In the five weeks from March, Amazon added the value of Walmart, as the world’s largest firm by revenue. Netflix doubled its new subscribers, and 26.8m subscribed to Disney+ at record speed. Where all but non-essential businesses were forced to physically close, this digital-first pivot is now a prerequisite for building the necessary resilience for recovery and adapting to future disruption.
Accelerated shift to digital
If those that have made gains against the most challenging backdrop of 2020 were already winning with digital, COVID-19 also revealed the price of slow digital transformation and weak innovation.
Where shoppers have been hyper-focused on availability, businesses have wrestled with points of supply chain failure and an inability to align forecasts with rapidly evolving consumption habits. According to the ‘21/90’ rule, it takes 21 days to establish a new habit. By the first week of April, more than half of the world’s population were in lockdown that lasted months, or that is still in place now. The absence of (or inability to visit) physical sales spaces acted as a huge catalyst for online demand. US consumers, for example, drove ecommerce penetration forward 10 years in just three months.
A third of US consumers shopped for groceries online during the second week of March (double the rate of the previous quarter). But 41% of those surveyed also said it was their first time ever doing so. Further US consumer sentiment research found that 75% had tried a new shopping behaviour by August, while another 73% said they intended to stick with new products or services they’d tried. Amid such rapidly enforced change, many enterprise-scale businesses, heavily dependent on globally distributed physical operations and with scant digital business continuity plans, suffered.
A need to quickly digitalise physically reliant sales processes exposed structural faults in business models to the benefit of online intermediaries, such as Instacart, whose order volumes grew 150%. UK online grocer Ocado saw order volumes increase 60% and supported the successful ecommerce Marks & Spencer (M&S) food launch, despite – like others, such as Aldi – being late to the party.
The effect of social distancing and self-isolation measures also had a profound impact on foodservice activity. Demand for consumer-packaged products outstripped traditional wholesale, bulk supplies. In response, the likes of Deliveroo increased investment in ‘dark kitchens’, just as Amazon’s Whole Foods opened up its first permanent ‘dark store’ to service online-only grocery orders. Meanwhile, commuter and tourist-dependent urban centres became ghost towns, just as Zoom’s video conferencing app was downloaded nearly 27 million times in March, up from 2.1m in January.
People are commuting less while working from home. Start-ups and direct-to-consumer (DTC) innovators quickly capitalised on small store closures and big box out-of-stocks. The UK’s Stock Up Small brands directory grew to over 300 brands in one week during March, including Dalston's Soda Co., Joe & Seph's, and Real Handful Ltd, to offer delivery across the country.
Some grocers introduced ‘basics boxes'. Woolworths’ in Australia features only ambient products, enabling it to shift delivery to carrier partners and ease the burden on its own stores and fleet.
Even global consumer packaged goods (CPG) brands made DTC moves: PepsiCo launched a series of DTC sites, including PantryShop.com, selling bundles of juice and snacks, in less than 30 days.
Yet, as the pandemic exposed the structural weaknesses of traditional High Street retail models, it slowed the erosion of local economies, communities and services serving the elderly and vulnerable. Local services, like bars, cafés, bakers and convenience stores, came to their rescue. UK non-profit, click-and-collect platform, MyPubShop, enabled local retailers to continue trading, for example. But these temporary fixes only compound the risks that small, independent businesses lacking any strategic investment to harness such digital capabilities may not survive further disruption.
That was then, this is now
The far-reaching economic impact of the pandemic, much as less its effect on consumer behaviours, requires every business-to-consumer (B2C) operator redouble their transformative efforts with digital. While consensus estimates predict global recovery will be gradual instead of any rapid rebound, state-funded fiscal stimuli supporting household consumption still belies low consumer confidence.
Insecurity triggered by ‘The Great Lockdown’ has led to a 4.9% decline in 2020 global output and the worst recession since the Great Depression – with the IMF predicting only 5.4% growth in 2021. The International Labour Organization found working hours fell 14% during the second quarter (Q2) of 2020 – equivalent to the loss of 400 million full time jobs, with 305 million lost in the first quarter. Meanwhile, unemployment relief during the initial COVID-19 outbreak in the form of insurance and redundancy payments or state-funded furlough schemes temporarily boosted personal savings.
But, as such subsidies and job retention schemes end, discretionary consumer spending will come under increased pressure and put pressure on weakened infrastructures and support operations. This will force businesses already managing increased overheads to compete more actively on price and enhance decision-making insight to reveal potential savings by only streamlining the essential. Most have had to absorb the higher capital expenditure required to safeguard worker and customer safety, all while having to operate below capacity to service less profitable online sales.
Grocers, classified as ‘essential’ retailers, have been at the forefront of these trends, managing explosive ecommerce growth. But typical home delivery order fulfilment margins are still -15 to -5%. Also, as every business learns to harness more remote or distanced workforce productivity, lower office and business travel costs will also displace current real estate values and low-paid service work.
Even here, the knock-on challenges to the world’s service economy could be offset by a shift to demand for warehouse and fulfilment staff in the supply chain. Amazon alone has hired an additional 308,000 workers globally since March. But, where extended delivery hours may be here to stay, new implications for job creation, safety and welfare will also arise. Upstream of global supply chains, businesses must also address points of failure that led to the breakdown in production and distribution capacity meeting rapidly changing or rising demand.
Where hospitality closures meant less wholesale and more retail food and beverage demand, manufacturers moved production from larger, wholesale to smaller, household unit sizes and quantities. Working with retail and wholesale customers, most suppliers also had to bring forward inventory on-hand from local and regional distribution centres, in addition ramping up production capacity.
Distributors also worked to stretch logistics capacity by keeping trucks on the road longer: the US Department of Transportation changed its policy, extending permitted driving hours to 14 per day.
So, as businesses adapt their operations to meet these shifting demands in the near-to-midterm, they can take a number of strategic and practical steps to manage the challenges that lie ahead.
Learning from those that have and are winning with digital, only those not only using it to better serve customers but to also increase productivity and profitability, are likely to prosper. In this way, every business must refocus digital innovation towards resilience, minimise risk and optimise their response to the ‘new normal’.
The digitalisation of consumer touchpoints is making the ability to sell online a strategic prerequisite. So, businesses must introduce more digital automation and traceability across their operations and expose such capability to their customers.
But both business-to-business (B2B) and B2C operators must now also extend these digital transformation efforts to connect up every endpoint and process in their operational models and supply chains too. They must rethink the relationship between their physical and digital real estate; diversify and eliminate points supply chain of failure; and, reorient business strategies to be more customer-led.
In rethinking the relationship between physical and digital real estate, the pandemic has exacerbated business concerns that physical portfolios are overbuilt and underperforming. Many retailers, for example, are reassessing their optimal mix of physical space with online. Some are taking this opportunity to declare that some of the stores shut during lockdown will never reopen.
Property owners must attract corporate, residential, retail, leisure and hospitality tenants to more mixed-use developments, and realign portfolios with consumers’ shift from urban to local living. But those physical sales, and even office and manufacturing, spaces that remain will have to become more ‘intelligent’ with the introduction of more digital touchpoints that capture more data.
Data-driven insight on the worth every tenant, worker and visitor adds to the productivity of physical spaces will be key. Metrics such as dwell time and conversion rates can be factored into asset values. In the case of the store, showroom, site, outlet, or venue’s value, adding digital touchpoints can help measure the value of a B2C physical estate as part of its omnichannel multimedia assets.
When reassessing supply chain strategies, resource and supplier diversification and the elimination of points of failure must be priorities. The shift to online also requires intensive last-mile optimisation. Just as customer-facing touchpoints are digitised, so must those connections and endpoints that can facilitate real-time supply chain visibility at scale, and with more diversely located suppliers.
This increase in traceability and diversification of materials and goods sourcing must be used to better anticipate demand and meet peaks in supply, as well as omnichannel order orchestration. But only with intelligent, digitally connected and data-driven visibility down to item level will it become possible to harness just-in-time production and real-time inventory management benefits.
Building customer relations resilience
Supply chain transformation is pivotal to last-mile digital and physical distribution and fulfilment optimisation. This includes profitably scaling remote or home delivery, and collection demand. BMW recently announced, for example, it was overhauling its in-car digital systems to allow for in-car microtransactions, such as drive-assist features, much like smartphones enable in-app purchases.
This can also include virtual sales that make a business’s most valuable assets – its people – more productive. Livestreaming sales, for example, are expected to reach $135 billion by the end of 2020.
Indeed, using digital tools to empower frontline teams is vital, as a quarter of US consumers said a company’s treatment of employees has a greater influence on their retailer or brand choice this year. So, such optimisation also requires businesses rethink the role of digital in customer relationships and what the impact of this accelerated shift will have on business models in the long term. The rise of DTC brands, subscription services and live streaming testify to this shift. Then there is the emergence of internet-connected devices, managing their own servicing and auto-replenishment.
The Internet of Things (IoT) is at the forefront of digitalisation that is now leading the likes of Nike to offer augmented reality (AR) shoe fitting or Diesel’s virtual reality (VR) enabled shoppable store. As more digital information and services become available to augment our means of consumption, tomorrow’s winners will pivot to meet demand for what was once forced but is now habitual. However, using digital interactions to gain a better understanding of the most valuable customers will put a premium on owning and cultivating more engaging one-to-one customer relationships. In this way, commoditisation will be harder to scale, and businesses will have to differentiate beyond price. It follows that branding ‘with a purpose’ responds to an increase in ‘conscious consumption’.
In manufacturing and agricultural production, the development of Agri Tech IoT and Artificial Intelligence-based solutions is targeting supply chain efficiency and scale challenges. Connecting and aggregating farmers, suppliers and distributors’ information, as well as providing a direct connection to consumers, could be a game changer in the supply chain world of retail. In luxury and fast fashion, Selfridges’ ‘Project Earth’ sustainability and ‘circular economy’ initiative is leading with new sourcing policies and services, such as repairs and resales, as well as clothing rental. As consumers embrace the sustainability trend towards reuse and recycling, with Zalando recently launching a resale site, supply chain data visibility must also meet new social responsibility demands.
Following the customer means putting digital to work to better understand them, their needs and to find more like them. This can also guide better-targeted product, service and offer development. Together with superior supply chain execution, data-driven customer insight should also be brought to bear to unlock the efficiencies of global agility aligned with the demand for local execution. Partnerships will also be key – especially those that don’t disintermediate the customer relationship, so a business can understand its best customers – where data-based collaboration must be used to deliver new customer-centric measures and outcomes.
Most importantly, consider how to digitally transform products and services. Adapt ways of working in this new paradigm to avoid past failures due to outdated analogue management practices. Digitalisation requires as big a cultural reset in the boardroom as the pandemic has had on every other aspect of a business. This means rethinking the role of leadership and scope of governance. So, change must come from the top and empower those who understand the value of digital, where they no longer need to report solely to the chief financial officer. Technology leadership needs to be given a seat at the board room table.
The pandemic has changed the impact of digitalisation on strategic B2C and B2B priorities, where customer-centric, digitally enabled and data-driven transformation is now the key driver of change. Align future goals with winning digital models and characteristics – how revenue is generated, and innovation is funded. Only then can business build resilience to cope in the face of future disruption.