At this point in the COVID-19 crisis, it should be apparent to every company, consumer and industry that permanent changes are coming, if they aren’t here already. It isn’t enough to know that there will be a new normal—it’s vital that businesses and consumers alike understand exactly what that new normal will look like, the impacts it will have and how they can adjust to changes that are taking place in the context of an oncoming downturn.
How Things Are Changing
- Avoiding large crowds. Even before official shelter-in-place orders were implemented, many people were social distancing and avoiding areas and events with large crowds. In response, many of these events have gone virtual until it is safe to gather in close quarters with one another once more.
- Increased spending on groceries. As more people are staying home and many restaurants are closed, spending on groceries and household items has increased exponentially. While most food supply chains aren’t in crisis, people are buying large amounts of food soon after it’s stocked, leading to empty shelves in grocery stores.
- Decreased spending on entertainment, beauty, transportation, and travel. Due to both logistical issues and consumers tightening their belts, many industries are facing financial hardship. Most entertainment outside of the home is inaccessible.
- Increased spending on at-home entertainment. As people are unable to go out and find entertainment according to their usual preferences, they are replacing outside entertainment with streaming services, video games and board games.
- Bulk-buying and stockpiling. Increasing demand is outpacing supply, a situation that is exacerbated by consumers focusing on stockpiling and bulk-buying nonperishables in preparation for extended quarantines. Stores that offer bulk-buying and delivery are more successfully catering to current customer needs, helping them stay afloat during the pandemic.
As the pandemic continues, we are seeing several major trends emerge. The first is an increased use of digital tools and technologies. In a world where human contact could be potentially deadly, it’s important that people get as much physical distance between one another as possible. According to a study from the Harvard School of Public Health, social distancing may be necessary through 2022 to prevent a resurgence of COVID-19, which means digital solutions that help enable social distancing are going to remain an important part of daily life.
Second, consumers are spending less, a trend which we can expect to continue as unemployment numbers rise. While some industries such as the at-home entertainment industry are seeing gains, most industries are suffering due to a lack of consumer confidence in the market and a need to save money during the sudden economic downturn.
Third, consumers are increasingly buying long-lasting goods in bulk. This situation presents a challenge to just-in-time inventory strategies. Companies that produce perishable goods could also see drops in demand that make it necessary to consider pivoting product offerings.
Increased reliance on automation
Automation minimizes the need for human interaction, making it a useful tool for maintaining social distancing and preventing the spread of infection. Manufacturers that already have automation in their factories will be more easily able to maintain social distancing best practices and can reallocate human capital to other parts of the business.
While it may not be possible for manufacturers to make new investments if they’re experiencing financial distress, in the longrun manufacturers that prioritize automation will be able to lower costs, improve efficiencies, and reduce health risks in their workplace.
Bulk-buying and stockpiling
Manufacturers should evaluate their current inventory system and determine whether bulk-buying and stockpiling will outpace their supply. If these behaviors remain permanent, they will need to rework their stocking strategies to maintain adequate supply to keep up with demand. Consistent shortages could mean lost revenue for customers, which might motivate them to reconsider their supplier relationships. There is a silver lining, however: Moving to a bulk sales model can reduce packaging costs—good news for most manufacturers, with the notable exception of packaging manufacturers.
Resilience through recession
Even after the worst of the COVID-19 crisis abates, a recession is all but certain and a depression is not an impossibility. While it is impossible to predict how long it will take the economy to recover, manufacturers should operate under the assumption that it will be an extended downturn.
In order to weather the downturn, manufacturers should take a hard look at their customer base and identify at-risk customers along with their level of exposure to them. If their ability to safely drive revenue in the next two-to-four months is in question, they should take preemptive measures to mitigate potential losses. They must take actions to right-size their cost structure, ensuring they can remain liquid with the decline in revenues.
If the events of the past few months have been any indication, manufacturers will need to get comfortable operating in an environment of constant uncertainty and change. Manufacturers need to monitor these changes and determine the implications for their business strategy and their relationships with their suppliers and customers. With a combination of foresight, agility, and financial discipline, manufacturers will be able to navigate the oncoming downturn, adapt to shifts in customer behavior, and ultimately reenter growth mode.
BDO United States:
- Eskander Yavar / Partner, BDO Digital
- Jeffrey Pratt / Managin Director