This past year, dominated by the pandemic, was a difficult year for retail. Some retail sectors like apparel, fitness, restaurants and others have been and continue to be impacted significantly due to forced lockdowns by government and changes in consumer shopping habits. High frequency retailers like food, hypermarkets, and drug stores have experienced increases in sales as consumers have shifted restaurant and take-out food spend to in-home food preparation. Although experiencing a tailwind in sales, high frequency retailers have been challenged by available supply of goods and a need to implement new instore operational processes focused on customer safety.

The pace of change in consumer behavior due to forced lockdowns has been faster and more significant than ever experienced by retailers in any other time period. Online retailers have stolen a larger portion of bricks and mortar sales in the last 10 months than in the previous decade as many consumers, concerned for safety, choose to avoid in store visits. Many consumers also consolidated their bricks and mortar visits to fewer stores with less frequency stocking up on items. Early panic buying created shortages in many product categories and these new customer habits created a shift in the category mix of purchases observed by retailers. Some of these shifts will likely be permanent although the outcome is still uncertain as the pandemic is far from over.

Given the focus on supply chain and store operations many enterprise technology projects planned by retailers for 2020 were deferred, some permanently. Some semblances of normality started to occur in late Q3 and Q4 in 2020 as most retailers had addressed store operational and severe supply chain issues. Consequently, retailers have been planning new enterprise initiatives for 2021 over the past few months. Although pandemic effects have been rising again over the winter in the northern hemisphere, retailers experience in dealing with the early pandemic has meant significantly less disruption in the pandemic’s second wave.

Consumer packaged goods companies have been narrowing their assortment or range of products in response to supply chain challenges by eliminating slow moving or low selling products from their catalogue. This assortment narrowing by CPG companies combined with changes in consumer behavior have seen many retailers focused on assortment planning as a key initiative in 2021. Forecasting has also been a challenge for retailers as traditional time series or machine learning forecasting systems require stable historical trends and consumer patterns to be effective. The pandemic has certainly disrupted the data used by these forecasting systems. Forecasting is also a key component of assortment planning as product selection and setting of regular price points to achieve a desired financial outcome requires accurate forecasting. Many retailers are thus seeking forecasting systems which can overcome the historical data challenges created by the pandemic. Improvements to forecasting systems is also a key initiative for 2021.

A bigger and longer-term challenge to bricks & mortar retail is e-commerce. Retailers have feared the growth and dominance of online retailers, especially Amazon, for more than a decade. The dramatic shift to e-commerce in the last 10 months has created increasing pressure on retailers’ online channels. The question for many retailers is how to cost effectively move a larger portion of their business online with a large fixed-capital asset base in brick & mortar stores. Strategies to compete against online retailers or adapt quicker to an omni-channel model has become more critical in the short term and will drive many initiatives for retail in 2021 and beyond.

The pandemic has accelerated change in retail. Changes that would have taken the next 5 or 10 years have happened in this past year. Retail employee workload has increased, both for in-store employees as well as corporate planners. The pressure to drive cost out of the business will continue to increase as the mix between bricks and mortar revenues and online changes. As the pandemic tailwinds to sales recede towards the second half of 2021 the pressure to reduce cost will dramatically increase. Many retailers may realize a permanent loss of customers to competitors or online retail that has been hidden by sales increases.

Technology will have to play a larger role in retail than it has in the recent past. Intelligent automation driven by AI systems (called autonomous systems) used in corporate merchandise planning, supply chain and store operations must be an imperative given all the new challenges faced by retailers. These new challenges cannot be solved by increased human labour. Retailers must become more flexible to deal with rapidly changing market conditions. Planning for one future will no longer be sufficient as the pace of change continues to increase and the exact future likely to unfold becomes more unclear. Autonomous planning and execution systems can react quicker to market and consumer behavior changes allowing retailers to adapt and thrive. This coming year in 2021 will be a tipping point for high frequency retail in the adoption of AI and autonomous systems.

Retailers considering the move to autonomous should investigate the capabilities of new autonomous technology. Retailers must be sure to not seek solutions based on the last decade’s requirements, but they should focus on defining the future requirement set. Most AI systems are a re-hash or rebranding of existing vendor technologies that have been around for the past decade and are not designed for the next generation of retail requirements.

In summary, we see the pace of change continuing to accelerate. Autonomous technology will play a key role in helping retailers to create new assortments, improve forecasting capabilities, continue to grow into online channels and reduce the cost of planning, store and supply chain operations. It is an exciting and challenging time to work in the retail industry as it has always been!

If any of these topics are of interest feel free to reach out and set up a virtual coffee to chat.

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