Many retailers are bloated with excess inventory and, having lost weeks of sales, have started cancelling orders with their suppliers citing “force majeure”
By Devangshu Dutta
Oil shocks, financial market crashes, localised wars and even medical emergencies like SARS pale when compared to the speed and the scale of the mayhem created by Covid-19. In recent decades, the world has become far more interconnected through travel and trade, so the viral disease — medical and economic — now spreads faster than ever. Airlines carrying business and leisure travellers have also quickly carried the virus.
A common defensive action worldwide is the lockdown of cities to slow community transmission (something that, ironically, the World Health Organization was denying as late as mid-January). The Indian government implemented a full-scale, three-week national lockdown from March 25. The suddenness of this decision took most businesses by surprise, but quick action was critical to ensure physical distancing.
Clearly, consumer businesses have been hit hard. If we stay home, many ‘needs’ disappear; among them are entertainment, eating out and buying products related to socialising. Even grocery shopping drops; when you’re not strolling through the supermarket, the attention is focussed on ‘needs’, not ‘wants’. A travel ban means no sales at airport and railway kiosks, but also no commute to the airport and station which, in turn, means the businesses that support taxi drivers’ daily needs are hit.
A British retailer is filing for administration to avoid threats of legal action, and has asked landlords for a five-month retail holiday. Several western apparel retailers are cancelling orders, even with plaintive appeals from supplier countries such as Bangladesh and India.
In India, large corporate retailers are negotiating rental waivers for the lockdown period or longer. Many retailers are bloated with excess inventory and, having lost weeks of sales, have started cancelling orders with their suppliers citing “force majeure”. Marketing spends have been hit.
On the upside, interesting collaborations and shifts are emerging. In the US, Jo-Ann Stores is supplying fabric and materials to be made up into masks and hospital gowns at retailer Neiman Marcus’ alteration facilities. LVMH is converting its French cosmetics factories into hand sanitiser production units for hospitals, and American distilleries are giving away their alcohol-based solutions.
In India, hospitality groups are providing quarantine facilities at their empty hotels. Zomato and Swiggy are partnering to deliver orders booked by both online and offline retailers, who are also partnering between themselves, in an unprecedented wave of coopetition. E-commerce and home delivery models are getting a totally unexpected boost due to quarantine conditions.
Life after lockdown won’t go back to ‘normal’. People will remain concerned about physical exposure and are unlikely to want to spend long periods of time in crowds. Hence, entertainment venues and restaurants will suffer for several weeks or months even after restrictions are lifted, as will malls and large-format stores where families can spend long periods of time.
The second major concern will be income insecurity for a large portion of the consuming population. The frequency and value of discretionary purchases — including entertainment, eating out and ordering in, fashion, home and lifestyle products, electronics and durables — will remain subdued for months, both offline and online.
The saving grace is that for a large portion of India, the Dussehra-Diwali season and weddings provide a huge boost, and that could still float some boats in the second half of this year. Health and wellness related products and services would also benefit, at least in the short term. So, 2020 may not be a complete washout.
What now? Retailers and suppliers both need to start seriously questioning whether they are valuable to their customer or a replaceable commodity, and crystallise the value proposition: what is it that the customer values, and why? Business expansion, rationalised in 2009-10, had also started going haywire recently. It is again time to focus on product line viability and store productivity, and be clear-minded about the units to be retained.
Someone once said, “Never let a good crisis be wasted”. This is a historical turning point. It should be a time of reflection, reinvention and rejuvenation. It would be a shame if we fail to use it to create new life patterns, social constructs, business models and economic paradigms.
The author is founder, Third Eyesight