Unfortunately, the idea of going back to how things were depends heavily on our ability to find a vaccine. And although many scientists have cause to be hopeful, we’re just not there yet. As we’ve seen, global crises like a pandemic can heavily disrupt what we think of as “normal”, and a sustained disruption of this type and magnitude can expose weaknesses in the structure and foundation of many companies. Retailers and Quick Serve Restaurants (QSRs) have been among the hardest hit, naturally, because their primary channel is In-Store sales. And while there is still hope that things will go back, many companies have already, sadly, folded in the wake of this pandemic.
What this virus has done, and is continuing to do, is force companies to not wait for things to “go back to normal.” QSRs and retailers are taking fate into their own hands and finding ways to pivot around the obstacles this pandemic has dropped in front of them.
We believe that economic recovery won’t be just about going back. It will be about innovation and experimentation. Our prediction is that the companies that make it through will be leaner, meaner, and more EBITDA-focused than ever before.
For the retail industry, the pandemic will be a catalyst for changes that have already been underway. Retailers have been trying to achieve a deeper integration between online and offline experiences. Some are experimenting with Augmented Reality (AR) in-store through your phone. Others attempt to reproduce the shopping experience through Virtual Reality (VR) at-home. But there may be more salient and immediate wins.
We believe the big wins will be around allowing shoppers to move seamlessly between online and offline engagement. If you buy something in-store, you may want the option of purchasing return labels and packaging at the counter and save yourself the trip back to the mall when returning something. Or when you’re out shopping, you may find something you like in-store, purchase it online, and have it delivered straight to your home. Believe it or not, many brands are not yet capable of fulfilling online sales without first shipping stock to the store. Brands who take this transformation to the extreme can eliminate the need to carry any stock in-store, relying on distribution centers to fulfill their orders. Stock-outs will become an issue of the past as retail storefronts instead become branding pillars. They may either choose to reduce their square footage (if allowed) or find novel ways to repurpose their space.
Regardless of the actual strategies that companies employ to unify the shopping experience, the trend is towards meeting the customer “where they are”, whether that’s in-person or online.
Businesses who have relied on primarily one sales channel (In-Store) have suffered significantly during the pandemic. Companies unable to pivot quickly and drastically enough are stuck with illiquid assets (or huge long term liabilities) that can ultimately cause their demise.
What we’ve seen is companies who are willing and able to make drastic changes to their sales channels in a short period of time (like Starbucks), or who were already set up to serve customers through various channels, are better poised to survive the economic shock of COVID-19.
CFOs will have to view sales channels and product categories as different assets and asset classes in a portfolio. As we know, one of the tenets of investing is to diversify your assets in order to reduce systematic risk. This is no different. While some channels may be less profitable or generate less revenue overall, CFOs will also need to evaluate them based on their ability to resist economic shocks like the kind we’re seeing. Greater diversity will result in greater resilience and flexibility, and we’re seeing this play out right now with QSRs that rely more on food ordering apps or are experimenting with products like grocery bundles.
As businesses develop more sales channels and more product categories, the complexity of their business will naturally increase. It’s relatively easy to run performance attribution on a single product through a single channel. But as soon as you start offering multiple products and categories through multiple channels, analyzing performance, finding optimal product combos, and reducing cannibalization becomes a nightmare to manage in basic tools like Excel.
What this means is that diversifying revenue streams for a business will require new and better software infrastructures.
Before the pandemic, people were spending and travelling with very little concern over the next credit card bill. Being locked down, losing easy access to everything and seeing their credit card bills decline has forced many people to reassess what is important to them. We predict that there will be major shifts in consumer spending habits. Companies that are able to adapt and meet the changing needs will be the ones to come out on top.
Technology is a prerequisite to a more connected online-to-offline experience and to greater diversity in your sales channels. But the investment in time, talent and the technology itself can put the squeeze on already EBITDA conscious companies. This economic recovery won’t be just about getting back to normal. This will be a time for innovation. TypeSift is re-imagining how companies implement reporting, analytics and FP&A in order to pursue growth and resilience, but in an EBITDA-conscious way. We’ve managed to help companies get up and running in just a few weeks, at a fraction of the cost compared to their competitors, and without hiring additional staff. If you’d like to learn more please connect with us today.
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