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On the second anniversary after the Covid pandemic hit retail, creating challenges unlike any the industry has seen before, the nation’s largest retailers are heaving a sigh of relief. Consumer demand remained remarkably strong throughout.
Last year’s total retail sales were up 19.4% over pre-pandemic 2019 – $5.3 trillion compared with $4.4 trillion in 2019, excluding motor vehicle, parts and gasoline stations. Nobody could have predicted that level of growth back at the onset.
However, as any crisis does, this pandemic uncovered systemic retail weaknesses that have only gotten worse two years in: finding and retaining retail employees and keeping the retail shelves stocked. These are the worries that keep the nation’s retail leaders up at night.
These issues were hiding in plain sight before the pandemic, but they are only beginning to get the attention they deserve now. And retailers can’t move fast enough to get them fixed.
“Retailers have been forced to reexamine their legacy systems and strategies that have shaped the industry for years,” reports Deloitte in a new study entitled “2022 Retail Industry Outlook.”
“In many ways, the pandemic has opened the door for a long-overdue great retail reset that can help move many retailers into more stable – and potentially profitable – positions than ever before,” it adds.
Based on interviews with 50 senior retail executives, all of whom manage companies with at least $1 billion in annual revenues, the study found more than half (54%) expect up to 5% revenue growth this year and an optimistic one-third (34%) are forecasting growth above 5%.
Yet 70% see their potential gains in 2022 hampered by employee shortages and nearly the same percentage (68%) see supply chain disruption as a potential drag on performance this year.
“These challenges – labor shortages and supply chain disruption – all dovetail together,” says Rod Sides, Deloitte’s vice chairman and U.S. retail, wholesale and distribution leader. While the biggest employment shortfall is in customer-facing positions this year, according to 74% of retail executives, over half (56%) see filling openings in warehouse, supply, distribution and logistics as a major concern.
“The issue in both is predictability,” Sides reflects. “Employees need predictability in their hours – for years retailers have relied on part-time workers. They need career options and to be able to earn a living wage. Retailers have done a poor job in providing employee predictability.”
On the other hand, retailers need predictability in when products are going to arrive and need sorting to provide employees with predictable schedules.
“All that has gone out the window,” he shares. “Historically the algorithms we’ve developed for reordering are based on seasonal norms and what retailers did last year and previous years on a week-by-week basis. The algorithms don’t work anymore.”
What was challenging before has become near impossible now. “And on top of that, add supply chain challenges and product shortages and it has compounded the effect. We’re far from normalcy,” Sides continues.
Help wanted
In 2022, retail staff shortages threaten to weigh down retailers’ performance. Currently, there are some 15.7 million people employed in retail, virtually the same number as right before the pandemic hit in 2020.
Deloitte estimates the industry is in critical need of at least one million more workers this year. But then as quickly as new employees are added, others quit. The retail quit rates have reached sky high levels, rising some 24% over the past two years, from 6.2 million at end of 2019 to 7.7 million at close of 2021.
“The cost of turnover is one of those hidden costs that we don’t talk about enough,” Sides explains. “It costs a lot to recruit and to train up a new employee so retaining the ones you already have is critical.”
That means adding a whole host of things, besides predictable work schedules and better working conditions, including a livable wage, benefits and career paths.
“Retailers are trending that way, but it’s still not as pronounced as it could be. Based on competitive and market forces, retailers must take action,” he shares.
Implementing in-store automation can help. “It’s becoming a necessity, not as a replacement for labor but to augment the labor force and get more value from the labor dollar,” Sides explains, as he notes many retailers are forced to provide only minimum coverage in departments for hours in a day.
With retail employees thin on the ground, those that remain have been asked to pick up the slack and do more and more tasks. And pandemic driven buy-online-pick-up-in-store services have stressed in-store personnel even more.
Automation can substitute for some of staffers’ rote jobs, like robots to count inventory on shelves, freeing them up to do the more important customer service parts of their job.
“In the next ten years, we will see a very different in-store experience due to automation and robotics. But it’s going to take some time to implement it and figure out what it should look like. Ultimately, automation should create a better experience for all of us.”
Supply chain is getting worse not better
Back in October, when the Biden administration opened the Los Angeles port 24/7, a quick fix to the nation’s supply chain crisis was in view. But since then, the crisis seems to be getting worse, not better.
The Federal legislature is addressing it with an Ocean Shipping Reform Act and the Federal Trade Commission has launched an inquiry into the supply chain crisis. But retailers can’t afford to wait on the government to step in and take action.
Retailers need to get their logistics and supply chains moving now. Some 80% of the retail executives Deloitte surveyed believe that consumers are going to put stock availability before retail loyalty when making shopping decisions this year.
Agility and resiliency need to built into retailers’ logistic systems. While the executives surveyed expect to make investments in fulfillment, inventory and warehouse management this year, a majority of executives (57%) have no plans to invest in robotics and automated material handling. “This is particularly concerning given the current workforce challenges the industry faces,” Sides reports.
The Deloitte analysis calls on retailers to provide more transparency with their wholesale supply partners into what’s happening at the store level and how that impacts supply needs throughout the system.
“Retailers should pivot toward transparency, sharing information more openly, completely, and with lead time to help their partners upstream plan accordingly,” the report states.
Business predictability depends on data
In closing, the Deloitte study points to better management of data and automation throughout retail operations to solve both its immediate human resource and supply chain challenges. But that is going to take time and money to fix, since too many retailers’ IT systems are antiquated and need an overhaul. And that will also require more skilled tech workers.
The study found that less than half of the retail executives surveyed identified filling the vacancies in skilled IT and data analytics positions as a concern.
They should make that priority number one, just given the fact that retailers compete with every other industry for this talent and working for a retailer may not be perceived as the most attractive option for the most gifted tech professionals.
“The draw to retail for an aspiring, agile brainiac who wants to do all these really cool things from a technology perspective just isn’t there – especially when you’re a retailer that is still arm wrestling with on-premises technology that was installed during the dinosaur age,” the report concludes.
