How the Pandemic Is Spurring Digital Transformation in Consumer Goods
There’s no question that the pandemic has been challenging for companies in the consumer goods sector in one way or another. Importantly, supply chain disruptions have sprouted up all over the globe, and 76% of businesses have had to reduce revenue targets by an average of 23%, according to Institute for Supply Management research.
Some sectors, such as household cleaning and frozen foods, have seen increases in consumer demand and have had to navigate the largely positive problem of keeping up their supplies. Others, however, have seen precipitous drops in sales and significantly decreased foot traffic in retail stores.
Much of this has to do with the accelerated jump to a mostly online world, thanks to COVID-19. Companies had to become flexible with product offerings and adopt digital-first strategies.
Companies who never thought they would go online now have to go online. While some retailers were prepared with an established online presence to meet with this new reality head-on, others have struggled. For instance, bargain stores such as TJ Maxx, which traditionally relied on brick-and-mortar locations to preserve their “treasure hunt” experience, now find themselves forced to consider digital transformation for the first time.
The entire consumer goods industry, in fact, has been forced into the digital age. For those suffering from limited cash flow, it’s certainly not easy to implement the required changes — but in many ways, this shift to an online world was inevitable. Consumers were headed online well before COVID-19, and now retailers have even more incentive to meet them there.
The pandemic forced everyone’s hand to digitally transform, and now it’s up to businesses to adapt to succeed.
How Businesses Will Adapt to the New Normal
At first, these changes felt like anomalies — waves that could be ridden to calmer waters not too far away. Now, however, after eight months and no clear end in sight, it’s apparent that these disruptions aren’t going anywhere any time soon and that companies will have to adjust to this new reality if they want to survive. That will mean adjusting to the new requirements of e-commerce.
Consumers are shopping differently, with more evolved journeys and expectations. They now demand more product personalization, which means that shipping completed products will no longer cut it. Instead, companies have to transport raw materials that can then be put together locally, dependent on individual customer needs. That requires a complete change in not just supply chain management, but also inventory management.
Most companies order products as much as six months in advance. Usually, most of those products would go straight onto shelves into retail stores. Now, however, with many stores limiting in-person shopping and a huge number of people buying online, that chain is broken. Add to this the various costly disruptions and bottlenecks in the supply chain, and you have a system in need of restructuring.
Prioritizing Investment in Digital Transformation in a Time of Crisis
For many consumer goods companies, the pandemic has become a liquidity crisis more than anything else. Building a new supply and sales strategy requires the investment of both time and money in transforming retail inventory management, warehouse inventory management, supply chain management, and more. But how can companies find the investment for a successful digital transformation when they’re already struggling with cash flow issues?
Depending on the business you’re in, that investment could be easier said than done. If you’re in the frozen food business and saw sales go up 94% at the height of the lockdown, for example, then you likely have the money you need to invest in e-commerce inventory management and everything it entails. If, however, you’re in a different industry, such as apparel, where revenue was down 45% from March to May 2020, then it won’t be so easy. For these sectors, you’ll have to figure out what to cut in order to invest in digital.
Ideally, you can obtain cash for investments from variable costs — stock buybacks, discretionary charges, bonuses, and the like. Depending on how much you can cut, these could potentially provide the funds to invest in the transformation of the inventory management process and e-commerce strategy. If not, then some fixed costs might also need to be cut, because these changes can’t wait.
Now is the time to go bold and invest in an online infrastructure that values personalization and customer engagement. It’s only through this that consumer goods companies can hope to weather not just this wave, but the ones that follow. This is a storm that could go on for a long time. It is possible to get through this, but not by relying on business as usual.