Large parts of the economy have been put in involuntary hibernation. While some businesses can serve customers online, many have seen a significant drop in demand and had to close all physical stores. Over the last weeks, businesses grappled with the impact of isolation and dealt with the immediate effects on customers, staff and stores. While this has been an unprecedented and often difficult process, it is now time to plan ahead and prepare for the period after the lock-down.
Investing resource on pre-planning for the reopening of businesses will separate industry leaders from laggards. It is crucial to understand that this is not business as usual with a start after a bank holiday, i.e. after the Christmas & New Year period, but rather a cold start with a likely change in customer demand, resulting in stock and capacity being in the wrong place.
To serve customers as effectively as possible, it will be necessary to monitor and react to those changes. This starts with identifying key sales indicators before opening and creating action plans for varying scenarios. Businesses will have to think outside their standard processes to spot these trends and act effectively to achieve the best possible start.
Serving an altered customer landscape: Understanding demand changes
The lockdown has created four new customer segments that need to be considered during the first weeks after the lockdown, as each customer group has differing requirements. Identifying their needs and your ability to react to their requirements will enable business to maximise short-term revenue opportunities.
This phenomenon was also evident during the Financial Crisis of 2008-2010, where the economic downturn polarised in-store purchases. On the one hand, customers' reduced spending on essentials by opting for discount grocers (Aldi & Lidl), on the other hand, they replaced spending on restaurants with lower costs premium ‘treats’ at home, benefitting top-end grocers (M&S & Waitrose). It is also worth remembering that demand for SKU ranges changed with an increased demand for chocolate! However, we can not simply apply the same historic data from 2008-2010, but rather need to find a way to identify demand patterns early.
1. Reduced Income: The lock down has had a significant impact on a number of industries. Several sectors have seen these impacts, resulting in lost jobs and pay-cuts with limited opportunity for employees to find alternative work.
- This has reduced the spending power of a significant part of your customer base. This group is likely to curtail spending to cover essential purchases and will be looking for discounts & bargains.
2. Pent-up Demand: On the other hand, a number of customers will have had no change to their pay or had the opportunity to work overtime (for instance, workers in the NHS, grocery or logistics services). At the same time, they had limited opportunity to shop – only being able to use online purchases and having been prevented in spending money in bars, clubs and restaurants, leading to an increase in spending power and resulting in pent-up demand. This customer segment is likely to increase spending and will be looking for reward purchases after weeks of isolation. It will be key to serve these group effectively, as they represent the biggest opportunity to regain revenue.
- It is likely that this group will change its shopping behaviour, especially during the first store visits where they are looking to buy higher priced items as they will seek to increase their discretionary spend. Use your product segmentation to identify this demand early. Ideally, review sales daily to see changes in demand, allowing you to react early.
- Equally, it will be important to monitor the product categories that are in demand, taking regions and store types into account. It might be necessary to re-balance stock between stores to maximise revenue, as it is likely that stores will have different exposure to this customer segment. Review the categorisation of stores and analyse sales by store early to adjust replenishments. In-line with the product segmentation, it is likely that different store categories / regions have a varying demand for product segments.
- This group is also more likely to talk about their first purchase, creating the chance for positive word-of-mouth advertisement. After all, life in isolation has not been eventful for many, so this first purchase is likely to be a topic of conversation. Review what cross-selling opportunities exist – how can shopper visits be enhanced either during the purchase or how can this process be turned into an experience?
3 & 4. Restricted Movement: Both groups could still be restricted in their movement, either because they are among the 1.5m vulnerable or because restrictions will remain in place for specific groups for a longer time period. This will result in a lower store footfall, while demand for home delivery is likely to increase.
- Many customers were still able to place e-com orders during the lock-down, while product availability and delivery slots were often a constraint. To ease customer frustration, it will be important to reduce this backlog as efficiently as possible. Could you increase your e-com capacity by sending deliveries from your stores? This could include an initial manual process for products to be sent from stores to customers (if the functionality currently does not exist), which will allow companies to expand e-com capacity whilst utilising store inventory and staff.
- People in isolation will still fall under the two previous categories, carrying forward the segmentation. In addition, their demand will remain higher for home comforts and activities. Again, it will be important to identify these early to react to this demand (i.e. by altering pick position for these SKUs in the warehouse or freeing up store stock for e-com sales).
- This group will remain reliant on home-delivery as their only form of purchase. Therefore, it will be important to enhance the shopping and delivery experience (it will be a welcome distraction during a relatively boring period). Market leaders will enhance their packaging and content to create a better shopping experience, which will likely increase the packing and processing times of orders. Therefore, it is important to understand how much additional time is required and what capacity for e-com orders exists.
What does this mean for you: Simplifying your go-live plan
The changes in customer demand highlighted above require action to enable a quick and flexible response. By utilising key data points, either through existing Information Systems or through manual collection, companies will be able to react appropriately. Utilising a pragmatic approach for the first few weeks will unlock the highlighted opportunities.
- Getting to the information: Review how your existing reporting structures can identify the demand changes:
- Does your segmentation allow you to identify the key customer groups?
- Are you able to identify increased reward purchases and respective SKUs?
- Is your current store segmentation sufficient to understand the demographics for each local catchment?
Understanding how your data and reporting structure can identify these trends most effectively is important to allow you to react quickly. For the first few weeks it will be important to review these data points in a timely manner and challenge convention categorisations. If you have identified data gaps, try to pinpoint a proxy or manual process, i.e. by requesting feedback from a small number of stores.
- Understanding the art of the possible: Capacity constraints are likely to appear in different parts of your supply chain, starting from outstanding e-com orders, arrival of delayed deliveries and returns.
- Identify likely bottlenecks that limit your capacity and monitor these closely.
- Identify areas with likely spare capacity, i.e. sales staff & head office, and how they could ease capacity constraints
- Prioritise constraints early (e-com vs. store availability vs. inbound processing)
- Communicate, Communicate, Communicate: Employees will remain a key success factor for realising your strategy. Engage your teams early, ask for their feedback on your plans and ensure that everyone understands their tasks. This will not only ensure a successful execution but will likely lift your team moral as they can see the leadership taking actions to get back to business.
- Share your plan top-down and create a feedback loop for each level
- Filter feedback and update plans where possible
- Be clear and concise in your communication
- Communicate before staff returns to work
- Create a dedicated go-live team: The first operational weeks will require a hypercare period with support from senior stakeholders. This team should drive the strategic planning of the go-live process and remain responsible until the business can return to the normal operation processes. Many businesses are already using a similar process during peak trading periods, i.e. during Christmas.
- Ensure that information flows through this team allowing them to prioritise actions
- This team should be the key decision driver during the hypercare period
- Be mindful not to overstep to avoid demotivating the operational leaders
- Define clear operating processes and share them with your teams
- Hold inventory centrally: The first weeks will see varying demands in the retail network driven by a stores’ exposure to each of the four segments. This will result in significantly higher demand on some stores over others. It is therefore important that stock is held centrally and allocated based on up-to-date demand information
- Review, and if necessary, update, you stock allocation process day-by-day
- Prioritise stores based on current customer demand and footfall, not based on historic sales
- Work Collaboratively: Suppliers will face an equally unprecedented situation with less visibility of changed consumer demand. They will be relying on historic information to drive their decision makes. A close engagement will provide them with valuable information, allowing them to prioritise production based on demand patterns observed by retailers:
- Proactively engage with key suppliers and share demand information on relevant SKU lines actively and timely
- Communicate both, increased and decreased demand, to aid manufacturers ability to prioritise their productions schedules
- Review options of direct shipment from suppliers to customers to reduce overall order process times – this is an additional opportunity to temporarily increase your e-com capacity
Lastly, we should not forget that this period is temporary, and business are bound to return to a normal operating process. While many businesses have faced existential questions over the last weeks, the go-live period will be a key opportunity to re-engage with customers and create an on-going impression in your ability to impress. Equally, this time is challenging for your employees. A successful re-launch of your business will create a can-do attitude, positivity and loyalty within your team. This is a Carpe Diem moment, use the time to seize the day.