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Thriving in the New Normal Means Retail and Startups Must Play Nice: Deloitte

While non-essential retailers are trying to rebound from the mass coronavirus store closures by reopening the physical locations, those who intend to truly win going forward must embrace “unified commerce logistics,” which requires collaboration with more agile startups.

During this new normal, established traditional retailers, namely department stores and mass merchants, are operating on the defensive and stand to lose the most consumers compared to CPG manufacturers, major tech companies and startup technology companies, according to Rani Argov, co-leader and head of strategy at Deloitte Digital.

To that point, these retailers can either engage with startups to leverage assets beyond their typical strengths of stores, warehouses, products and sales associates or become redundant in the space. This imperative comes as Amazon—which Argov defines as a tech company—continues to extensively leverage data to grab market share and bolster its supply chain.

“In order to create that commerce advantage, they need to utilize the data they have, they need to have the ability to test new business models,” Argov said. “I’m a great believer in the fact that finding the right ways to bring startup technology companies to join forces with the heritage incumbents of an industry is a tremendous way to create mutual value. If the retailers can leverage the physical and brand infrastructure alongside the pace of movement and the data that startups can bring to the table, then you have a really compelling situation that could ensure consumer value that comes from the best, cost-efficient experience.”

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In a fireside chat, Argov and Miki Weinberg, senior vice president of strategy at logistics company Bringg, explored the impact of COVID-19 on logistics and commerce, and identified how retailers must adapt their supply chains to modern shopping habits.

To illustrate just how rapidly retail has had to react to the shifts, Weinberg cited data from the U.S. Department of Commerce and Bank of America showing that e-commerce grew from 16 percent of total retail sales in January to 27 percent of sales in April. Argov indicated that e-commerce penetration now stands at approximately 29 percent.

“It might not stay there, but it definitely will never go back to 16 percent because people will be exposed to direct-to-consumer models,” Argov said. “Shoppers are now accustomed to that, and some of them will obviously stick to that way of doing businesses.”

Argov identified three dominant consumer considerations that are expected to reshape choice mechanism as part of the “new normal” established by COVID-19: hygiene and trust, the capability to accomplish more remotely and economic uncertainty.

As part the first consideration, consumers are becoming more involved and aware when choosing products and services, and that their knowledge of the merits and trust of the product is key toward a final purchase, Argov said. This could play a major role in the level of comfort shoppers have in buying and wearing certain clothing or accessories and can extend to decisions such as purchasing apparel on resale or secondhand markets.

The “remote” consumer consideration shows that retailers need to take necessary steps to adapt their channel strategies, specifically when it comes future investment priorities within both commercial real estate and delivery/logistics platforms going forward. Argov argued that this must be reflected in new business models as priorities shift away from physical dominance to customer-centricity and data-driven engagement strategies.

“If I try to understand the type of assets in the old economy, dominance was achieved by physical assets, such as the point of sale, the truck, the physical product,” Argov said. “When dominance was achieved by the physical assets, the business was very self-contained and to get physical advantage I needed scale, which meant large and structured was the way to go-to-market. If you think about the new type of customers, collaboration and agility are not just buzzwords. Collaboration, meaning I build my business to work with external providers throughout the value chain. That’s the only way to rapidly grow, or rapidly shrink without burdening capital expenditures.”

The final consideration, looming economic uncertainty, has coincided with a massive U.S. unemployment rate of 14.7 percent in April, and a rash of store closures that affected many large apparel retailers and SMBs alike. The implications of this mean more “gig economy” positions will open in the future and the luxury sector will be threatened as more shoppers seek to save money.

As more retailers adapt to these consumer considerations, they must be able to react to extreme volatility within the supply chain. But to accomplish that, many are going to have to be more willing to hand off more capabilities to third-party partners.

“I should have the ability to extradite things that might not be my forte to external sources, such as taking products from Point A to Point B, or warehousing or purchasing,” Argov said. “It’s not an easy task for retailers and brands because it allows a certain amount of openness and sharing data and knowledge, but I think it’s mandatory, and more of my clients now seek the capabilities to have that modular supply chain plugged into their mainframe.”

Weinberg said the desires of many of Bringg’s clients reflect this decision-making process, in that they are relying on and expanding their own fleets to meet rising online shopping demands and also want to plug into third-party fulfillment companies to respond to the COVID-19 surge. However, they don’t want to build their entire infrastructure around the third parties as it is unclear how long the e-commerce wave will continue.