In this context, we can clearly see the impact of coronavirus disease on the “customer interface” organized retail business across the world and more challenges in Retail Business Post COVID-19.
The COVID-19 impact will be a game-changer for organized retail including high Street stores and Mall stores.
The way a retailer uses to approach the retail business on a usual basis will see a huge change in terms of day to day operations.
The future from here onward is not easy to predict for the retail industry and a lot of market survey reports are looming around on the internet showing probable changes for brick and mortar small shop retailers.
Though retail has many important aspects which have various dynamics, one single viewpoint for the segment will not grind the true crux.
In this article, we will discuss the major 5 pillar aspects of any organized retail business and the expected challenges and impact for retailers in the coming times.
Cash Flow & Working Capital Effect: The major challenge for any retailer is to manage and maintain the cash flow and requirements in these times. As retail success is fundamentally based on the quick and multiple rotations of working capital, which is stock, and clearly the inventory situation at various point of sale basis trade is going to disturb Capex rotation in a substantial way. Moreover, staff salaries, vendor payments, and tax filing will also be a nightmare for retailers and will affect cash flow rotation in a precise way during Retail Business Post COVID-19.
Retail Sales Mechanism: The result of this pandemic on mono-brand & lifestyle stores as compared to essential trade shop setups, including malls, is going to be very different and more direct because of straight but below in line of demand hierarchy.
Inventory Supply & Demand Effect: As manufacturing is almost at a halt for various product categories. Some of the categories would be affected by the inventory pile-up situation due to the extended lockdown such as fashion, electronics, luggage, footwear, etc., several other categories force to end up into major supply issues and therefore stock out conditions.
Staff Management & Skill Set Requirement – Your staff plays an important role while attending customers or maintaining the store in a day to day practice. There’s a lot volatile about how the world will transform after we get the Covid-19 disaster under control, but it is very doubtful that things will just go back to the way they were earlier. Our place of work and attitudes are likely to change, and with it, the skills set which new normal will require in retail business Post COVID-19.
Shopping Behavior Effect: Panic buying observed for daily consumption of essential items. Yet, essential items have various categories and the consumption of these is not constant across the entire portfolio. The parallel is the situation with lifestyle products and high ticket items, like fashion, electronics, luggage, automobile, etc. Some of them might even see a spurt in sales when the time comes while many categories might witness Lukewarm sales sentiments even further as long as 12-18 months.
Impact on Key Retail Segments
The impact of these above process variables on the key segments of the retail Business Post COVID-19 market expected as follows:
Daily needs Mom & Pop or the Small Grocery Stores
- The impact on these sets of shops will be minimal and even expected to be positive to a point, as major hypermarkets, shopping complex & malls will be closed due to lock down and again consumers will reach out to them for all the basic needs.
- The business model has a tight OPEX and a strong base of regular shoppers stays nearby and in reach.
- With the positive supply side, these shops might even see growth in footfalls and business.
- Being multiple “Distribution model strategy” focused supply chain, this segment might not face major constraints related to stock availability since it holds a majority share of the retail sector.
- Grocery stores also get saved from offering rotational credit to a large extent in this time which they actually are known for.
- The only disadvantage might appear with them is a cash-flow rotation crisis as mostly this segment deals in cash & carry model in the entire value chain.
Large Format Stores (LFS/Super Markets)
- Standalone Large format stores like Supermarkets have a comparatively minor impact because they are mostly selling staple products at large and just saved being present on high street.
- But, hypermarkets are facing the major wrath of this lockdown because most of them are in malls.
- For both of them, much higher inventory levels will be a serious issue, provided the health of sales rotation cycle, which is in trouble for sure.
- In the perishable item division itself, many products with shorter shelf life like dairy products, juices are going to expire and might have to be written off from the books.
- LFS are dealing mostly with cash and carry purchase, returning these items to vendors is not even possible to a large extent.
- LFS’s profitability is at great risk due to halt in secondary sales of the higher-margin categories like apparel in the lockdown and might have even lower sales post the lockdown period.
- The inventory of numerous other categories like Bed & Bath, Apparel, Footwear, Artificial Jewelries, etc., in a hypermarket, would have to be liquidated with massive discounts just to cover the cost and to save absolute margin to run opex.
Consumer Durable Stores
- These retail stores expected to face solid sales paucity.
- The loss of sale from the seasonal high of certain categories linked to summer-like air-conditioners & Air coolers.
- One Positive, boost in the sale of Dishwashers & Washing machines as domestic help is nor around and workload is more on the home members.
- The supply chain vulnerability that manufacturers would face because of disturbance from paucity in transport vehicles & country lockdown.
- The major challenge for CD retailers is to tackle the shopper behavior tendency of delaying high ticket purchases in a time of uncertainty and pessimism around.
Garments and other lifestyle stores:
- One of the biggest challenges for these retailers is going to be pile-up stocks due to lockdown.
- The prevailing carryforward stocks from the previous seasons and above the summer collection merchandise would put great pressure on these businesses.
- Physical stores would have to liquidate stocks of the previous season to create space for fresh stocks.
- End of season sales and even huge discounts might have a poor effect on sales going forward because of the existing Lukewarm market sentiments.
- Garment/Apparel as a category can hope to escape this sourcing “situation” of china supplies to some extent as a lot of products are being sourced from Local vendors based out of Tirupur, Ludhiana, Bangalore, Gujrat, etc.
- Discount formats like factory outlets will get an advantage as they would be able to buy inventory at off-the-cuff prices as their shoppers are hanging by low rates and not the most recent fashion trend.
Possibility of Revenge Shopping Behavior in Lifestyle category
As the nation stays under very nearly a 100-days lockdown now due to the coronavirus pandemic, shopper behavior is required to experience significant changes when the economy at long last comes out of a shutdown. Recently millennials specifically are probably going to enjoy ‘Revenge Shopping’ to compensate for not having the option to buy during the lockdown. “At the point when the economy opens up, the underlying customers will be twenty to thirty-year-olds going for ‘Revenge Shopping’. Further, there will be other behavior changes also with the explanations behind shopping and going to shopping centers & Malls expected to experience critical alterations regards to customer buying behavior.
Lastly, below is the possible shopper and buyer attitude after the corona scare is over or at least is reduced:
- The aspect of liquidity (Money) in hand, which is critical for retail.
- The shopper’s preference, of online Vs offline.
- Shoppers preference, of High Street Vs Malls.
- Hygiene factors in the retail shops will play important role in the sales conversions as most customers will be more aware of their health while shopping in an ant store.
- There is a word of caution to retailers in terms of maintaining sufficient hygiene standards, especially the lifestyle formats where the gathering will be at large once things get normalize.
- The integration of Social Media by retailers to promote the business.
In summary, we do see a short term expected slowdown in demand to the particular retail sector like lifestyle, but essential categories end up keeping business intact. This is completely reliant on shopper sentiment not being hit by salary cuts or further job losses.