How Retailers Can Survive a Holiday Shopping Season Like No Other
Rick Maicki
COVID-19 has changed the way customers shop. If retailers focus on these six areas, they can end 2020 on top.
Christmas may come early this year. With COVID-19 pushing out in-store events and driving consumers online in droves, retailers are looking to jumpstart and stretch the holiday buying period that traditionally begins on Black Friday and ends the weekend before Christmas.
In doing so, they hope to avoid being overwhelmed by online orders—total ecommerce sales this season are expected to rise 35 percent, more than double last year’s increase—and the shipping delays, inventory issues and carrier costs that come with it.
So far, it appears to be working—for some retailers.
Amazon’s Prime Day on October 13–14 kicked things off: the company’s sales shot up 36 percent and topped $10 billion, with other retailers piggybacking to drive billions more. These Prime Day sales alone could draw at least 10 percent—or $6 billion—of the revenue away from Cyber Week (the Tuesday before Thanksgiving through Cyber Monday). Meanwhile, numerous big box stores are planning to spread out holiday promotions, and a recent survey found that about 7 of 10 Americans are looking to buy items on sale now instead of waiting for the traditional Black Friday or Cyber Monday deals.
Some retailers have begun setting plans, but the rest of 2020 will present obstacles for every retailer, whether they involve adjusting revenue models, navigating new fulfillment methods or shifting customer engagement tactics, to name a few.
Here are six key areas that retailers must focus on to stay competitive this holiday season.
Revenue scenario planning
Retailers must consider how consumers are going to buy in various locales amid the pandemic.
COVID-19 is having a far-reaching impact on consumer shopping behavior. In some respects, it is comparable to a natural disaster, in that certain geographic areas will be heavily impacted based on dramatic changes in local regulations (e.g., limiting store occupancies). Thus, retailers must monitor and track the likelihood of such changes and scenario plan accordingly.
For instance, if New York City shuts down, thereby blunting revenue from a retailer’s big flagship store, a lot of extra inventory and more demand will shift online. That retailer will then have to ask questions like: Are we prepared to market to those new online customers? Can we efficiently shift that extra inventory to other locations? What will be the impact on revenue and liquidity? What’s my new channel mix, and can my operations support those flows?
This is a significant shift from typical planning processes, which take into account factors like broader sales trends by product category, a given store’s recent historical performance and daily seasonal traffic patterns. This year, retailers have to take a much more bottom-up, store-level approach that incorporates real-time, location-specific COVID-19 data. Having these plans in place and understanding potential scenarios is essential, as they will drive other key decisions discussed below.
Customer engagement
Pre-pandemic, it would have been hard to imagine curbside pickup or having same-day delivery from a local specialty store. Now, consumer sentiment has shifted—the excitement of the typical holiday shopping hustle and bustle has been replaced with social distancing and contactless purchasing. As such, retailers have to adjust their marketing strategies to meet new customer expectations.
This may mean taking a metered, omni-channel promotional approach, targeting sales to specific groups of customers over a longer period of time. Walmart, for instance, is offering shoppers three chances in November to get the best deals, and Best Buy has essentially said that every day is Black Friday from here on out.
Even as shopping moves online, customers will still show up to physical locations (despite visiting fewer stores overall). When they do, it’s much more likely that they’ll buy—in-store conversion and transaction sizes are at record levels—so retailers should be prepared to sell to these consumers, ensuring that they leave with more than just one item when they choose their store to shop in person.
Product flow
COVID-19 disrupted the natural flow of goods in several ways: China’s shut down early, followed by the rest of the world; certain items became essential, while others (formal dresses, sport coats, etc.) became irrelevant; and new preferences emerged, with an increased demand for loungewear and athleisure, home and sporting goods, and more.
Keeping up with these shifts poses real challenges for retailers, which also must navigate severe shipping and distribution limitations. Ports are backed up, expedited services—such as air freight—are constrained and expensive, and holiday shopping pressures are creating a major capacity issue for domestic carriers. Carriers worldwide will charge retailers $40 billion of added delivery fees from November 15 to January 15.
Retailers who acted early may mitigate losses in this arena. All, however, should focus on getting their goods into their distribution centers (DCs) and making informed decisions about where to move them so as to avoid trapped inventory. This will be based in large part on the scenario plans discussed above, though it may mean holding goods upstream for longer than usual. In any case, agility is key, as retailers seek to channel products into where the sales can be fulfilled.
Direct-to-consumer fulfillment
With online sales skyrocketing across all industries, retailers will need to figure out how to adjust to new demand levels to avoid a backlog of orders and shipping constraints from the likes of FedEx, UPS, and USPS. This is magnified by potential store closures, which will require more direct-to-customer fulfillment, and consumers who expect deliveries to arrive in two days. How can other retailers keep up?
First, they’ll need to increase their DC processing capacity, which includes increasing staff levels; this will be particularly challenging (and costly) in 2020, as subsidized unemployment has driven increased hourly rates, and COVID-19 has driven higher call-off/no-show rates. Second, they’ll need to spread out their sales plans so that a flood of new orders doesn’t come in at any given time. This requires tight coordination between operations and merchandising teams.
Local fulfillment
Retailers must be prepared to ship from stores; drive an efficient process to buy online, pick up in store; and provide curbside delivery and local fulfillment options—all of which require significant operational coordination.
For instance, local fulfillment necessitates a high degree of inventory visibility and controls to allow customers to find products at the store in their area. If someone orders a specific red shirt online, operations teams have to coordinate to ensure that that the item is picked before an in-store shopper purchases the last one—which only gets more complex as online transactions ramp up.
Store effectiveness
New pandemic-driven initiatives—e.g., exclusive hours for specific customer cohorts, curbside pickup or appointment-based shopping (both virtual and in person)—are great for customer engagement. But for these efforts to run smoothly during the busy holiday months, retailers must get their arms around operational complexities. This will entail adapting store labor planning and scheduling to new norms of customer demand and operating expectations, while balancing employee safety and staffing challenges.
This holiday season—like all of 2020—will be a departure from long-held norms, notably one-day Black Friday doorbusters. Today and in the years to come, ecommerce will reign supreme. If retailers can meter their promotional events successfully across a longer holiday season, track changes across their networks in real time and act on the guidance noted above, they can deliver just when their customers need them the most—and build stronger relationships that will pay dividends in 2021 and beyond.