Looking Through a Global Challenge

By Ben Riggsby, Data Science Division Head

A New Challenge to Business will have Lasting Impact

The emergence and spread of COVID-19 has impacted more lives more quickly and deeply than any event in a generation. The underlying challenges of this tragedy are unlike any in our collective memory. Unlike a tornado or hurricane, the duration and ultimate penetration is unknown. Unlike a terrorist attack or military confrontation, we have to remain physically separated while we cope with fear and uncertainty; something that Americans are largely unprepared for. How we shop and how retailers deliver is relatively insignificant in the grander scheme of things but it is reality none the less.

In mere days, COVID-19 has radically shifted how we obtain and provide necessary goods and services –in this moment in time there is a critical demand for N-95 masks and ventilators. These are urgently needed by our health care heroes. In addition, our society has panicked and strained our supply chain and depleted supplies of toilet paper, pasta, and even pet food. The unknown, lack of preparation and panic lead to “stress”, personal, financial, physical, supply chain, raw materials, governments, etc. The pandemic and related stress has disrupted our entire lives.

In addition, vast swathes of retail have closed indefinitely. Essential goods providers have moved to online models or delivery models virtually overnight. Automation – both consumer facing and behind the scenes in supply chain—has given retailers more secure options. We have rallied around critical services providers, isolated ourselves for the protection of those more vulnerable, and adjusted our habits with only a moment’s notice. We are an incredibly resilient society and are driven deep from within to OVERCOME. Our history has countless examples of this triumph, and we will overcome our current COVID-19 pandemic. The solutions that we devise in the process will far outlast the pandemic. During these times, we become more united, driving creativity and change. Many of these creative ideas will stay with us as a society, they will make us better, they will forge new channels. So, when COVID-19 is resolved, how will retail have changed?

The Shock to Retail Dynamics

Everyone has seen some impact of COVID-19 and social distancing to the retail experience. Depending where in the country one lives, one may have been under a lockdown for weeks or simply can’t find hand sanitizer on the shelves of the local store. Some contact-intensive industries have seen unprecedented revenue declines in the last month; reflected in huge loss of market capitalization. For example, major travel booking companies Booking Holdings and Expedia have shed nearly half of their share price—billions in market cap—as travelers stay off planes and cruise ships. Dine-in restaurants have been particularly hard hit, with reservation app Open Table reporting a 42% decline in tables booked in just two weeks. Likewise, movie theaters, sporting events and concerts are all but completely paused. According to IBISWorld, we should expect a 25% drop in consumer confidence in the next two months reflecting the uncertain view most Americans have .

Despite these examples, an unprecedented spike in unemployment, and a potential economic recession, some sectors have flourished. Online communication tools, for instance, have allowed millions of Americans to continue to work collaboratively without interacting physically. Zoom Video (ZM) and Citrix (CTXS) have seen more than 60% increase in market capitalization since March 1st. Even the new cannabis industry is getting into the act with delivery services reporting 250% increases in revenue driving actual increases in total sector revenue. In retail, online and delivery providers have exploded even as their supply chains are shocked by the virus. Grocery delivery facilitator Instacart has announced plans to hire up to 300,000 new workers to keep up with tens of millions of additional orders. Fellow delivery services Shipt, AmazonFresh and FreshDirect have likewise signaled major service expansions in the face of COVID19. Grocery stores themselves are struggling to keep up with demand as American shift from nearly 20% of meals eaten out drops to almost zero. Walmart has announced the hiring of 150,000 employees through May. The modern economy has never seen such a dramatic shift in consumer behavior. We stay home, we communicate over video conference, our children learn through a screen, we shop online, we pick up our groceries curbside and prepare meals at home.

What Will Stick?

Some things are certain: the panic buying will wear off; we will endure the isolation and ultimately win. It will probably be a process measured in many months vs. years. Over that time, consumers will develop new shopping habits and retailers will wisely adapt to maintain their business. Supply chains will shift to support the new model. At the end of the journey, consumer psychology will feel a lasting impact as well. Fundamentally, what changes to the marketplace should we expect to see a year or more from now?

According to DigitalCommerce360, ecommerce was already 16% of total retail in 2019, its share up more than 10% from the year prior. Undoubtedly, that trend will accelerate in 2020 and bring with it more of the disruptions that we have seen in traditional retail as more brick-and-mortar retailers lose the revenue needed to keep up with fixed costs. The grocery trends that we are seeing now will probably persist for at least the medium term. Many small restaurants will never re-open, and rebuilding the industry could take years. More people will eat from home, and curbside or home delivery of groceries and take-out will be the norm.

Certainly, as this massive disruption plays out, the trend of increased automation will accelerate. Supply chains will change and give an opening to replacing more workers with efficient robots. Retailers will look to automation to extract vulnerable staff from the front lines, leading to more self-checkout and automated kiosks. The goals of minimizing risk, person-to-person exposure, and increasing efficiency will drive the way we find goods and services going forward. Retailers that have an appetite and capability to adapt and morph will have a competitive advantage as we emerge from this crisis.

The Opportunity for Change

Smart businesses will, as they always do, evolve through these changes. Many businesses have already made monumental leaps to adjust to the new normal. Once they have implemented emergency measures to protect their employees and address short-term financial challenges, leaders should reevaluate their long-term strategies to account for the coming wave of consumer acceptance to new technologies and practices. Moving towards those sectors and methods that will be with us in the long term is critical. How can your business capitalize?

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