarios. There is no blueprint of how to act when the status quo seems to be left in the lap of the Gods. Data and trends might however give a lead in taking position in a restructured economy. Organizations will need to rethink their mid-to long-term strategy and adapt their business model so that it is less vulnerable to unanticipated crises. In the end, scrutiny will show that the coronavirus outbreak also creates opportunities to advance.

This is an article written by Joël Hogeveen, Business Consultant.

Our employees are encouraged to proactively think along with you to cope with the new challenges arising from the virus outbreak. If you have any questions, please reach out to your regular contact person at ORTEC.