As COVID-19 infection rates drop and regulations ease, demand will begin to build across channels and products. Store reopenings over the next 1-2 months, like those already happening, will likely be gradual and strategic to ensure the health and safety of employees and consumers.
While recovery times will vary by region, you can begin implementing merchandising measures now to counteract abnormal demand distortions and be prepared for an upswing in consumer activity.
The following action plan covers general considerations that should guide your teams and decision making, along with short and mid-term actions (many intertwine) that you can apply based on your specific business situation. As the consequences of the COVID-19 disruption become even clearer, so will the merchandising processes that must transform as a result.
Upfront considerations that will guide your use of the action plan
In order to align strategy and planning for business immediately after the COVID-19 crisis subsides, you must understand the circumstances such as your starting point and priorities. Once your current business needs and limitations are clear, you’ll be able to make faster short and mid-term decisions and apply the action plan.
Inventory across the value chain
To guide your strategy for the next few months and seasons, you must know what inventory you currently have on-hand, what is expected to arrive, and the status of orders with suppliers.
Specifically regarding on-hand stock, you should complete an audit of:
- Location: Where is stock located, both in terms of warehouses and stores?
- Categories and depth: Which families do you have? Where do you have “holes” in collections or too many references, and what are their depth and sizes?
- Commerciality and sales viability: Identify which seasonal products you may not be able to carry forward into future seasons (i.e. due to design) and which continuity or basic products can still serve in the future.
You’ll also need to account for inventory that will be arriving soon, including expected shipments from suppliers and foreseen/unforeseen returns from customers and wholesalers/franchises. Do you have enough storage capacity in stores and warehouses for them?
The COVID-19 effect on sales is likely to create negative elasticity across products and channels for the SS20 season. This impact will vary by level of crisis severity and speed and will need to be counterbalanced in future forecasting. Where there is a lack of sales data, use data from previous seasons and comparable products to compensate.
- Adjust your short, medium, and long-term planning horizons to compensate for uncertainty: Take a bottom-up approach so as not to over aggregate by weeks or regions. It will also provide insights needed to complement and better inform top-down decisions.
New and altered customers behaviors
Customer priorities have changed due to COVID-19, and we will see this reflected in both the short and long-term.
- Category mix: Factor in changes to customer buying behavior in terms of your current offering. For example, COVID-19 confinements have led customers to develop new health-related considerations as they did after the SARS epidemic, and sales may pick up in categories such as activewear, loungewear, and “work-from-home” clothes which may carry on into the immediate future.
- Spending spectrum: Past crises of this type saw quick pickups in consumer activity as viruses became contained. In the short and medium-term, you may see some degree of revenge spending as we’ve seen in early Chinese recovery, as well as value-for-money and discount demand as was the case throughout the Great Recession.
If you are able to leverage omnichannel capabilities, now would be the time. If possible, you can use them to:
- Gain a unified view of inventory: By understanding the stock you have across all of your channels, you gain the flexibility and agility to more easily allocate it across your stores and warehouses, for instance across your ecommerce fulfillment centers, especially as demand picks up.
- Capture sales wherever they happen: Consider enabling new sales strategies/options (e.g. social media selling, marketplaces, stores as fulfillment centers, etc.) that will open up new possibilities for making sales where customers may be looking for them.
Cash situation and cash flow needs
Based on your liquidity position, you may need to revisit your operating cash flows to identify ways to access cash until consumer activity stabilizes. You should:
- Elasticity: Drive elasticity of demand to compensate for your immediate cash needs.
- Buying budgets: These will need review both in terms of orders already placed and those that are pending. Do you have time to make any reductions to your buy to free up cash in the short-term?
Take these merchandising actions now to address immediate priorities
Once you have determined your framework, you should now have a clearer idea of what your immediate priorities should be as you go through the action plan and prepare for business to pick up again.
Assortment: When and where to sell excess SS20 stock
Adapt your assortment plan in terms of timing, seasons, and locations to factor this inventory into your reopening plans. Consider both on-hand inventory (partially distributed or still in the warehouse) and confirmed arrivals based on their sales viability.
- Push products/references forward into upcoming seasons: Depending on the region, some customers may have only had a small window of opportunity to view current collections, meaning you may have the opportunity to offer them as “new releases”.
- Save products for the SS21 season, especially continuity products, that are basic wardrobe items, and weather-specific products.
- Include products in the pre-fall period, especially those that hadn’t yet been displayed in stores or had limited allocation, again as “new releases” to play with the commerciality of these items and their remaining sales potential.
- Extend the SS20 season or prolong it into the pre-fall period: This will allow for extra selling opportunities. This year, more than any other, would be a good chance to delay the start of FW20, also considering the likelihood of delays from suppliers in other regions.
- Move products to other locations where they may be more appropriate: For example, consider whether or not it would be feasible to send SS20 products to locations with warmer weather, such as to other stores/outlets in your network to warmer cities, or countries, or perhaps to southern hemisphere regions that will be experiencing spring and summer next.
- Introduce online-only capsule collections: This strategy would be especially beneficial for products with low depth since it is more difficult to accurately predict demand for them across the store network.
- Send some products directly to outlets: This strategy would help free up crucial space in stores and warehouses and would work best for non-basic/strictly seasonal products (which may be less likely to sell in the short-term) and/or for those for which margins would allow it.
- Empower teams with visual merchandising flexibility: Instead of enforcing normally strict instructions, allow store teams to maneuver current in-stock items that can be displayed for particular stores within reasonable boundaries.
Buy: Recalculating how much you’ll really need
Undoubtedly, the plans you had for 2020 and 2021 will need review. A lack of sales activity, current and expected delays from distributors, and consequential adjustments to assortment and quantities will need to be accounted for in your upcoming investment plans.
- Adjust upcoming buys: If you are still able to do so, adjust your FW20 buy (bearing in mind that it may not be necessary to overbuy units for major sales events like Black Friday and the winter holiday seasons) as well as your SS21 buy, especially given your adjusted forecasts.
- Reduce collection width: Consider offering fewer overall references to reduce your investment, in particular as you move some references forward into upcoming seasons.
- Factor in the impact on your suppliers: The COVID-19 crisis has been a hard blow across the entire value and supply chain, and especially hard on suppliers in several regions that the industry depends on. Are all of your suppliers still in business? And if they are, will they be able to provide you with samples or equipped virtually enough to do so remotely?
- Ask providers to hold stock for following seasons: Many retailers are struggling to store both stock that has not been sold and the new stock coming in. This has caused many retailers to cancel current orders, wreaking havoc on local producer economies or to accept stock at the expense of having to offer it at deep discounts and maxing out credit. Can your providers hold stock for upcoming seasons to give you more space and to avoid cancelling orders?
Distribution: Maximize sell-out ratios and liquidate stock
Here are strategies maximizing sales and liquidating unsold stock. One of the main goals is to sell what you already have in stores as quickly as possible, even as a priority over stock in the warehouse.
- Prioritize replenishment of seasonal references, to stores that are gaining sales traction, because you’ll have more flexibility to sell basic products in future seasons.
- Use specific stores strategically as hubs to replenish nearby stores or for omnichannel fulfillment options (e.g. click & collect) to liquidate in-store stock more quickly.
- Rebalancing among stores
- Move stock across stores, anticipating reopening calendars and the speed of recovery to benefit from the potential increase in demand in these locations.
- Prioritize high-density areas that are recovering and/or strategic stores (i.e. size, location, etc.)
- Push larger amounts of stock to stores ahead of end-of-season sales: In particular, if extending SS20, this will help you potentially capture pent-up demand/revenge spending that will coincide with the start of end-of-season sales..
- Consider reinforcing initial allocation of SS20 products included in pre-fall period: This will also help manage the expected delays/issues with FW20 products.
Pricing: Use promotions, but strategically
Clearly, the fastest way to gain liquidity will be through incentivising elasticity through discounts, though do so sparingly and with caution if possible. Keep an eye on your cash flow needs, elasticity by channel, and brand image.
- Use a dynamic discounting strategy:
- Online: Consider offering higher discounts and additional promotions online, such as flash sales, to drive more traffic to stores where customers can find newer items.
- Offline: Focus on loyalty programs, such as by promoting in-store returns that come with additional rewards, to drive foot traffic, provide customers with flexibility, and to ease return logistics.
- Gift cards: Some retailers are encouraging purchases of these cards to act as retail stimulus in the short term, even if customers aren’t currently shopping.
Ecommerce: More sales opportunities and strategic actions
You can further maximize your sales opportunities, and therefore probabilities, by taking advantage of ecommerce strategies in your action plan.
- Optimize online visibility through dynamic/flexible buffers: Since you may have multiple ecommerce platforms (proprietary & 3rd party), these buffers can help you strengthen the online availability of inventory over different fulfillment centers.
- Take advantage of reverse transfers: Transfer stock back from stores to central warehouses to tap into growing ecommerce demand. This is especially advantageous if you need to make way for new stock arriving soon and do not carry out smart fulfillment.
- Consider new e-commerce partnerships: Additional marketplaces (e.g. Zalando, Amazon) can help you broaden your reach in new or existing markets for further sales, as well as opening up new possibilities for discovery of your products.
- Promote click & collect: This strategy can help increase physical engagement by attracting customers to stores, especially while they may still be hesitant to spend extended periods of time there. It also provides customers with an added level of convenience.
- Expand returns options: Allow for further flexibility and promotional activity, for instance by offering discounts for making in-store returns.
Outlets: Get stock back to healthy levels
Part of the overall action plan strategy is to recover healthy levels of stock. Taking advantage of outlets, if possible, can help you do this.
- Anticipate the arrival of stock in outlets too: Outlets will also likely have an excess of stock, so consider liquidating that stock before the SS20 stock arrives. Sourcing alternative outlet partnerships for the SS20 and FW20 seasons may also be beneficial.
- Outlet pricing: Prices in outlets can be more aggressive given the existing discounts at full-price stores.
The speed of your recovery depends on the actions you take now
We hope that this merchandising action plan helps provide guidance and insights into the things you can control during this time when there are so many things you can’t.
We are in constant communication with our customers, helping them strategize, implement an action plan, and use Nextail to make these same preparations. Visit our COVID-19 resource center for more information and insights!