Retail’s Two-Pronged Problem

They’re cleaning counters and clothing racks more frequently. They’re adding hand sanitizer for customers. They’re sending emails explaining their commitment to safety. But as retailers—and everyone else—are realizing how quickly the coronavirus can spread, some are finding that the only way to reassure customers and employees that their stores are safe is by closing them.

In just the past two days, Apple, Nike, Lululemon, and others have announced that they are closing all their stores or, at the least, their shops outside the Asia-Pacific region, with the intention of reopening them in a couple weeks. Other closings aren’t voluntary. Governments in France, Germany, and Italy are forcing most shops to either close or severely restrict their hours. Either way, the closings are “unprecedented,” says Craig Rowley, a senior client partner with Korn Ferry and the firm’s global practice leader for the consumer sector.

But as unprecedented as these closings are, so is the supply chain disruption already caused by the outbreak. Together, the two developments create a complicated inventory calculation for retailers. “Retailers do not want to continue to make inventory and hope people will continue to purchase as much online as they might have before this pandemic,” says Brad Berke, a vice chairman in Korn Ferry’s Supply Chain Center of Expertise. To be sure, despite the massive growth in digital sales, most retailers still generate the bulk of their revenue in stores. E-commerce sales accounted for 11%, or $601 billion, of retail’s $3.8 trillion in sales in 2019.

Moreover, given the slowdown in sales, Rowley says retailers are likely closing stores with excess inventory. He adds that when stores do eventually reopen, it could still take weeks before consumers get back to their normal shopping patterns—or supply chains return to normal production capacity. With plants shutting down all over the world, the one certainty of the current environment is that there will be a slowdown in production, especially in Europe and throughout the Americas.

Berke says retailers have been looking for ways to shift production facilities closer to distribution centers to create more flexibility and speed the time to market. He says they should also be moving to a distribution strategy that makes inventory available equally to both physical stores and digital channels; most retailers currently do not. “As stores shut down, retailers will need to shift inventory sitting dormant to distribution centers to fulfill any increase in online orders,” Berke says.

Indeed, Denise Kramp, leader of Korn Ferry’s North America Retail Sector practice, says it’s crucial for retailers to tightly integrate digital channels, particularly on mobile, so consumers can access their brand and offset some of the losses from store closings. Though it seems a long way off, in light of the financial hit they are currently taking, retailers need to make sure they are as prepared as they can be across all channels for key dates and events such as back-to-school sal