In last week’s post, I touched on the impact COVID-19 has had on key areas in the world of retail, one of which is the disruption to long-standing supply chains.
As I discussed in a recent Retail TouchPoints article, the current global situation has exposed vulnerabilities and created unprecedented challenges in stores and operations centers in both forward and reverse. And we’re seeing three key factors contribute to overall supply chain disruption and capacity pressure during this time:
- Store closures
- Lack of secondary channels
- Worker safety
Stories I’m watching:
- National Retail Federation | Through the Retail Lens: Supply chain
- Supply Chain Dive | Amazon extends distribution center shutdowns in France
- Forbes | How Will Retail Respond As Coronavirus Restrictions Are Lifted?
Navigating inventory among store closures
Solving for capacity has been top of mind as many retailers have shuttered their brick and mortar stores or, at the very least, shut down the returns capabilities in stores that remain open. And since more than 50% of shoppers prefer to return items in store, this change has led to a shift in consumer behavior. With that channel no longer available, customers are initiating returns online and we’re seeing more returns go directly to distribution centers than ever before. This, paired with a shift to more lenient returns policies, has led to higher online returns volumes and excess inventory piling up in distribution centers.
Lack of secondary channels
Traditionally, retailers have had options for their excess and stale inventory by ways of outlet stores, wholesale distribution and liquidation. For example, many retailers and brands typically send inventory to their own outlet stores or off-price retailers like TJ Maxx or Marshalls, many of which have not historically prioritized their ecommerce sites. As the population continues to stay at home, outlet stores have been shuttered and these off-price retailers have had to close not only their stores but also distribution centers and halt their limited online operations – leaving retailers with a glut of inventory without a means to offload it and free-up space for revenue-generating activities. This trapped inventory may lead to problems for retailers now and in the future, when things begin to open back up.
Worker safety and new regulations
New societal measures such as social distancing have put worker conditions in the spotlight. Many warehouses are implementing new scheduling practices to limit the amount of employees in facilities at a given time after many major warehouses have seen confirmed cases of COVID-19. In addition to this, complete or at least partial distribution center shutdowns have become the norm as government regulations put pressure on retailers to halt the delivery and fulfillment of nonessential goods. This has meant that retailers are often not fully staffed or operational in a time when ecommerce sales are booming and returns are being trapped in distribution centers.
The effects of COVID-19 are forcing retailers to reconsider their current facility capabilities and get creative on how to tackle issues of fulfillment capacity, trapped inventory and safety. As a result, we’re seeing retailers turn to technology solutions and outsourcing opportunities as a way to ramp operations and solve for immediate capacity. However, this pandemic has been a forcing function for retail in general to revisit current operations and prioritize improvements for future profitability.
Much like everything in these troubling times, the situation is constantly evolving. This week, as some states begin to reopen stores and ease stay-at-home restrictions, we’ll see first-hand how retailers have positioned themselves for a successful transition. As they make their slow return to normalcy, we will continue to monitor how these factors affect retailers and their supply chains.