Why Some Retailers Are Thriving Amid Disruption – MIT Sloan
A crisis reveals as much as it devastates. Retailers that were struggling before the coronavirus outbreak are now crumbling. Not well positioned to pivot going into the crisis, J.C. Penney, with more than 800 stores and nearly 85,000 employees, recently filed for bankruptcy, joining Neiman Marcus and J. Crew in the running list of retail casualties in the last two months. Other retailers have been forced to pivot quickly, and some have done so successfully, like Target, which reported a 141% first-quarter increase in digital comparable sales, albeit at a significant cost. Walmart also appears to be well positioned and saw a comparable sales increase of 10%, including a 74% jump in online sales.
However, in March, overall U.S. retail sales, including online transactions, suffered an 8.7% drop. That was the largest monthly decline on record since 1992, when the data was first made available by the Census Bureau until April, when almost 630,000 outlets were forced to close, plunging sales by another 16.4%.
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In China, where businesses are further ahead in reopening than in the United States and other countries in which peak outbreaks occurred later in the year, wearing a mask and having ones temperature checked when entering a mall or supermarket are compulsory. As retail resumes in phases in portions of the U.S., its expected that measures to promote physical distancing and prevent virus transmission will remain in place for months to come. All these create friction, which will decrease foot traffic for another few months. No silver lining is in sight. The decline is likely to continue, if not accelerate.
And yet, a mortal blow to retail has not been felt universally. Some companies are thriving amid the darkest of months.
Consider Peacebird, a billion-dollar fashion retailer with seven brands and 4,600 brick-and-mortar stores. Its a Chinese brand with a growing reputation for resilience. The company achieved revenue of more than 10 million yuan ($1.41 million) during the first three weeks of the Chinese New Year starting Jan. 25, the period when the coronavirus outbreak ravaged Wuhan and triggered the complete lockdown of the sprawling capital of Hubei Province. During the subsequent month of February, Peacebird continued to ship a total of 490,000 online orders while fulfilling 2 million transactions via its retail network.
Yet Peacebird is hardly alone. Cabbeen Fashion, a leading Chinese menswear designer brand, managed to top 2 million daily sales via WeChat Mini Programs during the first week of February, leveraging Chinas largest social media app without resorting to pricing discounts. Multibrand jeweler Ideal similarly fast-tracked its New Retail initiative to navigate the crisis. It turned the companys sales associates into livestream broadcasters on social media, each managing their own virtual store.
Then you have Forest Cabin, a cosmetics company that decided to go online with full force, promoting products through multiple livestreaming platforms and several social media apps. After its sales plunged by more than 90% during the Lunar New Year holiday as half of its physical stores were forced to close, the company made a stunning recovery during a two-hour livestreaming session on Valentines Day in which the founder appeared. That move alone brought in some 60,000 visitors and sold over 400,000 bottles of the companys flagship camellia oil. During the week of International Womens Day, from March 1 to 8, the company reported a fivefold jump in online sales.
The resilience of these companies is due to one simple fact: They have transformed their traditional business models rapidly by leveraging a plethora of digital practices. And this transformation is hardly unique to China: It is what players must undertake in the economy of the pandemic to survive.
Some retailers do more online. The U.K. retailer John Lewis is setting up an online hub giving advice to new parents and providing well-being services. Walmart and Target are doubling their efforts in curbside pickup, a service where customers order things online, drive to the store, and wait while a worker loads everything into their trunk. Perhaps most drastic of all is Nike, which managed to post 5% in revenue growth during the quarter that ended Feb. 29 even though over 5,000 of its stores in China, a key growth market, were forced to close during January. With the help of livestreaming, Nikes online sales in China increased by more than 30%. The brand launched the Air Max March Party on March 26, which was broadcast online on Alibabas Tmall. It attracted some 2.7 million viewers and 24 million likes, which translated into more than 5 million yuan (about $705,000) in sales in a mere three and a half hours. As a result, Nikes sales revenue for the greater China region dipped only 5% in the first quarter of 2020, a figure that even Apple couldnt match.
How do incumbents achieve such resilience? Here are five lessons for every traditional retailer:
1. Accelerate operations through multichannel marketing. Speed matters as retailers switch their operations from an offline or mixed model to online-only sales. Peacebird chairman Zhang Jiangping responded by going all in on e-commerce, and he personally drove the transition. He issued a notification to all sales agents giving them the authority to post content on social media channels while representing Peacebird. Then, in a milestone occasion on Jan. 28, the fourth day of the Chinese New Year, retail director Andre Gao hosted Peacebirds first livestream session. His session, which over 100,000 people joined, inspired and excited many sales agents at the company. Thousands of in-store sales managers were motivated to become online sales agents.
Note that such digital-first pivots are not exclusive to Chinese companies. U.S. kitchen and housewares retailer Williams-Sonoma is doing the same thing. Although a lot of its digital tools were already in place, during the lockdown, the company quickly added services such as virtual design chats with experts, an ask-the-expert chat, and enhanced virtual design options. Despite closing its over 600 stores, the group posted an increase in comparable sales of 2.6%.
Meanwhile, department store Intime launched live commerce when the virus closed its 65 stores. All sales agents, working from home, interacted with customers via Taobao Live the livestreaming platform run by Alibaba and reached as many new clients in a three-hour period as they would have in six months inside an actual store. Its a future that Bloomberg dubs the next frontier of shopping. Thats why Swedish home-goods retailer Ikea also took to a livestreaming session in March to promote the launch of its new Tmall store.
In light of these examples, business leaders should reframe their current thinking of multichannel approaches to retail and embrace livestreaming as an important arena to create direct, real-time engagement.
2. Retrain for revamps. While many traditional retailers are busy laying off or furloughing hundreds of salespeople, some are opting for skill upgrades. Jeweler Ideal proactively transformed its sales associates into online influencers, or, as they are known in China, key opinion leaders (KOLs). To help employees less experienced with social media marketing and live presenting, the company expanded its online corporate university to include special curricula on such topics. Later on, jewelry expert and KOL broadcaster Ming Zhang was recruited to train Ideals employees to further upgrade their broadcasting skills. Regardless of their role and position, employees could have immediate access to online training, and hundreds have since become effective presenters. Companies can and should take steps to retrain employees across different positions.
3. Empower teams. At Peacebird, the executive team has dramatically increased the autonomy of its front-line sales teams. Teams can decide, for instance, which marketing format to use from livestreaming, to friend-circle promotion, to group-buying tactics. The company also tracked the success and conversion rates of different formats and shared this information through the online sales network, empowering employees to use collective data and knowledge.
Meanwhile, the company also launched a virtual chatbot, an online sales service system, and, finally, a set of standard operating practices, along with a scoring and measurement system for customer-facing employees. The system tracks conversion rates to identify the online sales practices that result in the highest actual sales. Such focused activities helped activate sales teams, provide needed resources, and offer quick feedback loops.
4. Fuel offline traffic. Physical department stores and shopping malls in the U.S. have long struggled to compete with online players. However, physical stores can be an important asset to connect with customers when coupled with technology or, more precisely, brick-and-mortar stores remain an important asset to connect with customers despite the arrival of e-commerce. The amount of space needed may have decreased, but the need remains nonetheless: This is where human interaction takes place. Coupled with technology, brands can provide a seamless experience. In fact, online success may fuel offline foot traffic to brick-and-mortar stores. During the first week of March, as China began to ease traffic restrictions, Forest Cabin saw its online sales rise by 400%, matched by another 140% jump offline. Our offline layout will remain unchanged because of digitalization, but we will focus more on the integration of online and offline sales and customer engagement channels, said founder and CEO Sun Laichun. In the future, it is imperative that different channels are optimized and integrated.
5. Virtualize the back-end supply chain. Amid the closing of physical stores during quarantine, retailers can gain agility by investing in virtualizing their back-end inventory systems. For example, Peacebird shared real-time sales data with suppliers and franchisees, who, in turn, integrated it into various enterprise resource planning (ERP) systems to generate aggregated data analytics. Transitioning from a push to a pull strategy, Peacebird lets demand determine when and how it should ramp up production.
To quickly meet the needs of this new strategy, the company leveraged its existing cloud-based warehouse management system (WMS). The scalability of a cloud-based supply chain proved crucial: Over 65% of its total offline sales were shipped through its cloud-based WMS across 3,000 chain stores, which amount to nearly 10 times the total in 2019.
Finally, production is organized as a network of factories, some of them but not all owned by Peacebird. The companys own factories have the highest flexibility and complete the design-to-production cycle within a week. Meanwhile, the partner factories supply the company with more conventional economies of scale but with longer turnarounds.
Business leaders should consider rethinking how their back-end supply chain could be more responsive to demand by leveraging existing cloud solutions. Thats how efficiency and flexibility can both be achieved.
The coronavirus has been devastating for many companies, turning countless shopping malls into retail wastelands. Yet the pockets of success also illustrate a path to forge ahead, despite the most challenging conditions, highlighting the wisdom of the saying, no crisis should go to waste.
Mark J. Greeven is a professor of innovation and strategy at IMD Business School in Switzerland and the author of Pioneers, Hidden Champions, Changemakers, and Underdogs (MIT Press, 2019). Howard Yu is the author of Leap: How to Thrive in a World Where Everything Can Be Copied (PublicAffairs, 2018), Lego Professor of Management and Innovation at the IMD Business School in Switzerland, and director of IMDs Advanced Management Program. Jialu Shan is a research fellow at the Global Center for Digital Business Transformation, a joint initiative of the International Institute for Management Development (IMD) and Cisco.
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Why Some Retailers Are Thriving Amid Disruption - MIT Sloan