While supermarkets and pharmacies have seen a surge in sales as people rush to stock up on necessities, cleaning supplies and healthcare essentials, other retail sectors are experiencing a nosedive. In Malaysia, some retailers reported declines as drastic as 80% in January and February -- and as the Movement Control Order (MCO) has been extended into April, the outlook for retail remains pessimistic. With most SMEs having only 2 months' worth of reserves, the pandemic will force man y capital-strapped SMEs into a cash-flow crisis. In an exclusive conversation with Vernon Chua, retail data expert and CEO of Innergia Labs -- whose flagship product SYCARDA empowers SME retailers with retail business
intelligence talks about best practices to deal with crisis.
What would be your advice to mid sized retailers to combat the ongoing crisis since they might not be eligible for govt funding/relief stimuluses?
The keyword for this year is survive. The first thing they’re going to have to do is to streamline their business cost in order to ride this crisis out. There are three major areas that they should look at
Rental is typically the biggest single line item cost on a retailer's books and any reduction on that will result in significant cashflow improvements. If they are operating in malls perhaps negotiate for a Gross Turnover Rent (GTO) where the mall operator takes a small fixed rental and opts for a larger percentage of sales turnover of the outlet. This way both parties will share the burden of a downturn and the benefits when the market improves.
Now is the time to analyse your previous sales and understand which of your products are bringing in the most revenue for your business. Many retailers tend to carry underperforming inventory that freezes up their cash unnecessarily. Find ways to offload those inventory in order to free up cash to keep the business running. Remember the adage – “Cash is king”.
Mid-sized retailers will generally have multiple outlets. Try to group these outlets according to the revenue band they are generating. Now study the successful ones and determine what it is that makes them perform above the rest. Is it their location? Their format? Their size? This is a good way to determine what to focus on if they’re thinking of streamlining their stores and future expansion strategy once the crisis ends.
If they have not already done so, start understanding their customer behaviors and demography. Which days and what times seem to be popular? How do they typically pay at the counter? How are they mixing store products together? By understanding these behaviours, retailers will be better able to craft promotions that are meaningful, attractive and therefore successful to their customer base.
Covid has impacted retailers worldwide. According to you, what would be 'new normal' for the industry for that retailers should start preparing themselves? How do you assess the role of technology in this exercise?
Firstly, unless they are a supermarket they should expect to see just half or even a quarter of the normal footfall traffic into their stores until a vaccine is found. Before COVID-19 retailers were encouraged to go online in order to succeed, but I daresay that now they need to go online in order to survive.
Retailers will need to focus on marketing to and engaging their customers on social media and text messaging applications, and ensuring they have the logistic capabilities or partnerships to fulfil the last mile of delivery. If the customer cannot come to you, then you must go to them.
Secondly, they should expect that all their competitors are already going online, and they will need to find a way to ensure that they can differentiate and are being heard by their customers. One strategy that seems to be working is hyperlocalisation.
Hyperlocalisation is the idea that your business is a part of a community, which very often is a geographically local community or a niche group of consumers, and that you succeed by being able to tailor your product or services to the needs of that specific group of customers. It is counter-intuitive to the mainstream idea that going online should mean targeting a very wide but unknown customer base, instead shifting the focus to engaging known people in the community. This strategy emphasises the quality of experience for the customer through service, product and domain knowledge. A good Customer Relationship Management (CRM) tool and a loyalty program will do wonders in helping retailers conduct a hyperlocalisation initiative.
Thirdly, they should expect their customers' spending habits to change and their wallet sizes to decrease in response to economic uncertainty. Their customers are going to become a lot more price-sensitive and value-driven. Retailers should do a pricing analysis of their sales to see what prices their customers are comfortable with paying. They can run multiple promotions to test the waters and study the data that comes in to see their pricing strategy. Investing in a good data analytics tool or platform that helps retailers collect, process and analyse the data can do wonders in providing the empirical data that will help drive their strategy.
Lastly, retailers sit on a lot of data that they don't seem to be using to their benefit. We are in the age of the data economy with phrases such as "data is the new oil" being bandied about. Let's be clear, this isn't an idle phrase. This crisis is going to force every brand owner and FMCG to look into improving the efficiency of their supply chain and distribution, and they will need data to do so. SME retailers need to understand that they hold valuable consumption data that will be useful to their suppliers, manufacturers, government and market research organisations, and they need to organise this data in order to commoditise it as an additional revenue stream for themselves.
These days retailers across the world are focusing on online channels as part of their distribution strategy. Do you think the same trend will continue once this crisis is over?Do you think touch and feel retail is dead? What would be your advice to SMES working through hardcore offline distribution channels?
I believe that an omni-channel strategy is here to stay and that the convergence of both online and offline distributions will be the most viable way forward for most organisations. It boils down to the ability of the retailers to manage the customer experience and engagement. People will still want to have the option to go out to touch and feel as that is the quintessential experience for shoppers, but they also want to have the option for convenience when necessary. The successful retailer will be those who are able to juggle these two options and provide a seamless experience for their customers.
To those SME retailers who still only want to focus on offline distribution channels my advice is simple: don’t. Unless there’s a cataclysmic event that knocks out the world’s ability to communicate through the internet, you are going to be fighting a demographic trend that is quickly moving against you. Your refusal to adapt will see you lose market share as more omni-channel and online competitors move in on your customer base, while offering better convenience, experience and engagement.
How soon do you think the industry will get back on its feet?
Based on every confidence poll that we’ve either conducted or observed the general view is that we’re in for a long winter. Rest assured this winter will pass, but depending on when a vaccine is found and produced as well as government action and intervention to stimulate the economy, the most optimistic I can be for the industry to get back on its feet is Q2 2021.
Food and fashion used to be ruling categories in pre covid timings. Do you think the same trend will follow in the post covid era?
I would argue that brick-and-mortar fashion retailers were starting to see a lot of challenges even before COVID-19, as they were the most vulnerable along with gadgets and bookstores to growing online competition. Their organisation's ability to navigate an omni-channel world will determine who will succeed in the post-Covid era.
Food and Beverage (F&B) will continue to be strong after COVID-19 as it is a lifestyle and therefore extremely experiential for customers. It has shown itself to be extremely adaptable in fulfilling both the touch and feel ‘Instagram-able’ experience and the convenience that modern customers demand