Why Some Retailers Are Thriving Amid Disruption 7/3/20, 7:03 PM

Why Some Retailers Are Thriving

Amid Disruption
Retailers that successfully adapt to the pandemic’s
social-distancing requirements offer a model for
making a quick digital pivot.
June 29, 2020

A crisis reveals as much as it devastates. Retailers that were struggling

before the coronavirus outbreak are now crumbling. Not well positioned to
pivot going into the crisis, J.C. Penney, with more than 800 stores and
nearly 85,000 employees, recently filed for bankruptcy, joining Neiman

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Marcus and J. Crew in the running list of retail casualties in the last two
months. Other retailers have been forced to pivot quickly, and some have
done so successfully, like Target, which reported a 141% first-quarter
increase in digital comparable sales, albeit at a significant cost. Walmart
also appears to be well positioned and saw a comparable sales increase of
10%, including a 74% jump in online sales.

However, in March, overall U.S. retail sales, including online transactions,

suffered an 8.7% drop. That was the largest monthly decline on record
since 1992, when the data was first made available by the Census Bureau —
until April, when almost 630,000 outlets were forced to close, plunging
sales by another 16.4%.

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In China, where businesses are further ahead in reopening than in the

United States and other countries in which peak outbreaks occurred later in
the year, wearing a mask and having one’s temperature checked when
entering a mall or supermarket are compulsory. As retail resumes in phases
in portions of the U.S., it’s expected that measures to promote physical
distancing and prevent virus transmission will remain in place for months to
come. All these create friction, which will decrease foot traffic for another
few months. No silver lining is in sight. The decline is likely to continue, if
not accelerate.

And yet, a mortal blow to retail has not been felt universally. Some

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companies are thriving amid the darkest of months.

Consider Peacebird, a billion-dollar fashion retailer with seven brands and

4,600 brick-and-mortar stores. It’s a Chinese brand with a growing
reputation for resilience. The company achieved revenue of more than 10
million yuan ($1.41 million) during the first three weeks of the Chinese New
Year starting Jan. 25, the period when the coronavirus outbreak ravaged
Wuhan and triggered the complete lockdown of the sprawling capital of
Hubei Province. During the subsequent month of February, Peacebird
continued to ship a total of 490,000 online orders while fulfilling 2 million
transactions via its retail network.

Yet Peacebird is hardly alone. Cabbeen Fashion, a leading Chinese

menswear designer brand, managed to top 2 million daily sales via WeChat
Mini Programs during the first week of February, leveraging China’s largest
social media app without resorting to pricing discounts. Multibrand jeweler
Ideal similarly fast-tracked its “New Retail” initiative to navigate the crisis. It
turned the company’s sales associates into livestream broadcasters on
social media, each managing their own virtual store.

Then you have Forest Cabin, a cosmetics company that decided to go

online with full force, promoting products through multiple livestreaming
platforms and several social media apps. After its sales plunged by more
than 90% during the Lunar New Year holiday as half of its physical stores
were forced to close, the company made a stunning recovery during a two-
hour livestreaming session on Valentine’s Day in which the founder
appeared. That move alone brought in some 60,000 visitors and sold over
400,000 bottles of the company’s flagship camellia oil. During the week of
International Women’s Day, from March 1 to 8, the company reported a
fivefold jump in online sales.

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The resilience of these companies is due to one simple fact: They have
transformed their traditional business models rapidly by leveraging a
plethora of digital practices. And this transformation is hardly unique to
China: It is what players must undertake in the economy of the pandemic to
survive.

Some retailers do more online. The U.K. retailer John Lewis is setting up an
online hub giving advice to new parents and providing well-being services.
Walmart and Target are doubling their efforts in curbside pickup, a service
where customers order things online, drive to the store, and wait while a
worker loads everything into their trunk. Perhaps most drastic of all is Nike,
which managed to post 5% in revenue growth during the quarter that ended
Feb. 29 — even though over 5,000 of its stores in China, a key growth
market, were forced to close during January. With the help of livestreaming,
Nike’s online sales in China increased by more than 30%. The brand
launched the Air Max March Party on March 26, which was broadcast online
on Alibaba’s Tmall. It attracted some 2.7 million viewers and 24 million likes,
which translated into more than 5 million yuan (about $705,000) in sales in
a mere three and a half hours. As a result, Nike’s sales revenue for the
greater China region dipped only 5% in the first quarter of 2020, a figure
that even Apple couldn’t match.

How do incumbents achieve such resilience? Here are five lessons for every
traditional retailer:

1. Accelerate operations through multichannel marketing. Speed

matters as retailers switch their operations from an offline or mixed model
to online-only sales. Peacebird chairman Zhang Jiangping responded by
going all in on e-commerce, and he personally drove the transition. He
issued a notification to all sales agents giving them the authority to post
content on social media channels while representing Peacebird. Then, in a

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milestone occasion on Jan. 28, the fourth day of the Chinese New Year,
retail director Andre Gao hosted Peacebird’s first livestream session. His
session, which over 100,000 people joined, inspired and excited many sales
agents at the company. Thousands of in-store sales managers were
motivated to become online sales agents.

Note that such digital-first pivots are not exclusive to Chinese companies.
U.S. kitchen and housewares retailer Williams-Sonoma is doing the same
thing. Although a lot of its digital tools were already in place, during the
lockdown, the company quickly added services such as virtual design chats
with experts, an ask-the-expert chat, and enhanced virtual design options.
Despite closing its over 600 stores, the group posted an increase in
comparable sales of 2.6%.

Meanwhile, department store Intime launched live commerce when the

virus closed its 65 stores. All sales agents, working from home, interacted
with customers via Taobao Live — the livestreaming platform run by Alibaba
— and reached as many new clients in a three-hour period as they would
have in six months inside an actual store. It’s a future that Bloomberg dubs
“the next frontier of shopping.” That’s why Swedish home-goods retailer
Ikea also took to a livestreaming session in March to promote the launch of
its new Tmall store.

In light of these examples, business leaders should reframe their current

thinking of multichannel approaches to retail and embrace livestreaming as
an important arena to create direct, real-time engagement.

2. Retrain for revamps. While many traditional retailers are busy laying off
or furloughing hundreds of salespeople, some are opting for skill upgrades.
Jeweler Ideal proactively transformed its sales associates into online
influencers, or, as they are known in China, key opinion leaders (KOLs). To

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help employees less experienced with social media marketing and live
presenting, the company expanded its online corporate university to include
special curricula on such topics. Later on, jewelry expert and KOL
broadcaster Ming Zhang was recruited to train Ideal’s employees to further
upgrade their broadcasting skills. Regardless of their role and position,
employees could have immediate access to online training, and hundreds
have since become effective presenters. Companies can and should take
steps to retrain employees across different positions.

3. Empower teams. At Peacebird, the executive team has dramatically

increased the autonomy of its front-line sales teams. Teams can decide, for
instance, which marketing format to use — from livestreaming, to friend-
circle promotion, to group-buying tactics. The company also tracked the
success and conversion rates of different formats and shared this
information through the online sales network, empowering employees to
use collective data and knowledge.

Meanwhile, the company also launched a virtual chatbot, an online sales

service system, and, finally, a set of standard operating practices, along
with a scoring and measurement system for customer-facing employees.
The system tracks conversion rates to identify the online sales practices
that result in the highest actual sales. Such focused activities helped
activate sales teams, provide needed resources, and offer quick feedback
loops.

4. Fuel offline traffic. Physical department stores and shopping malls in

the U.S. have long struggled to compete with online players. However,
physical stores can be an important asset to connect with customers when
coupled with technology — or, more precisely, brick-and-mortar stores
remain an important asset to connect with customers despite the arrival of
e-commerce. The amount of space needed may have decreased, but the

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need remains nonetheless: This is where human interaction takes place.

Coupled with technology, brands can provide a seamless experience. In
fact, online success may fuel offline foot traffic to brick-and-mortar stores.
During the first week of March, as China began to ease traffic restrictions,
Forest Cabin saw its online sales rise by 400%, matched by another 140%
jump offline. “Our offline layout will remain unchanged because of
digitalization, but we will focus more on the integration of online and offline
sales and customer engagement channels,” said founder and CEO Sun
Laichun. “In the future, it is imperative that different channels are optimized
and integrated.”

5. Virtualize the back-end supply chain. Amid the closing of physical

stores during quarantine, retailers can gain agility by investing in virtualizing
their back-end inventory systems. For example, Peacebird shared real-time
sales data with suppliers and franchisees, who, in turn, integrated it into
various enterprise resource planning (ERP) systems to generate aggregated
data analytics. Transitioning from a push to a pull strategy, Peacebird lets
demand determine when and how it should ramp up production.

To quickly meet the needs of this new strategy, the company leveraged its
existing cloud-based warehouse management system (WMS). The
scalability of a cloud-based supply chain proved crucial: Over 65% of its
total offline sales were shipped through its cloud-based WMS across 3,000
chain stores, which amount to nearly 10 times the total in 2019.

Finally, production is organized as a network of factories, some of them —

but not all — owned by Peacebird. The company’s own factories have the
highest flexibility and complete the design-to-production cycle within a
week. Meanwhile, the partner factories supply the company with more
conventional economies of scale but with longer turnarounds.

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Business leaders should consider rethinking how their back-end supply

chain could be more responsive to demand by leveraging existing cloud
solutions. That’s how efficiency and flexibility can both be achieved.

The coronavirus has been devastating for many companies, turning

countless shopping malls into retail wastelands. Yet the pockets of success
also illustrate a path to forge ahead, despite the most challenging
conditions, highlighting the wisdom of the saying, “no crisis should go to
waste.”

About the Authors

Mark J. Greeven is a professor of innovation and strategy at IMD Business

School in Switzerland and the author of Pioneers, Hidden Champions,
Changemakers, and Underdogs (MIT Press, 2019). Howard Yu is the author
of Leap: How to Thrive in a World Where Everything Can Be Copied
(PublicAffairs, 2018), Lego Professor of Management and Innovation at the
IMD Business School in Switzerland, and director of IMD’s Advanced
Management Program. Jialu Shan is a research fellow at the Global Center
for Digital Business Transformation, a joint initiative of the International
Institute for Management Development (IMD) and Cisco.

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