August | 2020
COVID-19 has made this year’s holiday season one of the most challenging in recent history. Retail landscape is disrupted in a big way, with no rules of the recent past applicable anymore. The machine learning/artificial intelligence prediction models that were trained on some assumptions do not hold the same degree of certainty in the new normal.
Previous recessions gave rise to e-commerce and new business segments such as off-price retail, we expect this pandemic to fasten adoption of new digital trends.
While safety and convenience are on top of the mind for consumers, retailers need to look at some recent trends and factors to be better prepared for the holiday season:
Customers will continue preferring digital channel even as stores reopen
It was assumed that digital surge was primarily due to impulse buying and closure of stores, but as per a recent survey, we see that consumers are still preferring to spend online with a 75% global year on year increase (See Figure 1) in digital revenue (US is not far behind with 71% increase)1
Figure 1: Surge in online shopping1
Looking at this data, we can safely say that we would see a sizeable increase in online shopping compared to last few holiday seasons. There are some obvious impacts of this change such as unprecedented online traffic and orders.
This should be handled by conducting performance testing and making sure that your applications will be able to scale to meet this demand. However, it’s not only about scaling infrastructure alone as this digital traffic would have downstream implications such as fulfillment, returns, labor as well as customer care centers to ensure expected customer experience. Also, this is the time to implement initiatives such as user experience changes, which will improve customer experience, and increase order conversions in turn.
Holiday shopping will start early
With holiday shopping being primarily driven by promotions and deals, this year we would see shoppers start to hunt for merchandise early. We can safely assume that they would start searching for deals early already exhausted by stock out experiences during current pandemic. One of the biggest factors would be that Amazon has postponed its Prime day and if it gets scheduled in September or October it would have big impact on consumer holiday spending with 39% of shoppers planning to start shopping for the holidays in October into early November, and 30% planning to start on Black Friday/Cyber Monday1.
Retailers should start at realigning their promotions to match an expectedly longer holiday season. Also, they should invest in making sure that they are able to provide localized and personalized promotions.
Both Customer & Product Mix would change
COVID-19 has enhanced the difference between customer segments. For some, its business as usual, while for others, it’s time to save and reduce purchases in the holiday season. Comfort of shopping online in the last few month has changed customer buying behavior and they are more comfortable searching across retailers looking for best-possible deals. 42% of customers think price is the key when making online purchase2. This means retailers need to make sure that they can provide personalized offers to customers.
Under normal circumstances, retailers would place procurement orders for holiday season by end of June or July, but this year, due to uncertainty in demand, many retailers have cancelled their orders or not placed them as they are still trying to figure out the right assortment mix. At the heart of this is customers’ preference to shop online. Another factor to consider is that many gift purchases would get directly shipped to recipients to avoid exposure. This, in turn, means that people would be gravitating towards merchandise that are easier to buy online (for example, gift cards) compared to products, which need to be looked at in person before gifting.
Since stores have become pivotal node in online order fulfilment, retailers need to look at how they need to alter in-store product assortments based on reduced in-store demand.
Stores will become important part of fulfillment strategy
Many retailers had started making stores an important node in fulfilment strategy during last holiday season but most of them were experimenting with ship from store or store pick up. In the last few months, we have seen accelerated adoption of contactless curbside deliveries, both by retailers and customers alike. This not only helps meet customer expectation of quicker order fulfillment but also allows retailers to cut down shipping costs by passing on some of it to customers. What is interesting to note is that 54% of customers look at product availability at nearby store and 41% prefer to use Buy Online Pick Up in Store (including curbside) for their orders3. This has large scale impact for retailers namely:
Retailers need to scale up last mile delivery options
With traffic moving from in-store to online, we recommend retailers should start looking at options to enhance last mile delivery. Traditional carriers would run out of capacity and this would mean many unhappy shoppers. Not only that, as we get closer to the holiday season, any additional capacity would come at a premium and if retailers do not act now, they would be looking at increased operational costs. There are alternative ways of enhancing last mile delivery capacity, some of them being:
Planning of time, training associates and providing them the right tools such as order scheduling and route optimization would help prevent delivery delay issues.
Retailers should dial up efforts to control shipping costs
Retailers will be under tremendous pressure to provide free and fast shipping options to the customers. In the past holiday seasons, many retailers suffered margin erosion due to free shipping.
39% customers wanted faster deliveries even before the world was hit by COVID-19. Post COVID, customer expectation of fast deliveries will only increase. Although retailers might give curbside and store pickup options to the customers, not all customers would opt for these options and few might want retailers to ship the items to their homes. Moreover, all items will not be available for pickup and retailers will have to ship those items to the customers. Hence, controlling the shipping cost will not only safeguard the margins but also allow retailers to sell more items during the holiday season.
Retailers can control the shipping cost by mapping the demand geographically and allocating the inventories in nearby stores. Here, the retailers with larger footprints across different geographies would have an advantage by providing the right product at the right place. As stores will have restricted traffic, retailers can use some stores or part of the stores as mini distribution centers. As stated earlier, retailers should also incentivize customers for store pickup and curbside pickup. For the items that are not available for pick up in the nearby stores, options such as buy online and ship to store should be used extensively.
Adapting to the new normal
While we cannot predict what would happen in the next few months but what we are sure of is that we would be having a very different holiday season. Therefore, it is important for retailers to adapt, prepare and build for success, knowing that stakes have never been higher.
References:
Faraz Ghani
Managing Consultant in Global Consulting Group at Wipro
Faraz Ghani is a Managing Consultant in Global Consulting Group at Wipro, focusing on digital transformation in the areas of Store Operations & Supply Chain. He has over 13 years of global experience in omnichannel retail & mobility. Faraz is currently helping a large US client build the store of the future. He can be reached at faraz.ghani@wipro.com.
Yogesh Meshram
Principal Consultant in Global Consulting Group at Wipro
Yogesh Meshram is a Principal Consultant in Global Consulting Group at Wipro. He has 12 years of experience in Supply Chain and Distributed Order, and Inventory Management and Optimization. Yogesh also has experience in using machine learning to solve fulfillment and allocation problems. He can be reached at yogesh.meshram@wipro.com.
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