How Bad Is a Pandemic for Small Retailers — and Can They Bounce Back?

A new survey shows that many brick-and-mortar retailers are planning to cancel orders if they haven’t already, which could put brands in a pinch.

Unsurprisingly, brick-and-mortar retailers (aside from grocery stores) will be among the hardest hit businesses following the Covid-19 outbreak. Large, publicly-traded retailers like Gap and J.C. Penney are withdrawing cash from lines of credit and deferring payment dates for cash dividends in the hopes of weathering this storm. But what about smaller retailers who don’t have that luxury?

If closures persist for six months, retailers are expecting to lose an estimated 50% of their annual revenue, according a survey of over 2,000 retailers by Nuorder, a Los Angeles-based b2b online platform that acts as the middleman between brands and retailers. Most of the retailers surveyed are in the fashion space and operating only one brick-and-mortar location. That projected loss is on top of the possibility of having to pay rent without any money coming in. And even if they’re physically able to open up sooner, these closures will have — and are already having — a ripple effect of devastation, from staff layoffs to cancelled orders, from which the brands they buy from are taking a hit.

At Nuorder, brand members — of which the company has over 2,000 — can list their inventory, and its roster of over 500,000 retailers (ranging from small specialty boutiques to big department stores like Nordstrom) can buy from them directly. Amid the current health crisis, founders Heath Wells and Olivia Skuza say many of those brands and retailers were looking to them for guidance. 

“We felt like, we have the ability to survey thousands of retailers quickly, why not make this not a guessing game but actually give people hard data that hopefully allows them to make the right business decisions to navigate out of this,” explains Wells.

The survey details what harsh measures retailers are already having to take, as well as those they plan to take to keep the lights on. Increasing online sales, cutting operating costs, reducing inventory and discounting existing inventory are among their top priorities. In fact, 63% of those surveyed say they plan to cancel at least some of their on-order product, meaning orders that have been placed but haven’t yet arrived. This could, of course, hurt the brands having their orders cancelled, and even debilitate a smaller brand relying on that income, in the event that they’d already paid their factory to produce that inventory.

Wells and Skuza encourage brands to cancel or halt production immediately if they’re able to, or look for other solutions, like reallocating stock to online retail partners instead of brick-and-mortar ones.

Many retailers are also expecting that it will take longer to sell product through, and thus, many will take longer to pay vendor invoices — 35% of retailers surveyed expect to pay in 60+ days — which could leave many brands strapped for cash if they don’t find a way to prepare.

“What was clear as day from the research was, retailers are going to need more time to pay, there’s going to be a cash gap between what a brand is foreseeing and what the retailer can pay,” says Wells. His advice to brands? “Can you get credit from your factory? Can you tap into some credit lines? Can you quickly organize other credit facilities? It’s about [getting] creative between now and then, and being flexible with those retailers is going to be very important.”

Another potential blow to brands? Reduced orders on future seasons. Most buyers surveyed said they expect to reduce their buys by 25% to 50% for next season.

“Discount due invoices and extend terms,” wrote one anonymous retailer in a plea to vendors. “We need more time to sell the products we have received. We both (vendors and retailers) will have to reduce our margins on current inventory to survive… We must share in the added expense upfront or many stores won’t survive.”

While they encourage retailers to pivot the way they’re doing business immediately, Wells and Skuza feel that once all is said and done, this is going to permanently change how brands and retailers do business in the future. 

Once stores are allowed to open and consumers start shopping again, Wells says retailers should (and based on the survey, many will) plan their buys differently and buy less up front in favor of more “at once” products, meaning buying products as needed from brands’ existing inventory based on what sells, instead of placing a large order ahead of the season. This could mean brands will have to change their production plans as well: According to Wells and Skuza, this is closer to how business should be done nowadays anyway. As you may recall, brick-and-mortar retail wasn’t doing so hot before all this happened either.

“The nature of how they have been doing business in such a traditional way that hasn’t changed in a long time will evolve once we get out of this. The concept of traveling to every market, buying upfront big bulk amounts ahead of time, that will change,” says Skuza. “That’s a conversation I’ve been having with retailers and brands alike. This forced it; it was a really unfortunate situation, but it was something that needed to happen and it will drive change for the better ultimately in the long run.”

“People who adapt and who are willing to make a change, those people are usually the survivors,” says Wells. “If you’re a brand or a retailer and you think it’s going be business as usual once this goes away, I don’t think that’s going to be the case.” 

And while Wells and Skuza don’t mention this in their survey, brands would be wise to focus on their online direct-to-consumer businesses now more than ever.

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Source: Fashionista.com