Video: How Retailers Are Pivoting During the COVID-19 Crisis

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Over the past few weeks, we have all been grappling with an incredibly volatile worldwide health crisis, whose effects are being reflected in the economy, consumer behavior, our daily lives. Retailers have had to adapt to this environment which changes almost daily, and many have expressed a desire to hear from their peers and industry thought-leaders to help them navigate. 

In the spirit of listening and sharing back, Narvar conducted a retailer survey in collaboration with Sucharita Kodali, VP and Principal Retail Analyst at Forrester. We share some of the key findings — and how to make them actionable — in this conversation. A few topics we touch on:

• Retailer sentiment as indicated by sales forecasts and predictions for how long it will take to get back to normal.
• Some of the creative ways retailers are adapting to the changing circumstances — and some of the tactical challenges they are facing.
• A look beyond the immediate crisis to understand what behaviors are most likely to be carried over into the new world.
  

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FULL TRANSCRIPTION

Amit Sharma:

Hello everyone. My name is Amit Sharma. I'm the founder of Narvar. We are a SaaS tech company and we focus on global brands and retailers in terms of driving their customer experiences and operational efficiencies for their ecommerce channel.

The world has seen a dramatic change in the last couple of months. I know retailers are also seeing a lot of things have changed and are adapting to these new circumstances. In the last few weeks especially, quite a few of our customers have reached out to us trying to get some data and insights, like how should they be managing these new realities. And what we decided for us to be a lot more relevant and actionable, is to get a pulse from our retail community. We have over 600 plus customer base, so we thought at least we'll do a quick check-in and get some more data points so that we can be relevant in terms of sharing all that insight with the community. In order to do that, we partnered with Sucharita and we just completed our survey last week, and today we're going to share some of the insights that we have captured and we'll publish all the data.

Welcome to the session and thanks so much for partnering with us for this survey.

Sucharita Kodali:

Oh, of course. Thank you, Amit. This is such an important issue for the entire retail industry. So to be able to understand what's happening is, I think, is on top of everybody's minds right now.

Amit Sharma:

Right. And those who don't know Sucharita, she is one of the most trusted voices in the retail industry. And what I really enjoy most, actually two things, Sucharita: you lead with data and insights, but more importantly, you bias towards action and you share that with a lot of conviction and with the context and the immense experience that you have. So I really appreciate you collaborating with us on this survey and taking the time to join us in this session today.

Sucharita Kodali:

Oh, well thank you Amit. I appreciate your kind words and you've done great things for your clients, too, and I want to make sure that you're able to continue to do those for your clients.

Amit Sharma:

Absolutely. So let's jump into some of the questions that we asked on the survey and want to get not only the responses that we received, but broader context that you can share with retailers and brands. So I know overall, as we all are still in the thick of it, retailers were asking how far they can predict and forecast how long it will take us to recover from the impacts of COVID-19?

Sucharita Kodali:

Well, one of the questions that we asked in the survey was very specifically related to, well how long do you think it's going to be before things return to normal. And the plurality of respondents - actually the good news is - think that it will be within three months, which would be probably the beginning of the summer. The rest of the survey respondents however, think that it could be many, many more months longer than that. And, in fact, 15% of the respondents actually think it would be between six months and a year and 8% of the respondents thought it would be more than a year, which is pretty grim.

When we looked at the data from the standpoint of apparel merchants, which as we all know, have been particularly hard hit, they're even less optimistic. When you strip away all of the non-apparel merchants, their average time for thinking about the timeframe for recovery is probably going to be closer to six months. So it varies depending on who you ask, but certainly we're talking about months long, and a significant percent of retailers thinking that they're in this for the long haul.

Amit Sharma:

Yeah - so you've called out that, especially for apparel category, they're looking at 6 months to 12 months. What is so unique for the apparel category where they are a lot more pessimistic compared to the rest of the categories?

Sucharita Kodali:

Well, the significant thing, I think that a lot of the respondents - in fact, a significant portion of the respondents and in this survey - 50% of them were omnichannel, so they had a physical store presence. Anybody with a store, unless you are a grocer, is going to be very adversely affected by this because you've been forced to shut a significant number of your stores. Those dollars essentially go to zero and we still don't have ubiquitous curbside pickup and these omnichannel programs to still allow these local stores to salvage some of their transactions. I actually talked to a retailer the other day where they are trying to figure out if there's an opportunity for them to put some of their in-store inventory online, and they don't have a way to easily scale that at this moment in time.

They were doing in store pickup for inventory that was locally available, but they weren't shipping ecommerce orders from their stores. And that's really what these retailers want to do now to try to cycle through some of that inventory. They're not necessarily - I mean these are some large department stores, too - and they're not equipped to actually execute that. So when you look at how long it's going to take them to recover, making up those lost store sales is going to certainly be a huge factor. And then you just have lags as well. Even if we lift social distancing, if consumers have agoraphobia, or they're nervous about going out, or this permanently and negatively impacts their willingness to go to stores, it could be months after social distancing is lifted before we have that return to normalcy.

Amit Sharma:

Yeah, that makes sense. And as I was listening to you, I also realized that it's not just the inventory which is stuck in stores, but from the open-to-buy process, if those orders that I know are put in place for spring or summer season, that's also stuck in their supply chain. So they don't have that much wiggle room to adapt and respond to these circumstances, which also is a pretty grim story for department stores and apparel category from that perspective.

Sucharita Kodali:

Right, right. Absolutely. I mean there are all kinds of issues with cash preservation at this moment in time. I've heard that they're trying to cancel orders where they can, but the operative part of the expression is ‘where they can’. In some cases they're not able to, or they may try to extend their terms with suppliers. We're hearing a lot of that too, where they're just saying, look, it's going to take us longer to get you cash back. And these are all the things that are sort of these acts of desperation to try to preserve capital.

Amit Sharma:

Right. And then one of the second questions that we asked on the survey was around, how are you changing your forecast for the rest of the year? And then we also got some of the sentiments that reflected how they're lowering in their forecast. So what did we see in the survey on that question?

Sucharita Kodali:

Well, not surprisingly, we saw a significant portion of respondents decreasing their plans by double digits. So the magnitude of what I want to mention is 20% of the respondents said that they're reducing their plans by 25% or more. So very, very few - really the only ones that would be increasing their plans -  may be in the food sector or certain suppliers to grocery and food. But for the most part we are seeing significant declines and collectively we had almost half either planning down significantly, planning down somewhat, or for now keeping things flat and they're more in a wait-and-see type of environment.

The other piece that I thought was really interesting from the data is that we also asked the follow-up question around whether or not ecommerce is going to make up some of that delta. And while I think that the prevailing narrative is that, oh, people are going to be shopping more online versus offline. Retailers were not as enthusiastic as you would think. And this is even in spite of the fact that half of the respondents were store retailers. And we know that apparel already has pretty strong ecommerce penetration, but a lot of the respondents only thought that ecommerce would do a little bit better than the rest of the business. So what that tells me is that we're going to have significant declines across the board because ecomm is not going to pull anyone out of the hole that they have been in as a result of the last few weeks, in the coming next several weeks.

Amit Sharma:

Yeah. I mean, you know, ecommerce will play a role, but it will not change the overall consumer sentiment. And in your work, you're also not going to just look at the retail sentiment, but even consumer sentiment, especially in the luxury category, some of the discretionary spending in those categories is down. And some of that was also reflected in our survey and that's in line with some of the consumer sentiments that you've been tracking as well. Right, Sucharita?

Sucharita Kodali:

Right, right. And the way that I look at it is that there are four important sectors of the consumer base to look at. Consumers who are purchasing more online right now, consumers who are purchasing less online, consumers who are purchasing in stores more, and consumers who are purchasing less in stores now. And almost across the board, all of those have changed in double digit proportions. So while you certainly will see some segments purchasing more, you have a lot of people who are extremely apprehensive and purchasing less and when you balance all of that out, that's where you get the GDP contractions that we are hearing about and where you get a lot of the anxiety in the numbers. One of the parts - I think we all know it in our guts, but it hasn't been explicitly said - is that you'll recall in 2008 during the last recession, the expression that was very common is this is the worst economic downturn since the Great Depression.

Well, the data points now from consumers tell us that this is an even worse economic downturn than 2008 and that was supposed to be the worst thing since the Great Depression. So what we have here is essentially the worst economic downturn since the Great Depression. And I've even seen some news reports that suggest that in some parts of the country, in some sectors, this may actually even be worse than the Great Depression. So this is absolutely what you see reflected in the numbers and why, even in spite of the fact that ecommerce is the channel that is in fact staying open for a lot of retailers, it is one that you're still seeing contraction for some segment of consumers and the spenders are not overcoming the consumers who have scaled back their spend.

Amit Sharma:

Right, right. And it is happening so fast and quickly. Retailers are not able to keep up with the actions they can take and respond given their operations, their supply chain and their infrastructure at the same pace. But we are seeing like one or two small actions that retailers are taking to adapt or at least be responsive. What are those one or two things that we were able to capture in the survey that retailers are doing to respond to these circumstances?

Sucharita Kodali:

Well, certainly some of the actions are more overarching and it has to do with larger capital investments and contracting some of the things that are probably larger issues that were on their to do list. It could have been related to POS overhauls or revamping their distribution centers or instituting some kind of major investment. So certainly putting some of those cash investments or some of those larger kind of investments on hold is part of it. But then there have also been some tactical measures as well.

I referenced earlier that we had a number of omnichannel retailers who had not put in curbside pickup. But with respect to what can you do, that is absolutely something that a few retailers here and there are investing in, is, let's try to leverage these physical stores. Let's make sure that people, to the degree that we can, know that they're open for business and they can have some kind of a touchless way to complete that transaction and still support that local store. So that's certainly something that we're seeing.

We are seeing some retailers adjusting things like their marketing and really rethinking what are the right channels that they need to connect with existing customers or in some cases new customers if they have the appropriate products to position to those customers. And a lot of retailers have also adjusted their returns policy. And what's interesting is it depends on the kind of retailer that you are. If you are a grocer, you tend to have a stricter return policy because you know that people are hoarding. And if you are an apparel merchant and your stores are closed, you tend to have a more generous return policy where there are almost indefinite extensions for accepting returns at a later date. So we're seeing things kind of all over the board in terms of what people are throwing against the wall. But also keep in mind this is all still so young. Most of the social distancing efforts really only started in earnest in mid-March and we're only a few weeks beyond that right now.

Amit Sharma:

Yeah, you're right. And as we talk to retailers and look at a couple of areas - as you mentioned, curbside pickup - we're also starting to see retailers are thinking about if there is a fundamental consumer behavior change, how do they put a little bit more in management on even local deliveries? If they're not coming to stores, curbside is great, but if I could just go deliver, how do we ramp up some of the local deliveries? So there are some of those interests that are coming in that area.

Amit Sharma:

But overarching, as you are saying, if you look at and talk to multichannel retailers, stores were comparatively more profitable than the online channel. So even if you take a longer arc, there is a lot of focus even going forward, even if you're a department store or at a wholesale channel, how do you think about item contribution margin and profitability because that's what these companies have to start thinking about? You mentioned returns - we will do a full segment on returns because there's so much cost - an inventory dollar gets associated with that and that's something that retailers are taking a little bit more seriously now and making sure that they have all the options for managing the returns because customers now can't walk into the stores and make returns immediately.

Sucharita Kodali:

Right, right. And whatever one can do to reduce that cost of operation is a good thing. And we have talked a lot over the years about how do you make returns a better experience, especially knowing that in a lot of categories returns are just inevitable for ecommerce purchases. And that's where things...returning to alternative destinations or clustering the returns or allowing for exchanges. Some of these are all ways to try to salvage sales and help reduce returns as a cost center.

Sucharita Kodali:

Another factor of course now concerns the merchandise and whether or not it's actually in saleable condition afterward. That's part of the reason that you've had a number of merchants, like for instance in food, that won't even accept returns now for hygiene purposes. So there are a lot of things that retailers need to carefully think about and it's going to vary from category to category, what the right approach is. But across the board, just helping to better manage that.

I mean, one of the things that we'd always talked about with respect to returns, especially now where there are always going to be questions from a customer service standpoint is just providing visibility, right, into where in the returns process that return is. Because one of the single biggest reasons that people call is they want to know the status of their refund or they want to know the status of their shipment. And if you can avert those contacts, especially now, when you have fewer people managing that you're able to allocate to the call center because so many people may be on furlough, the more that you can provide that self-service, the better.

We're definitely seeing, even from the survey, a lot of retailers saying that they're having challenges with some of their hourly workers coming to work, and the degree that you can create self-service. That's a good thing.

Amit Sharma:

Right. Well, one final question for you Sucharita. Seeing all of these things, if you were to predict one or two services that are going to pick up more in the industry, what are the two things that you see that are going to have more adoption, either in terms of retailer offerings or consumers are expecting from our brands and retailers?

Sucharita Kodali:

Well certainly this seems to suggest, and we'd been on a trend where curbside pickup and in-store pickup has been growing anyway or even irrespective of coronavirus. But that is the aspect of retail that does seem to be accelerating more because people are okay with receiving...going to drive on the way somewhere or going to drive to a destination to pick up their transaction. Especially when they're already out doing errands.

We also expect some of these clustered delivery solutions to help also augment that. So, for instance, if you are a store that maybe you know is further from your customer base to increase your trade area, you don't necessarily need to incur the full expense of taking that item to somebody's home, but you can drive it closer to them and leave it in a consolidated pickup spot. You know, similar to like some of these clustered pickup points that like a Walgreens or a FedEx office may offer. That's where there's potentially some interesting traction there.

Amit Sharma:

I agree with you on the last point. Especially when we're going to see further store closures there, our retailers will have less and less store footprint. These collection points either for picking up your items or orders or returning your online returns, will become more and more mainstream. And we see that in Europe and Asia anyway, that the U.S. has been lagging behind. This will just further accelerate that option both for order pickup or returns drop off in a consolidated fashion.

Sucharita Kodali:

Right.

Amit Sharma:

Well, thank you so much for taking the time. I really appreciate it. I know our retailers and brands will really gain value from the insights that you shared in this session.

Sucharita Kodali:

Thank you so much, Amit. I hope that you stay healthy, everyone at Narvar is healthy, and all of our listeners are healthy too.

Amit Sharma:

Yeah. Thank you. You as well.

Sucharita Kodali:

Thank you.