Surviving COVID-19: How can Retailers free up working capital tied-up in inventory?
Among the many sectors affected by COVID-19, retail will be one of the hardest hit. The sudden decline is attributed to country-wide store shut-downs and erratic behavior of supply chains that are supporting stressed digital channels. Many retailers have as much as 30%-40% of their working capital locked up in inventory, impacting their ability to sustain business operations and maintain profitability. So, the key question most brick-and-mortar retailers are asking:
How should we effectively manage cash short-term?
Based on a newly published report from McKinsey (‘The State of Fashion 2020’), the answer to this question lies in re-wiring business models and operating procedures. Knowing this industry may miss a season, merchants need to work closely with marketing and supply chain SMEs to create their strategies for recovering assortment losses, driving target promotions, creating long-term engagement with new or existing customers, and engaging with communities by contributing back.
In the short-term, retailers need to think about keeping their lights on by identifying regions where stores can re-open, sell the right stuff by assessing highly perishable inventory, and build an optimal marketing strategy to mark down the right SKUs in line with true market demand at the store level:
Some factors for retailers to consider as they work on their short-term strategies:
- Predict release of lockdown in different parts of the country and create an agile store reopening plan. Machine Learning models can forecast the likely window of release based on flattening of the COVID-19 curve (for more, read an insightful blog from my colleague Raj Gangavarapu on ‘AI Modeling in the Time of COVID-19’’), with real-time data analysis and humans in the loop.
- Identify seasonal products stocked in stores and distribution centers that might be subjected to high rates of inventory decay. Identifying the right stuff to sell in stores or to switch online will recoup some of the inventory investments already made while unlocking working capital.
- Understand shift in consumer behavior and spend towards online platforms, consolidate demand signals across channels, and use the signals to improve category-build and channel conversion rate. Retailers need to assess market demand at a micro level, drive focused promotion to recover value, and deliver seamless omni-channel experience (Buy-Online-Pick-in-Store or Bought-Online-Return-in-Store) for better engagement.
While it is understandable that in the short term, many decisions will be led-by intuition, let’s not discount the value of data and analytics. As the situation changes rapidly, smart decision makers need to model countless scenarios that are likely to happen in the near future, which will require decision intelligence helping them at all steps.
Are you a retailer struggling to navigate the COVID-19 situation? How are you planning your business in the short term? It would be great to hear experiences from the frontlines.
About the Author:
Gaurav Johari is Director (Business Solutioning) for diwo, focused on articulating the right solutions to address key business problems, delivered through a decision intelligence platform. He has 15 years of experience working in management consulting, pre-sales and client services. He has extensive exposure in strategy consulting, business process management and business transformation across industry verticals like Retail, Telecommunications, Media and Hospitality. Also, he brings specialized expertise in the application of AI, advanced analytics and decision science in the Retail / CPG sector.
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