How coronavirus will reshape retail

The reality

During recent weeks, many locations have begun to lift the restrictions placed on businesses due to the spread of coronavirus. In Texas, hair salons and tanning parlors can open if they follow certain guidelines intended to make disease transmission less likely. In Georgia, the decision has been made to allow children’s summer camps to open with some of those same restrictions. Across the country, people are beginning to look forward to the end of business closures and social distancing requirements, bolstered by the President’s assertion that the United States has now “prevailed” against the novel coronavirus. During the week of May 3rd through 9th 2020, 25 million more people ventured outside their homes than had the week before. 

Unfortunately, the reality of a pandemic like COVID-19 is that the country, and the world, will not go “back to normal” any time soon. In fact, we may never see our social, economic, and political worlds return to the same state they were in towards the end of 2019, before the coronavirus became a significant threat. In countries like South Korea and Germany, where the pandemic seemed to be under tight control, measures taken towards reopening have resulted in surges in new cases that have alarmed public health officials and resulted in renewed lockdowns. These examples point to a timeline towards “normal” of at least 18 to 24 months, not just a few weeks. 

The problem

Even more significantly, they point towards the reality of permanent changes in our lives, particularly when it comes to how retail operates, thanks to the likelihood of a continuing cycle of lockdowns and gradual reopenings. Food purveyors, including restaurants and cafeterias, and hotels are some of the most hard-hit types of retailers in the pandemic. Most of these businesses will find themselves unable to survive at only 25% to 50% guest capacity, and many local retail markets rely heavily on their restaurant and hotel businesses for survival. The decrease in travel due to the pandemic could force many in these industries to close their doors permanently. 

One of the primary effects of closures due to the novel coronavirus is the catastrophic rise in unemployment resulting from businesses shutting their doors or just reducing their capacities. Even retailers that remain open need far fewer employees to serve a reduced number of customers, contributing to the United States experiencing its worst unemployment rate in history. Although other nations have yet to reach the off-the-charts levels of unemployment seen in America, Europe is also seeing a sharp rise in unemployment claims, and China predicts a steady increase from their current state of more than 80 million unemployed workers. 

The immediate effect of these unprecedented unemployment rates has been a reduction in demand for retail products and services. This can be seen most easily in the sudden drop in prices for these products and services. While lower prices might seem beneficial to unemployed and underemployed people with less money to spend, what these price drops actually mean is that consumers are spending so little that we are beginning to experience deflation. This could lead to manufacturers being unable to charge enough to make it worth producing their goods, which would lead to factory closures and even more unemployment. The same is true for retail services—and services may experience an even worse crisis since they cannot be adapted for consumption with social distancing the same way that many goods can be. Consumers can pick up their food to go with no contact at all, but it’s impossible to get a manicure, hair treatment, or even home cleaning service without close social contact with another person. 

However, the continued cycle of re-openings and closures will not only affect consumer demand. Because this cycle will likely continue over such a long period of time and across so many parts of the globe, it will also have significant effects on supply. When countries experience closures and economic crises out of sync with one another, the entire supply chain is disrupted, resulting in a mismatch between supplier capacity and consumer demand. 

One of the best examples of how supply chain disruption might work is the lifecycle of an item of clothing. The global clothing and apparel market is worth almost $800 billion, with the Asia-Pacific region accounting for the most consumption followed by Western Europe and North America. But the production, distribution, and sale of these items is a global phenomenon. It might begin with the cultivation of cotton in China or India, the two largest producers of this commodity. Cultivation requires water and fertilizer, both of which might come from other regions and employ their own numbers of workers for production, transport, and maintenance. Once cultivated, cotton must be harvested by yet more workers, and then processed into fabric by still more. Fabric might then be transported to one of the largest producers of garments in the world, Bangladesh or Vietnam, where still more workers create the clothing item in its final state. It must then be packaged and transported to another region or country, employing truck drivers, pilots, captains, dock workers, and more. Once it reaches its destination, the sale of the item will involve workers in marketing and retail. 

The bottom line? A disruption from coronavirus-related lockdown at any one of these stages in the clothing item’s life cycle will result in a disastrous mismatch between supply and demand. If the region producing cotton is in lockdown while the region stitching clothing is ready to produce, the factory workers in Bangladesh or Vietnam will be unemployed without the supplies they need. If the consumers in Western Europe are in lockdown and therefore not purchasing clothing at retail locations, the suppliers are unable to sell their goods for profit. Everyone involved is then caught in a vicious cycle of unemployment and unprofitability. 

Adapting to the new normal

On average, it takes people only two to three months to adapt new behaviors and stick to them long-term. With the disruptions caused by coronavirus likely to last at least 18 to 24 months, changes made to behavior during the next two years are likely to be permanent. The way that consumers shop and interact with retailers will probably never be the same, and it certainly won’t approach normalcy quickly enough for retailers to count on profits. 

Consumers are already shifting their buying power to the internet, and retailers must adapt to this change in order to survive. Retailers who haven’t already optimized their businesses for online sales and adopted better means of demand forecasting are already suffering in competition with those who have, and their problems will only continue to grow as long as they keep relying on their old methods. 

So how can businesses begin to adapt to meet the new customer behaviors and the vastly different supply and demand patterns brought about by the novel coronavirus? 

The answer lies in the application of AI solutions. Unlike humans, who have been blindsided by the scope and scale of the coronavirus’ impact on everything from retail patterns to levels of pollution, artificial intelligence can use machine learning to instantly incorporate constantly changing data and make accurate predictions despite now rapidly we’re seeing things change. Supply chain demand forecasting algorithms need to take into account new types of data that companies used to be able to ignore. Whereas typical supply chain demand forecasting relied only on transaction data from retailers, the instability of the supply chain at this point in time means that models need to be built for every category of product. This enables the monitoring of shifting demand, elasticity of demand, and lead time changes that take into account lockdowns and alterations in production. 

AI can also enable massive reductions in shipping time, a crucial adaptation when so many customers are having products delivered rather than shopping in person at retail locations. WalMart is one company that has shown how AI solutions can be used to rank product assortments so that the most in-demand items can be offered for express delivery, which is becoming an expectation thanks to retailers like Amazon. 

In the face of lasting changes to the retail landscape and corresponding permanent changes in customer retail behavior, companies must adopt cutting-edge AI solutions to weather the storm. Between significant changes to how we buy and sell within our own countries and the constant disruptions to the supply chain across the entire globe, artificial intelligence may be the only means we have of making accurate predictions and crucial adaptations that can keep businesses, and therefore economies, afloat. 

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