If fashion companies don’t take certain actions now to navigate the impacts of COVID-19, they’ll be in for an even more challenged future.
The coronavirus pandemic has quickly revealed inadequacies in the current operating model ad the apparel sector is getting a crash course in necessary shifts and prevention to navigate the next crisis.
The scale of change brought on by the coronavirus, will also bring on an imminent restructuring of the global economic order, according to Kevin Sneader, global managing partner of McKinsey & Company in Hong Kong, and Shubham Singhal, a senior partner in McKinsey’s Detroit office and the global leader of the firm’s healthcare practice.
The two have identified five stages that public and private sector leaders should consider as they move from battling the impact of COVID-19, to the path to the next normal.
Before all else, leaders and CEOs need to determine the scale, pace and depth of action required at state and business levels to move through the initial crisis.
Crisis-response efforts are already underway in most countries as the COVID-19 outbreaks begin to spread globally. The initial action is born by healthcare systems as they mobilize to increase bed capacity, supplies and skilled workers. Similarly, impacted public and private firms have also begun working on their own employee-safety plans, as well as out-of-office arrangements to ensure continuity of their respective businesses.
Some companies, like apparel retailers, are dealing with acute slowdowns in their businesses, while others, such as food and beverage suppliers, have seen a surge in demand and are now working around the clock to produce goods to meet new needs for food, household items and paper products. Yet others still haven’t figured out what to do.
“A toxic combination of inaction and paralysis remains, stymying choices that must be made: lockdown or not; isolation or quarantine; shut down the factory now or wait for an order from above,” McKinsey explained. “That is why we have called this first stage Resolve: the need to determine the scale, pace, and depth of action required at the state and business levels. As one CEO told us: ‘I know what to do. I just need to decide whether those who need to act share my resolve to do so.'”
There’s no question that resilience is a vital necessity as both public and private sectors grapple with the pandemic that’s caused a growing and concurrent liquidity and solvency crisis across multiple industries. That’s exacerbated by the uncertainty over how long the health crisis will last, which in turn is undermining business confidence.
A McKinsey Global Institute analysis indicates that the economic impact of virus-suppression efforts could be the biggest in nearly a century. In fact, in Europe and the United States, “this is likely to lead to a decline in economic activity in a single quarter that proves far greater than the loss of income experienced during the Great Depression,” the consulting firm said.
Because the COVID-19 impact will, at some point, “upturn established industry structures,” McKinsey says this is the time for businesses to act on “broader resilience plans” to enable the survival as the current challenge will forever reset competitive positions in different industries.
Return is the stage China is in now—a slow return to work after a severe shutdown—though this stage is marked by its own challenges.
At this stage, many companies are reactivating their entire supply chain and finding out that there are disruptions on a global scale as the coronavirus has impacted countries at different times and to different degrees.
“The weakest point in the chain will determine the success or otherwise of a return to rehiring, training and attaining previous levels of workforce productivity,” McKinsey said. “Leaders must therefore reassess their entire business system and plan for contingent actions in order to return their business to effective production at pace and at scale.”
The consulting firm cautioned that companies also need to consider the possibility of another potentially sharp economic pullback should winter bring a renewed crisis in the form of a second surge of the virus. As healthcare systems can use the summer months to test new surveillance capabilities and bed capacity, businesses can use the time to think about similar improvements to existing plans should a need arise that requires mobilization efforts again.
Reimagination is the stage at which to consider the shift in consumer preferences and expectations, and when the use of technology to deliver on new demands will become clearer. Companies that reinvent themselves through insight and foresight as preferences evolve will “disproportionately succeed,” the consulting firm predicted.
More importantly, McKinsey sees the pursuit of efficiency giving way to the requirement of resiliency, one that possibly changes the end of supply-chain globalization and moves production and sourcing close to the end user.
At this stage, businesses will learn about vulnerabilities and opportunities, as well as a better understanding of costs that are “truly fixed versus variable, as the shutting down of huge swaths of production sheds light on what is ultimately required versus nice to have. Decisions about how far to flex operations without loss of efficiency will likewise be informed by the experience of closing down much of global production,” McKinsey said.
This is when firms will find opportunities to push the envelope on technology adoption through rapid learnings on what it takes to drive productivity when labor is unavailable. That, in turn, will make businesses “more resilient to shocks, more productive, and better able to deliver to customers,” McKinsey said.
In the final stage for companies to consider in navigate a pandemic-scale crisis, governments will likely take a more active role in shaping economic activity. This is when business leaders need to anticipate popularly supported changes to policies and regulations as society seeks to avoid another similarly impactful event like COVID-19.
As the healthcare system looks to change a structure created in the post-World War II period, whether that’s meeting a rapid surge in patient volume or rendering virtual care, other businesses will need to look at changing their own models. Educational institutions will likely need to consider modernizing to integrate classroom and distance learning, for example.
“The aftermath of the pandemic will also provide an opportunity to learn from a plethora of social innovations and experiments, ranging from working from home to large-scale surveillance,” McKinsey said.