" Whilst still firefighting, it may seem odd, but it's time to plan the rebound. Preparation will create a competitive edge. Catering to audience needs and adapting structures are vital. "
Plan the rebound: How lifestyle companies can prepare for the upswing after Corona
Covid-19 will have a huge global impact, but scenarios expect a rebound by end of 2020 or beginning of 2021 at latest
Global Topic
The corona crisis hit the world unexpectedly. Society and the economy are struggling to cope with the monumental challenges it poses. Lockdown measures are heavily impacting the lifestyle industry including segments like fashion, sports, beauty, jewelry, watches, accessories and much more particularly suffering due to their reliance on business from bricks-and-mortar stores. Only a few brands and retailers are managing to sufficiently compensate the loss of offline revenue with online sales. Many have put their company into hibernation but now it is also time to plan the rebound.
Roland Berger has captured the mood of the industry and found crisis management and cost/expenditure adjustment at the top of the agenda for decision makers. They hope near-term measures, such as short-time compensation, pauses in rent and supplier payments, and postponement of investments, can boost short-term survival. Cash offices are serving as a central control and hedging instrument for company-wide liquidity. “War rooms” have been installed to maintain operations under the shutdown, first online sale campaigns have started to clear overstock and efforts are being taken to secure the delivery of goods for the second half of the year and later.
Most companies we talked to in the fashion, sports or beauty sector expect the DACH region to reopen by the end of April step by step. More cautious voices anticipate opening their doors again in May or early June. For some, these uncertain times have already gone on too long: several companies have applied for state aid and retailers such as Esprit or Galeria Karstadt Kaufhof have applied for protective shields. Independent of various scenarios, nobody can be sure how long the shutdown will last or how significantly the sales slump will impact the bottom line and what to do with the overstock. The widely held opinion within the sector is that a minimum of three seasons will be affected, particularly autumn/winter 2020/21, when a 20-25% decline in sales compared to the previous year is likely.
Despite the uncertainty, all economic disruption scenarios expect the situation to improve by the end of 2020 or the beginning of 2021 at the latest. Retailers and brands must be ready. And yet only a few pioneers are currently preparing for the new normal after coronavirus and how they can position themselves in a changed market environment. To survive the crisis is one thing, to emerge strong and sustainable from it is quite another.
The crisis will reshape the industry
Roland Berger’s Lifestyle Team has three hypotheses on changes that will reshape sectors such as beauty, sports and accessories after the crisis.
- 1 - New customer shopping behavior
Nevertheless, once restrictions are lifted, people are also likely to enjoy shopping outside their own four walls again, making the experience more important than it was pre-crisis. Long-lasting hygiene and distancing measures may impact store layouts and staff training.
- 2 - Sourcing: relocation and diversification
The crisis has broken the supply chain for many brands, especially in the apparel, shoe and accessories sectors. Order rounds for spring/summer 2021 are either delayed or not executable, with production facilities in Asia shut down and goods stuck in ports. A surplus of goods not only in stores has led to a significant inventory increase. To solve these issues, the ongoing trend of nearshoring and flexibilization – moving production closer to final sales markets and dynamizing timing to reduce lead times and inventories – is expected to intensify. Brands are also likely to increase diversification when selecting their sourcing destinations and suppliers to spread risk and reduce the potential disruption of future global health or economic emergencies.
- 3 - Thinning out the brand and retail landscape
Short-time compensation or unemployment for hundreds of thousands of people have put a considerable strain on the household budget of many shoppers, reducing spending power for clothes, bags, watches and other lifestyle products not only in the short term. Not everyone in the retail industry will survive in this increasingly challenging environment. Brands that cannot adapt their store portfolio or provide real added value for customers will disappear. The market split between discount and premium/luxury will continue to grow as mid-price brands fall further behind – a trend accelerated by the crisis. Shoppers will either spend sparingly to protect their weakened household budgets or opt to pay more for a special treat after such testing times.
"Strategic groundwork and operational agility are key to envisage the new normal. Pushing the envelope further, especially under the current circumstances, will provide a valuable competitive advantage for the rebound."
How can lifestyle companies prepare for the rebound and new normal?
To emerge strongly from the crisis, Roland Berger believes retailers need to focus on four key fields of action.
Since the beginning of the lockdown, digital media has been the window to the world. Video conferencing has enabled businesses to continue and e-commerce has become the new standard in shopping, accelerating the shift towards digital. And the longer lockdowns persist, the more these shopping habits will become embedded with consumers. Retailers and vertical brands yet to fully embark on prioritizing the digital channel should accelerate quickly, while all others must further boost their digital efforts.
- A - Key digital actions
- Increase convenience for purchase and returns by speeding up delivery and offering pick-up services
- Take your CRM to the next level and treat your best customers like VIPs
- Ensure customer service resources are in place to support new customers
- Explore technologies like virtual reality to further enhance online product experiences
Just like its outbreak, recovery from the virus will differ from country to country and continent to continent. Careful supply chain management is crucial, even if the end of lockdown in Europe may be imminent. Many production facilities, such as those for shoes and accessories in southern India, are under strict lockdown with limited cargo transport capabilities. With passenger flights suspended, capacity offered by mixed passenger/cargo flights has disappeared, leaving sea transport as the only alternative.
- B - Key supply chain actions
- Create cross-functional teams, including sales and product management, to assess and manage potential delays for suppliers and customers
- Collaborate openly with B2B customers to meet their needs and develop joint action plans
- Focus and incorporate forecasting and business intelligence tools, including POS data and demand trending analytics from B2C activities
- Maintain crisis-mode relationships with suppliers for short-term solutions
- Re-analyze risk management for the entire supply chain strategy
In times of uncertainty, it can be easy to stay quiet, but communication is more important than ever. Striking the right tone is vital: get it wrong and you could face social media outrage and a host of PR challenges; manage it well and now is the right time to build your brand and your customers’ loyalty.
- C - Key marketing actions
- Be engaging and empathic in your messages, avoid aggressive promotions
- Build your marketing and media plans around new life habits and focus on digital
- Push your social media activities and engage your testimonials and influencer community
- Ensure the right PR and social media coverage of your charity activities without being too pushy
- Be courageous: there is a unique opportunity for brands in this crisis. It could be a good time to make changes that had been put off or unwelcome in the past
Fast, wide-reaching changes are causing economic uncertainty and insecurity among consumers. This will lead to a change in purchasing preferences and potentially make shoppers more price sensitive. To meet and eventually exceed customer expectations, we recommend an immediate product portfolio review. The crisis may have led to competitors going out of business, which could offer new opportunities.
- D - Key product portfolio actions
- Check your product range with a focus on top sellers to see if they still meet customer expectations. Adapt where necessary
- Re-evaluate your price matrix, especially entry price points while securing your margins
- Check your product range long tail for any efficiency potential. Now is the right time to emphasize and focus
- Check your competitive landscape for key strategic changes and any resulting white spots
- Rethink your collection rhythm and merchandise launch timing
The necessary strategic actions for the rebound need to be undertaken on the backbone of setting clear new priorities as well as performance improvements on the cost side to enable the company to execute the above-mentioned actions - adjust to and act to outperform in the new normal.
How pioneers prepare for the world after coronavirus
China is well ahead of Europe in its fight against the virus and the relaxation of restrictions on public life, which is slowly regaining momentum. A premium brand with a strong Chinese footprint can provide valuable lessons for the restart after coronavirus. It has focused on putting employees first, introducing new technologies in the sales process, as well as increasing its marketing with a clear focus on digital channels and a sympathetic, caring tonality. Sales have quickly begun to pick up and are expected not to drop below -15% in China for the full year.
Meanwhile, a key player in the fashion segment has also seen its business in China steadily increase again. After being at 20% of its previous year’s volume in March, it expects to reach 90% in September. As these figures show, it takes time to return to pre-crisis monthly sales levels, but with decisive action, it can be done. In this specific case, e-commerce and digital marketing were the key drivers.
What next?
There is no standard solution to prepare for the new normal after corona. Roland Berger strongly believes in the need to develop a tailor-made approach that fits your history, your needs, and your capacities for change at a time when many teams are focused on day-to-day crisis management.
Please contact us for an expert call with the Roland Berger Lifestyle Team so we can fully understand your needs and jointly outline your next steps, no matter whether you serve fashion, sports, beauty, jewelry or accessories clients.
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