Managing demand variability is one thing but a global pandemic? That’s a whole different story. If you thought forecasting sales and understanding consumer behavior was hard enough, how do we make sense of a full-blown humanitarian disaster?
The Coronavirus will certainly ripple through many organizations’ supply chains for months to come and what they may discover is that as the virus spreads, it will impact the bottom line. We need a way of forecasting what the impact on sales will be.
Coronavirus Is Revealing How Much We Rely On Brick & Mortar Transactions
While there is a growing demand for online retail, the truth is that almost 80% of all sales transactions occur in brick-and-mortar stores between people, face to face. Entire economies are built on these transactions. Many companies understand this effect when inclement weather hits a certain area and they see a downturn in retail sales. You can also see this when tragedies (or fear generated by the tragedies) occur. We even see a downturn in regions not directly impacted by a tragedy.
Now enter a killer virus that has the Chinese Government quarantining over 75 million people and nearing over half a million confirmed cases already. If this sounds alarmist, you should turn on any 24-hour news channel and listen to the guests describe the coming apocalypse. It’s easy for us to dismiss all this as just fear mongering and an overreaction. But perception is reality, and when people hear about more cases, people will stay home.
Many people are already talking about the impact on availability of contract manufactured goods from China. Given China’s role as a global exporter of goods, that’s a problem. In due course we will see just how much of a problem it will be. But it’s when confirmed cases reach other regions that it becomes a pandemic. Shoppers across the region are more likely to stay home, leading to a knock-on effect for retailers.
The Cost Of Overreacting & Under-reacting
While you may not know an event is coming, you can understand how it will impact sales during and after it. And this is critical if you want to mitigate the risk to your organization. If you overreact to the initial downturn in sales, you may not be properly prepared for the retail surge when things settle down. If you ignore your consumers’ behavior, you may be overstocked, and all your money tied up in inventory. You need to look a little deeper at how your specific business sector reacts during these times and what your consumers’ behaviors will be going forward.
Understanding How Your Specific Market Reacts To Such Events
What exactly will occur in your specific market and how will the Coronavirus impact your forecast? Here are just a few key factors a demand planner should consider that could impact your forecasts.
Does The Virus Coincide With Your Key Selling Season?
While we may have some winners of this tragedy (if we can call them that) like medical mask manufacturers, other sectors are going to feel a little sick from the lost sales and then the aftershock of those sales not returning. Many companies have a distinct selling season that a good portion of their sales comes from each year. This can be anything from drink cups to outdoor sports to mattresses. A virus that spreads and keeps people home during peak selling season will impact these sectors to a greater degree. While there is no way to know when and if it spreads, consider your selling season and when you are most at risk from external variables that can take away sales you will not be able to get back.
Look At Your Sales Channels
There are still many brick and mortar retailers that rely heavily on foot traffic. These are stores focusing on food and beverage, fashion, or consumer products just to name a few. If consumers stay home, they will order online instead. In the age of mega online retailers like Amazon, brick and mortar retailers are already losing share to online and can ill afford to miss even a weekend of footfall. Understanding your company’s omnichannel presence and market share is just as important as understanding consumer habits during events like these. If your channels are diversified across brick and mortar and online, your exposure is relatively limited. If you’re primarily a brick and mortar retailer, you need to look very closely at how decreased footfall will affect your sales.
Impact On Financial Markets & Consumer Sentiment
Finally, we can not kid ourselves; this virus is going to cost supply chains and consumers a lot of money. The economy will feel these impacts and there is much uncertainty as to how financial markets, particularly the dollar, will react. In the end, there is no doubt that the over-reaction to the coronavirus is going to impact economic activity. The question is, by how much? As financial markets react, consumer spending as a whole may retract, and consumer sentiment may retreat. While this could be widespread and may impact many companies, sectors that are more tied to discretionary spending and leading indicators for recessions may take more of a hit. Understanding how your customers react in relation to these factors can help you prepare.
Forecasting this is not only tricky but trying to predict the next black swan event is next to impossible. While we cannot predict a pandemic, we can better anticipate consumer behavior during and after an event with good tools, data, and skilled business forecasting professionals. The goal is not to forecast a virus but to better understand your customers and the impact of external events on your forecast.
I wish all those affected by this virus a speedy recovery.