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ASCM Insights

Understand the Future of Retail

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In the early days of the COVID-19 crisis, before the World Health Organization called the disease caused by the novel coronavirus a pandemic, the first effects many seemed to notice were about consumer purchasing: People were stockpiling toilet paper and beans. The latter is a logical pantry staple if you’re planning to cook more at home. Toilet paper, on the other hand, was one of the first indications that consumers weren’t just preparing for a potential illness: They were panic buying. Consumers were worried about a sudden lack of resources.

Logically, we all know that COVID-19 doesn’t create an increased need for toilet paper; it’s a respiratory disease. Consequently, as toilet paper — along with household staples that do mitigate the spread of illness, such as paper towels, hand sanitizer and acetaminophen — began disappearing from store shelves, other shoppers began purchasing them too. They feared supply would be completely gone by the time they needed it.

In the ABI Research whitepaper “Taking Stock of COVID-19,” the authors note, “Both manufacturers and retailers need to develop prioritization plans for customers, potentially with set limits.”

Ananth Iyer, professor of supply chain management and senior associate dean at Purdue University’s Krannert School of Management, agrees that setting purchasing limits is an effective strategy. He suggests the following tips for combating the effects of panic buying:

  • Stop classifying customers as irrational; they’re making rational decisions based on the information they have and the store shelves they’re seeing.
  • Demand is increasing dramatically, but meet those demands anyway. Customer use might be increasing due to our recent lifestyle shift, not just a matter of stockpiling.
  • Assure customers that stock is available in the supply chain. Offer rain checks if a wanted item is out of stock. This will reassure customers that their product will be on the next shipment.
  • Shift to private labels if they’re more readily available. Having a less-desired brand on the shelf is better than having no inventory at all. Again, customers are less likely to overbuy if they see inventory available.
  • Commit to fair prices. Panic buying is often due to a fear of price-gouging. If retailers keep their prices steady, the customer has less reason to buy all the stock at one time.

Other experts have noted that consumer habits are contributing to short-term supply disruptions. Therefore, getting goods and food to stores as quickly as consumers are purchasing them is the first logistical problem.

A story in the Wall Street Journal outlines how food manufacturers are trying to expedite the process of getting their products from the manufacturer directly to the grocery stores’ storage centers, instead of stocking their own warehouses first, cutting down the time in transit. And retailers are ignoring years of data tracking customer purchasing habits and buying as much as they can, based on how much the manufacturer can produce and how many of their customers are now requesting the products. The just-in-time model grocery stores had practiced for years is no longer viable.

Undoubtedly, the increase in sales requires an increase in workers to meet that demand. Amazon announced in a blog post on March 16 that it was working quickly to meet increased customer demand. “We are opening 100,000 new full- and part-time positions across the U.S. in our fulfillment centers and delivery network to meet the surge in demand from people relying on Amazon’s service during this stressful time, particularly those most vulnerable to being out in public.”

Today, while the coronavirus has spread to hundreds of thousands of people, there are still individuals available to fill these roles, especially as restaurants, bars and other nonessential businesses are forced to close. However, if the virus reaches millions of people, and more are forced to shelter in place or even stay in quarantine in their homes, they will need an alternative to visiting the local grocery store.

A McKinsey report, advising businesses on how to adjust customer engagement in the time of the coronavirus pandemic, describes the increased need for e-commerce. “People have dramatically shifted toward online shopping and ordering for all types of goods, including for food and produce delivery. Companies should invest more in online channels as part of their push for multichannel distribution. The investment should include ensuring the quality and delivery of goods sold online.”

A March 21 letter from Amazon CEO Jeff Bezos said, “We’ve changed our logistics, transportation, supply chain, purchasing, and third-party seller processes to prioritize stocking and delivering essential items like household staples, sanitizers, baby formula, and medical supplies.”

Iyer suggests that small businesses, looking to compete with the big box stores, should consider their personal knowledge of their customers as an asset. They have a greater understanding of the customer’s intent, he says, and can stock their stores accordingly.

The McKinsey report also reminds businesses that, after the crisis is over, many consumers will not return to their pre-outbreak spending habits. For one, the economy will be a very different place, regardless of whether the stock market fully recovers. Many small businesses, forced to close for public health concerns, are likely to fold. Thousands of workers have been laid off and furloughed; even if the unemployment rate quickly drops again, service-sector workers may be more skittish about spending.

Secondly, depending on how long the period of self-isolation lasts — some epidemiologists are predicting 18 months of repeated periods of quarantine until a vaccine for COVID-19 is found — individual habits may change. Online shopping was already prevalent before the crisis; those shoppers who were still regularly visiting local stores may get used to buying their groceries, personal care products and medications online. Consequently, companies that have yet to invest in a mobile shopping app or a streamlined online purchasing experience should do so now.

In the ABI Research report, businesses are reminded, “To effect change, there must be stimulation of a magnitude that means companies cannot do anything but make bold decisions to survive.” As is clear from Amazon’s recent decisions, the major players in the economy are already quickly pivoting to meet current demands; now is the time for local and national organizations and supply chains to do the same, if there is any hope of weathering this crisis with the business intact.

In a webinar hosted by DHL and the Retail Industry Leaders Association, experts David Shillingford and Shehrina Kamal discuss how these consumer actions are affecting the supply chain today and will shape it going forward. They suggest that all the preventive and reactive measures retailers take now, including a move to online commerce, will be useful during future supply disruptions, such as hurricanes. It’s also a great lesson on the power of agility.

The main thing to keep in mind, however, is the health of the public, says Iyer. “Insufficient stock should be the least of any consumer’s worries, because we have an agile and efficient grocery supply chain that has fierce competition in most locations. This means that the entire supply chain is eager to satisfy demand, and it will flex to do so. Consumers should feel confident, and retailers have the opportunity to build goodwill by being partners in helping consumers deal with their needs.”

About the Author

Holly Poulos Freelance Writer

Holly Poulos is a freelance writer. She may be contacted at hollybpoulos@gmail.com.

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