Crisis Management and the Coronavirus: Changes in Shopping Behavior
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In WWD’s latest chapter of its special webinar series, “Crisis Management and the Coronavirus,” Arthur Zaczkiewicz, executive editor at WWD, led David Sykes, head of U.S. at Klarna, and Mike Butler, president of operations and strategy at Providence, in a conversation about changes in shopping behavior. The goal of this conversation was to gain a deeper understanding of the consumer during this aberration as a result of the coronavirus pandemic.
Providence, which serves 51 hospitals with its 119,000 caregivers, is one of the largest not-for-profit health systems in the U.S. While hospitals today are under immense stress as they work endlessly to care for the hundreds of thousands who have been affected by COVID-19, Butler says the U.S. supply chain needs serious attention.
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“It’s an absolute disaster,” Butler said. “I think if you go back to 2008 when we were recovering from that financial crisis, a lot was pushed offshore in terms of manufacturing. And that was really focused on how to have lower unit cost, how to just have in time inventory, and roll forward to a crisis like this, and what happened on the U.S. supply chain side was that our inventories are very low as a result of the offshore manufacturing.”
Going forward, Butler said this is something businesses can learn from. “The lesson learned is we have to control our own destiny as it relates to manufacturing,” Butler said. “Mass counts. And [we must] maintain inventories that are prepared for a crisis like we’re facing with the coronavirus because there will be another one at some point in time.”
As unemployment has now reached more than 6.6 million in the U.S., having this manufacturing enter the country could be good news for many. Additionally, Butler shared positive improvement and innovation in digital adaption where it had been frustratingly slow in the last six years as Providence worked to build its digital marketplace.
“I had brought in a team from Amazon to really focus on creating a new different digital experience for consumers in the marketplace,” Butler said. “And we’ve been really frustrated. We’ve built incredible tools [but had] very slow adoption from both the consumer side as well as on the physician side.”
Amid the coronavirus crisis, processes changed. To combat spreading, Providence made the decision to close 42 of its Express Care brick-and-mortar sites and pivot those clinicians to focus solely on telehealth and virtual visits. Whereas Providence used to conduct less than 50 virtual visits daily, now an average of 4,000 virtual visits are occurring every day.
“What we think is great about this is twofold,” Butler said. “One is we help the spread of the coronavirus. But secondly, I think we are really seeing a change in consumer adoption. And given how many people are at home these days, what has been really exciting about this is that our doctors are reaching out to patients at home that have chronic diseases to check in on them virtually, and those that are high risk of depression, [doctors are able to] check in on them.”
“I think that has been truly transformational for our organization, our industry,” Butler said. “Going forward, we hope that holds true because it will not only help not only to provide a better consumer experience and help improve productivity but it should drive more affordability in the cost of U.S. health care.”
During the conversation, Butler said he did think the change would become permanent. “Because in the end, when it comes to market share and competition, the more patients a physician can have in their panel, the better off they’re going to be economically in the long run,” Butler said. “But if they can put them through these more affordable systems, the better off we will be as consumers and those who pay for health care. And I think we can build from it in many, many different ways.”
Digital adaptation has also had a large impact on communication during the crisis. In an act to keep people informed Providence launched coronavirus.providence.org.
As one of the largest buy now, pay later payment companies in the world, Klarna has also seen a shift in consumer behavior as people staying at home looking at shopping online in different ways during the coronavirus pandemic.
Klarna reaches 19 markets across three continents and has brand partners including Swarovski, Hollister, Tibi, Toms and Mejuri.
According to Klarna’s research, despite seeing initial declines, online sales have been resilient. In fact, the data shows that U.S. consumers have focused on e-commerce shopping in clothing, shoes and accessories during this time.
Initial declines in the U.S. varied amongst generations. Millennials saw the smallest decline at 10 percent, followed by a 16 percent decline from Generation Z, an 18 percent decline from Baby Boomers, and a 28 percent decline from the Greatest Generation.
“We believe this decline reflects both the consumer cohorts relative economic position and also general concern around the current crisis,” Sykes said. “And we also found a pretty strong correlation between the cohorts’ inclination to spend online and the declines. Consumers who are likely, or traditionally, more likely to spend online anyway have shown a smaller overall decline than consumers who are used to rarely engaging in online shopping.”
It is important to note that the findings of e-commerce pick up were also varied between generations. While there was an 18 percent increase in spending from Generation Z in the apparel, footwear and accessories category, Millennials increase was slightly lower at 13 percent, and much lower among Generation X with a 4 percent increase.
Additionally, while children’s products saw an 84 percent increase in sales, travel and tickets saw a 40 percent decrease in sales.
Within the apparel, footwear and accessories category, Klarna also found that consumers have focused on purchases that will be conducive to spending long periods at home, including comfortable items and workout wear. While sales are picking back up, they are met heavily with inflation due to wide discounts.
“By category, clothing and apparel initially saw declines of more than 20 percent in online sales in most markets,” Sykes said. “When marked down measures were implemented they’ve actually rebounded strongly, in fact, in a number of European markets online sales are now above their pre-coronavirus levels. In part, we see this being driven by heavy discounting by retailers and I think it has proven to be an effective tool to re-engage with brands for that value-driven consumer.”
Consequently, Klarna’s findings also show a large variance between retailers. While on average data shows a 2 percent increase in online sales overall between weeks pre-coronavirus and the last week of March, there are dramatic swings with some retailers experiencing online sales declining of nearly 100 percent while others are experiencing increases as high as 75 percent.
“When we speak to these retailers, we see three things emerging which largely reflects this data,” Sykes said. “The first is the importance of a key focus on cash observation related to the shutdown of physical retail stores.”
According to a recent report from McKinsey, Perspective for North America’s Fashion Industry in a Time of Crisis, “based on current positions for EBITDA, 5 percent of publicly listed apparel and fashion companies in North America could find themselves with negative EBITDA or untenable net debt-to-EBITDA ratios after three-months store closures.”
“The reality is, unless doors open up within a certain time, it is clearly going to be some real stress put on a bunch of retailers,” Sykes said. “And I think it just reflects the strain on the unusualness of what is happening with physical stores being closed down.”
The second trend is online sales in key categories being resilient but inflated by discounts and the final trend being concern around distribution centers and postal service closures.
“One of the things we have definitely seen in European markets, but less so here in the U.S. is some stress on the ongoing viability of distribution centers’ services as increasing lockdown measures in many markets make distribution centers close,” Sykes said. “We’re also thinking about the European markets’ prioritization, at least from a delivery perspective being given, very much appropriately, to essential services, and obviously significantly impacting online fulfillment for retailers.”
One of the key takeaways from Klarna’s research, Sykes said was that the crisis will accelerate select e-commerce trends. “A lot of these trends which were already apparent, [for example] there was already a longer-term shift to a greater share of retail being online or e-commerce,” Sykes said. “Those long-term trends I think are going to be accelerated by this process.”
To illustrate, Sykes points to retail partners, particularly in the U.S., who have accelerated an introduction of a buy now, pay later solution. “Whereas it used to be a Q3 [plan], now they dramatically accelerate a lot because of the importance of online.”
“My overall recommendation to retailers is this imperative to reduce your cost basis,” Sykes said. “Focus on that cash conservation aspect that is clearly priority number one. What I would suggest though is don’t overlook the opportunities that exist particularly with online being the overwhelmingly the most obvious one, and I think the retailers that are doing well at the moment, they’re the retailers that are walking and chewing gum.”
For More WWD Business News:
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