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Strategic Planning for 2021

With the disruptions caused by COVID-19, trying to figure out how companies should plan for 2021 has become a daunting task. Going forward, it’s a whole new ball game — one where most agree that any data that’s more than five months old is useless for predictive purposes.

During a recent Retail Marketing Society webinar, several subject matter experts shared their perspectives on the challenges and considerations companies face in this rapidly changing environment. The panel, moderated by Richard Baum, founder and managing partner of Consumer Growth Partners, included Mary Ann Domuracki, managing director of MMG Advisors; Stuart Kessler, founding partner and president of Clear Thinking Group and Marie Driscoll, managing director of luxury and fashion at Coresight Research. Here are the main takeaways from the discussion.

Consumer Demand

While we have a lot more unemployment, there is also a bifurcation of the consumer economy; those at the top have been less impacted. Service providers have been affected more than mid- and senior-level executives. The experience economy, including eating out, is no longer the heavy beneficiary of those with money to spend.

With lockdown, there are few experiences. The focus is shifting more to products — to casual wellness and brands with social and environmental meaning. Home is big. While luxury has held up well, there is simultaneously a call for value.

Supply Chains

Because it is global, the pandemic has created both a supply and a demand problem. In the early part of the year, when retailers closed and canceled orders, it wreaked havoc with the supply chain. Further disruption ensued as different parts of the world experienced lockdowns and shutdowns at different times. In this environment, the first question investment banks are asked by a company selling to a retailer is what is everybody else doing in order to get credit approval or to borrow on their credit lines for money to buy inventory and sell to retailers.

“Given the large number of bankruptcies and liquidations, lenders to retailers have begun to cut back on providing credit to the companies who sell to those retailers,” Domuracki said.

Retailers are starting to prioritize products they absolutely must have to respond to consumer demand and those they can give credit for.

“It may not be the product that is the first choice, but it may be the product that can be delivered,” Kessler said. “For retailers, that’s a unique way to think about merchandising stores.”

Domuracki pointed out that a recent article stated that 60% of suppliers with revenue in the $20 to $100 million range are looking into deciding whether they are going to maintain their level of production or reduce it for 2021.

“For the first time,” she said, “credit may be an overriding factor as compared to ‘is it the right product?’” Credit, the panelists agreed, is tight for both suppliers and most retailers.

If there is a silver lining to COVID-19 in the midst of all the supply chain problems, it may be the ability to use technology to better match supply to demand.

“Can we get rid of the idea of manufacturing for economies of scale,” posed Driscoll, “when prices have really reflected markdown, where 40% of the sell-through sells through at a markdown? What if 2021 was the year to clean this up with the use of new consumer technology and the use of new consumer demand and better align supply to demand? This would, in fact, help build a new foundation for brand equity and restore brand equity and better full pricing.”

Financial Planning

With concerns about credit and credit restrictions, banks are getting more involved in dealing with their retailers. Kessler reported that his company is strongly advocating that companies should be preparing three financial plans. The first should be a base plan, the second a contingency plan and the third an aspirational plan that should be used internally. Geographical issues should be a concern because, while there may not be a national shutdown due to COVID-19, there could be issues on a geographic and/or a regional basis.

Kessler elaborated on the contingency plan: “It needs to articulate performance triggers by key line item. It also needs to articulate the worst case performance scenario, not what happens if business gets better. As far as lenders are concerned, it’s all going to be about liquidity in 2021.”

What Makes a Winner?

COVID-19 accelerated online adoption of grocery shopping and of shopping in general. Some of it will give back as people begin to feel comfortable going to shopping centers, going for the social and experiential aspects. So winners become those companies that are, and remain, essential. Brands and retailers that have great in-store experiences, retailers that are omni-channel and that provide a single view of the customer, a single view of inventory, that are as digitally engaged as they are physically engaged, are the winners. The losers will be big, undifferentiated retailers, as well as those that aren’t digitally nimble. Retailers who are competing for the middle ground are also in danger.

“Amazon has come in and sucked up that market,” observed Driscoll. “Walmart and Target have done incredibly well in this environment. Their relationship with the consumer has only strengthened. They are giving consumers want they want. They were able to enact buy online, pickup at curbside, deliver to curbside … the kinds of things that consumers wanted during a time of real safety concerns. That creates loyalty and increases long-term value.”

Retail Marketing Society

201-692-8087

www.retailmarketingsociety.org

retailmarketingsoci@retailmarketingsociety.org

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