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3 Expert Views on Coronavirus and Retail Supply Chain

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No one knows when the outbreak will end and how much of this new “normal” will impact the retail supply chain.

Read three retail supply chain experts to get their different takes on what’s happening now, how organizations are responding, and what kinds of things are expected to change.

Jim Barnes, CEO, enVista

Barnes said one result of the reset would be “a great deal of channel compression or contraction” as manufacturers and brands that have been staying on the sidelines jump with both feet into direct-to-consumer commerce, especially those in CPG.

“Now they’re throwing their gloves off and boom, going into DTC if they can,” Barnes said. “If I’m Nestle or Kellogg, I’m reevaluating channels that have typically used linear distribution, from manufacturer to distributor and retail. They need to figure out a way to bypass all that and go as direct as possible. Will that be 100%? No, but those that do will find more relief if something like this happens again, it is about having an agile network that can respond.”

Barnes said manufacturers and brands, especially those with enough recognition and awareness, need to push past concerns about channel conflict when looking at adding DTC.

“At NRF this year, I spoke with a newly appointed Executive that runs digital for a major chocolate manufacturer who wished she could get (leadership) to wake up to digital and DTC,” he said. “They’re all afraid of channel conflict, she told me. I said you have an incredible brand today. Have you heard about Nike? Do you think they’re concerned about channel conflict? They have enough brand awareness.”

For smaller manufacturers and brands, Barnes suggested leveraging marketplaces like Amazon, Walmart.comWayfair.com and others. Overall, he said, supply chains have to become more compressed.

“Manufacturers and distributors will look more like retailers and compress time from the top down, while retailers will look more like manufacturers and distributors,” he said. “I see supply chain compression, channel compression coming. As a retailer, I’m going direct to manufacturers and eliminate agents or distributors. It’s ultimately about time compression. If I can compress time, I can provide agility in the network to respond quickly when I need to.”

Barnes said there will also be an even significant shift to BOPIS and curbside pickup – which already had been growing, and is now accelerating during the coronavirus pandemic.

“Those companies that have those platforms in place today will succeed,” he said. “Stores won’t go away; they’ll just look different. We’ll have a lot more dark stores and MFCs, operating BOPIS and ship from store location to minimize human interaction. They’ll stock shelves at night, with a flight crew to pick orders for pickup at the curb or a locker. We’re already starting to see that.”

Barnes called out Best Buy as an example of a company getting the supply chain right. In light of the current crisis, Best Buy has limited store fulfilment to curbside pickup. “They can make that pivot because of the OMS technology they have in place,” he said. “They expose inventory and immediately change the fulfilment type to accommodate the new consumer norm.”

In line with that thinking, store footprints in a metro area will continue to shrink, Barnes said, with more of them flipping to same- and next-day fulfilment centres for the area. Also, he said, adoption of collaborative robots will grow as fulfilment centre workforces shrink and human interaction is reduced.

Robert Escobar, head of supply chain operations, Le Tote

Escobar said in talking to other retailers it’s been “open season” on contract renegotiation amid the coronavirus outbreak. Le Tote, which last year purchased the Lord & Taylor chain from Hudson’s Bay Co., is now 100% online with all Lord & Taylor stores closed. Le Tote has a handful of rental shops inside Lord & Taylor locations.

“Retailers are looking for extended payments, asking for discounts, negotiating with landlords on rent,” he said. “Everything is being reevaluated, trying to preserve cash in general. We’re all doing that while we don’t know where the bottom is. In reality, being in the San Francisco Bay area, we were a bit in front of it as it was the first area to get locked down.”

With last year’s tariff actions against China, Escobar said Le Tote started relocating sourcing from there six months ago, allocating some to Vietnam and some to Central and South America. So that reset positions the company better on the other side of the coronavirus situation. “It’s now about 30% to 40% from China, where before it was 100%,” he said.

Another longer-term supply chain reset at Le Tote, Escobar said, will be a gradual vendor shift away from designers and towards private-label manufacturers, to provide more supply chain visibility.

“We can control inventory through our procurement direct from private label factories vs. designers,” he said. “We’re running about 30% supplied from private label, and we’d like to bump that up 10% or 15%. When we buy from designers, we don’t know where the factories are or their capacity. We’ll take advantage where we can, incremental improvements.”

Escobar said all things considered Le Tote’s main apparel rental business is doing well. “We’ve been pleasantly surprised,” he said. “Some people have cancelled or paused their subscription. On the one hand, we’re hearing from people they’re still getting dressed for work, having video calls, keeping some normalcy to their days. On the other hand, people are misinformed about the safety of rental clothes. It’s all science-based, the temperature of the water and detergents kill 99.99% of anything on clothes.”

Part of the new normal for Le Tote will be smaller assortments and less inventory. “We want to minimize any effect and expenses that aren’t bringing any profit to the operations,” Escobar said. “We’ll get very picky on the inventory we bring in. The days of wide assortments are passed.”

Steve Johnson, SVP consulting, Johnson Stephens/Hy-Tek Material Handling

Johnson agreed with Barnes that supply chains need to be compressed, and over-reliance on cheap Chinese goods has to end.

“Right now, it’s hitting them hard,” he said. “I hear people saying, ‘I’ve got two months’ of supply of what I need because I ordered before the Chinese New Year. I have one client with $74 million in furniture on the water because they have to order so far in advance. It’s not going to be easy – it can’t be just a retailer or two making a change. They need to come together and make a collective effort on behalf of the country or stay greedy when it comes to pricing.”

For example, the price of apparel from 1990 to now, he said, “is flat to slightly up. That is a symptom of this, going in for cheap imports and destroying industries.” Johnson said he’d been encouraged by the return of U.S. manufacturing in categories like appliances and furniture, although he doesn’t see textiles and apparel coming back here.

Retail and e-commerce companies that have invested in past years in expanding their distribution network are benefiting now in the coronavirus crisis; Johnson said, able to get orders to customers across the country faster.

“Some clients have limited distribution, maybe a single distribution centre, so they have to shift to customers in certain geographic areas,” he said. “Some can’t operate at all right now. If I have multiple D.C.s, I have more touchpoints. It’s definitely showing up now. If you don’t have the product in your eastern D.C., you might have it in the Midwest, and you can get it out the door.”

Johnson agreed with Barnes that robotics adoption is bound to grow substantially, given labour shortages and higher wages, among several other factors. Amazon’s implementation of a $15 minimum wage across the country, and now offering $17 per hour in the crisis, is putting pressure on all other fulfilment employers.

“We have a client that’s an $80 million wholesale footwear brand, selling to Macy’s and JC Penney, with not a huge fulfilment business but growing it,” he said. “Do you put in conveyors or robotics? I think robots make a whole lot more sense, especially if they can lease them. They’ll only need seven bots to start, and maybe in five years, it’ll expand to 30. They’re facing challenges as an SMB that can’t deal with the capital outlay of a three-level pick module. They’ll get as good or better production rates, and it’s cheaper to rent.”

This article originally appeared in Multichannel Merchant written by Mike O’Brien. Minor edits have been made by Supply Chain Channel.

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