Australian Retailers - The Covid-19 impact, challenges and opportunities

So 2020 is turning out to be a year to remember. 

Makes the last year look so wonderful, when the worst thing that we had to worry about was the disappointing ending of the Iron Throne melting in dragon fire (SPOILER ALERT !!!) ended-in-the-worst-way-possible

We would call this COVID-19 pandemic a Black Swan event , if we weren’t staying in Melbourne, where black swans are pretty common .. and beautiful. 

The health impact of this pandemic is going to be catastrophic for the Australian economy unless we manage to flatten the curve. As I type this, we have around 3200 cases with the number doubling every 3-4 days. Given that we are just entering the annual flu season, its expected that things will get worse than it gets better. 

On the positive side, Australia is testing more per capita than any other country in the world, so I personally feel that we maybe better prepared to arrest the spread. In any case, all the news articles seem to point to a long year ahead of us.

The economic impact is going to be significant as well.

The images of long lines in front of the Centerlink similar to the ones last seen during the Great Depression are a stark visual of the human face of the numbers.

Australian Retail – The Impact

On the work front, it has been a fairly hectic week. 

I work with retailers in Australia and my wife works for a Melbourne based retailer as well, so we are at ground zero of the significant challenges being faced by the Australian retail industry. 

As Australia prepares for a full lockdown, similar to what New Zealand declared last week, full scale store shut downs is imminent. Several leading retails groups have already declared that they will be closing down stores for several weeks leaving thousands out of employment. 

For a sector that’s been reeling under poor trading conditions that are partly driven by change in customer’s buying behaviour (shift to online) and by the legacy systems and processes that are a huge hindrance to agility to respond to the changes, the impact of this pandemic can’t be over stated. Remembering that sector has barely recovered from the shock of the devastating bushfires that had a huge impact on general business environment.

While most retailers have had a short spike in demand with Aussies panic buying everything from toilet paper to alcohol (and real estate properties), the mass unemployment numbers due to the Covid-19 crisis are pointing towards a long and difficult financial year ahead. Its certain that things will get worse before they get better.

The immediate impact to the major retailers are unfortunately only the beginning of the domino effect. The massive unemployment would lead to significantly lower demand over the next year. This would mean that most retailers would cancel orders from their suppliers. This would mean that several suppliers will need to shut down operations since there would be no need to produce goods if there is no demand. This would not only cause secondary job losses in those sectors, but also may be the end of the road for some of them. Eventually when the crisis is over, there may not be enough suppliers and hence the supply networks for most retailers, especially those that are overly reliant on Asia and India, will get disrupted for months.

Australian Retail – The Challenges

I am fortunate to spend a lot of time working with the business and technology leaders in the Australian industry and based on what I know, below are some fundamental issues in the technology side that are getting exposed as we encounter such an unprecedented event. 

1. Lack Lustre Digital Platforms – With the Australian customers being amongst the most technology savvy in the world, most retailers have been able to get away with fairly basic digital platforms that replicate the buying experience comparable to a vending machine. As customers moved to buying more online, the online revenues for all retailers have grown, in-spite of the limited digital capabilities. This has further delayed any investments in building truly differentiating experiences – why fix something that’s not broken. However, as we look at a scenario, where most Australian retailers may have to become digital-only retailers, unfortunately, their current digital platforms are not ready to scale and support such a scenario. 
2. Legacy Systems – Most retailers have also under invested in their core technology systems, that support their physical store networks as well, over the last several years. Core backend (Merchandise, Supply Chain and Finance systems) as well as Store Systems (Point of Sale) for most Australian retailers are atleast 10-30 years old and hence are no longer fit for purpose. Adding to the challenge is the situation where these systems have been so heavily customised with years of band-aid solutions that most retailers are not able to make any changes to them without risking catastrophic failures. These systems are not going to be able to provide the agility and insight that these business require to support their businesses in this crisis. The over reliance on a handful of packages that are available to everyone of their competitors means that there is again no real competitive advantage to anyone. 
3. Inflexible Cost of IT – This is another crucial area where there has been a distinct lack of innovation with most Australian retailers. While most global players have moved to more flexible constructs such as hybrid cloud solutions and distributed agile IT teams, several Australian retailers are still locked in long term physical infrastructure, on-prem applications with fixed running costs and dedicated onsite teams. None of these components provide the elasticity to go up or down in response to the business impacts such as the one we are facing now. In the absence of this flexibility, the only lever for most IT leaders to rein in costs remains “standing down” IT staff or cancelling Capex investments which are going to only add to the challenges listed in the earlier two points.
4. Severe ICT skills shortage in Australia – While some retailers have been looking at modernising their platforms, they are faced by a chronic shortage of relevant skills in the market. As retailers have to compete with the well-funded banks, telcos and government sectors for securing top digital talent from a limited pool, the problem is further exacerbated. 

Without labouring the point, its apparent that the current outlook is grim for most Australian retailers. 

Australian Retail – The Opportunities

However, it wouldn’t be appropriate to generalise the lack of action in this space. A few retailers are ahead of the pack in some of these aspects than others. 

For example, Kmart Australia recently embarked on a significant IT modernisation program to “strangle it’s mainframe out of existence” as well as train their entire IT team on AWS as it addresses some of the challenges that I have listed above. 

Bunnings have announced it will set up a dedicated technology development centre in the Indian software hub of Bangalore to address the Australian IT skills shortage. 

A few other multi-brand retailers are working with us to enhance their online capabilities to ensure that they are preparing their digital channels to become credible business channels rather than just a secondary extension to the traditional physical store channels. 

The shock from this pandemic should serve as a wake up call as we all try to deal with the current and prepare for the future. 

I believe that the IT leaders that will not only survive, but prosper in the next few years are the ones that will be looking at some of the below approaches to bring in differentiation and agility to their teams and operations : 

• Modernise through self funding models : While everyone would like to invest in modernising their platforms, there is going to be a significant constraint of capital expenditure in IT. Working with partners to create self funding business cases will be critical to even start the journey. 
• Bring in elasticity to IT operations : Move away from the mindset of fixed opex models and fixed human capital to a more agile sourcing models for both platforms and people. Explore innovative commercial models to allow that the IT costs are responsive to change in business demands.
• Embrace the global talent pool (and re-skill) : The ICT skill shortage in Australia is not going to be resolved any time soon. Not every retailer can build an offshore captive centres and those that do will need to struggle with high attrition, low productivity and accountability that has always plagued IT captive centers. However, working with global technology services partners to assist in captive operations as well as massive re-skilling initiative for in-house IT teams will be critical to ensure the success of such initiatives. We have been working with some key retailers in helping them embrace a talent capability model that extends and scales their existing teams with a global team and experience at a significantly better value than paying exorbitant prices for small “niche” consultants that lack the global experience or scale to provide any significant differentiation.
• Automate, Automate, Automate : One of the consequences of legacy systems and traditional processes is the proliferation of manual business processes. Adoption of automation across several back-office processes will be crucial to reduce the reliance on individuals as well as improve productivity of teams. Automation of customer facing operations such as contact centers and fulfilment operations will provide significant differentiation as retailers increase reliance on digital operations. IT operations can automate several manual tasks to ensure that the limited staff can focus on supporting more critical functions. This automation doesn’t require large transformation programs to bring in more commoditised and expensive packages. We have been working with retailers to bring in automation on existing legacy systems (even the ancient green-screen ones) to ensure that they are able to achieve business benefits without having to spend millions. 
• Data Driven Operations : Businesses need to get access to the right data to make decisions rather than relying on “we-have-always-done-this”. The legacy systems are simply not capable of providing such information and often require large teams working on spreadsheet extracts to get operational insights. Leveraging light-weight yet powerful analytics platforms such as the “Live Enterprise Suite” from Infosys will enable retailers to extract critical business insights from existing legacy system of records (read – ERP, WMS, CRM, Enterprise Data Warehouse) that would enable a sentient and responsive decision making capability.

We are working with all our customers to see how we can support them in this critical period and ensure that we work through this challenging period. Business continuity plans have been prepared for all our customers and we are in touch with all our retail customers in Australia and New Zealand to ensure that there is no impact to on-going services. 

We have also got a few free offerings that can help some of the immediate challenges that our clients maybe facing with large remote working. Amidst the #COVID-19 pandemic, it is our endeavor to help retailers stay connected with employees to ensure their safety and drive business continuity. We are offering a no cost implementation of ServiceNow’s 4 emergency response apps to manage #workflows.

We have also released quick automation solutions to help the overloaded IT and customer service teams by leveraging chatbots and other self-service solutions to enable them to respond more effectively to queries and requests.

Please do reach out to us to deploy them into your environments if you feel they may add value to your operations. For more details on what we are doing in response to this pandemic please visit this Link.

We are also working with all our employees in the region to ensure that they are safe and secure. Our business leaders and HR teams remain actively engaged and prepared to support all employees. A few “Virtual Beer-O-Clocks” and regular “R-U-OK Check In” sessions are in progress to ensure our employees remain connected and engaged. 

I have been sometimes been accused of being overly optimistic and hence I continue to believe that we will get through this together. 

If there is any way that I can help you (or your organisation) both professionally or personally, then please feel free to reach out to me. 

Until we get to meet again, I wish that you remain safe and healthy. 

Regards,

Maloy

P.S. The above thoughts are personal and don't represent the position of my employer. Copyright of all images used in the article remain with the original owners.