The COVID-19 crisis has become a global pandemic. Governments throughout the world are taking extensive measures to handle the outbreak. Factories in China are affected by lockdowns, and shipping times of goods increased significantly due to more rigorous border checks or even closed borders. Both aspects are causing disruptions in global supply chains. In Europe, curfews and store closures are already threatening the liquidity and existence of retailers, even though the European retail sector is only right at the start of the COVID-19 crisis. In order to understand and quantify the potential impact of COVID-19 on the European retail industry, an analysis of the Chinese market offers some valuable insights.
As of February 2020, total retail sales in China had plummeted across a number of categories: apparel & footwear (down by 33%), home & furniture (-34%) and electronics (-20%) were among those categories hit the hardest. At the same time, grocery trade experienced significant growth (up by 10%), while the online food and grocery channel fared particularly well (+26%). It remains to be seen whether the pandemic will hit European retailers, especially in the fashion, furniture and electronics sector, equally hard and cause unprecedented disruption.
The severity of the COVID-19 impact depends on two primary factors: the category focus and the sales footprint of the retailer. While non-food retailers are experiencing store lockdowns with severe revenue losses of between 70% and 100% during this period. At the other end of the spectrum, food and grocery retailers are trying to deal with panic buying. Consumers are hoarding daily essentials such as toilet paper, while supply chains are disrupted and grocers are struggling to stabilize their operations.
Brick and mortar retailers have been severely affected. They are facing a sharp decline in sales due to lockdown restrictions. Those pursuing an omnichannel strategy are struggling with the rapid acceleration of online growth and are placing their E-commerce operations in crisis mode.
Although pure E-commerce players, such as Amazon, are capturing some of the lost brick and mortar sales, they are also struggling to cope with sudden changes in the pattern of consumer demand, such as a sharp spike in demand for health products.
The question arises: How will traditional bricks and mortar retailers with less developed omnichannel capabilities in the fashion, furniture or electronics industries, emerge from the COVID-19 crisis?
We believe that E-commerce will continue to grow for the majority of online retailers in Germany even in the aftermath of COVID-19, since consumers will stay with the online channel after the crisis.
In particular, home & furniture, electronics and health & beauty retailers will experience a continued increase in the online share of their revenues as a result of the switch from offline to online consumption during the COVID-19 crisis.
In our view, the COVID-19 crisis should be approached in two ways: first, retailers need to decide how to manage the crisis; second, they must work out how to leverage opportunities emanating from the crisis.
For each of these four key areas, we have put together a number of levers that ensure a quick recovery while capturing emerging opportunities. It is important to understand that these levers represent a toolbox. Not all levers will be applicable to all retailers. Only by evaluating the specific situation of every retailer, the right mix of levers can be identified.
We recommend starting by mitigating supply chain and category management risks through rebalancing supply chain and category management strategies:
Marketing and sales should prioritize E-commerce activities and boost online presence:
Ensure organizational fitness by pulling two pivotal levers:
Finally, maintain a forward-looking perspective and prepare for tomorrow:
COVID-19 is the ultimate dynamic challenge because the situation changes on a daily basis. We are tracking the situation continually while maintaining a close dialogue with our clients, assisting them in balancing short-term, medium-term and long-term strategies to overcome this challenge.
David Tramontana of Strategy& Austria, and Carlo Meyer-Miethke, Yannik Knipprath of Strategy& Germany, also contributed to this article.