As Stores Prepare To Open, Which Retailers And Brands Will Survive?

The Covid-19 pandemic challenges just about everything we thought we knew about how the world works, especially the global ecosystem that retailers have come to depend on to predictably produce and deliver goods that customers want, on time and at competitive prices.

I can report that many of the world’s leading retailers are as stunned and paralyzed as the proverbial deer caught in the headlights of an oncoming car. Like the hapless deer, there will be fewer of them when the lights come back on and the doors completely reopen.

Who will survive and how will they do it?

It would be hard to imagine a scenario more disruptive to an industry as essential to the world’s economy. Like a deadly embolus of air coursing through the arteries of an otherwise healthy patient, a huge gap opened up in the supply chain at the start of the year with the national quarantine in China and other Asian “workroom” economies.

China’s factories produce the lion’s share of low-end products like the quasi-disposable clothing and plastic goods to which we’ve grown accustomed. According to the China National Textile and Apparel Council, as of 2018 China supplied about two-thirds of the textiles used by manufacturers across Southeast Asia, and accounted for 37.6 percent of world textile exports. Less obvious, the Chinese dominate in smartphones, computers, and auto parts that the world imports or that end up in assembly plants in places like Mexico and Malaysia.

China’s massive production shutdown could hardly have come at a worse time — just as samples of new products for the crucial fourth quarter selling season were being shipped to buyers. Those samples arrived just as retailers were shutting their doors and sending employees home to shelter in place. The disruption will become especially apparent in May and June when Chinese factories ordinarily ramp up production and start shipping.

Meanwhile, in those darkened stores, this season’s inventory is aging out and some unknown percentage is going to end up in thrift stores, flea markets, and recycling facilities. In those empty buyers’ offices, samples are sitting in unopened boxes containing products that suddenly seem irrelevant in a fearful new world. Even the most optimistic guess as to when commerce will return to normal — whatever normal may look like afterward — means no one really knows what the future holds or how consumers will behave when we get there.

Or, maybe some will.

In my field of work, the one constant these days is consumers. They are still there, sheltering in place, and what they think and feel may be changing by the day, but is no mystery. All we have to do is ask.

But many retailers and brands are still hypnotized by the onrushing headlights or daunted by the shortcomings of traditional methods in the midst of an economic disaster.

That’s a huge mistake, as research we performed at First Insight a month ago suggests.

We surveyed 500 American consumers on February 28 — before the first deaths were reported in the US — and turned up some interesting distinctions among the generations:

● More than half of Millennials said the pandemic had already significantly or somewhat impacted their purchase decisions, compared with a third of Baby Boomers, 42 percent of Gen Xers, and 49 percent of Gen Zs.

● More than any other generation, Millennials told us they are changing where they shop and what they are buying, and that they are going to cut their spending.

● Forty-six percent of Millennials said they either strongly agree or agree that the coronavirus is impacting how much they are going out in public.

● Thirty-nine percent said they are shopping less frequently in stores.

● Thirty percent of Millennials said they are shopping more frequently online.

One might speculate that the survivors of this Armageddon will be online retailers, especially Amazon. But not so fast! Last year our consumer surveys found that 55% of the people we asked said they prefer to shop at Walmart versus Amazon, up from about 47% a year earlier. The percentage of people who preferred to buy through Amazon had dropped to 45% from about 53% in 2018. Meanwhile, retailers like Walmart and Target have been leveraging ubiquitous local footprints by enabling consumers to buy online and pick up curbside. In Target’s third quarter 2019 earnings call, COO John J. Mulligan reported, “Drive-Up, our highest rated service, saw astounding growth of more than 500%.”

No one can say with certainty how consumers will feel and behave when the pandemic has run its course. But it’s safe to say that those who keep a finger on the consumer pulse as it does so will be more likely to survive than those who take a wait-and-see approach.