What Shifting Consumer Demands & Demographics Mean for Supply Chains
COVID-19 has permanently changed the way Americans shop. Instead of spending the weekends running errands, adults across America have turned to online shopping and delivery services. Rather than eat-in at restaurants, people are getting take-out. Research suggests these consumer changes are not just COVID-19 lifestyle adjustments, but long-term shifts in consumer behavior.
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Online shopping—the hallmark of pandemic shopping—is expected to continue growing by 15-30% of its normal rate after the pandemic ends, according to a McKinsey & Company study. Though it was the safety utility of online shopping that spiked demand at the beginning of the pandemic, American shoppers have become accustomed to the convenience and efficiency of online shopping. There is a general intent among consumers to continue shopping online even after there is no COVID risk associated with in-person shopping, according to McKinsey.
Discretionary categories such as furnishings, appliances, fitness, and apparel are expected to grow the most in online sales after the pandemic with furnishings and appliances leading the way at 14% projected growth. Non-discretionary items such as over-the-counter medicine, groceries, and household supplies have attained the highest percentage of online sales growth during the pandemic and are projected to continue growing at rates slightly lower than discretionary items post-pandemic.
Adapt or die
Such high spikes in demand for online shopping and shipping have created organizational challenges for operations management departments across the country. Retailers cite the need to balance e-commerce demand with in-store demand as the biggest challenge to optimizing supply chains going forward according to an Envista study.
Nearly 65% of consumers said the ability to buy anywhere and ship anywhere is an important service to have, according to Envista. Supply chains without such capabilities are at an immediate competitive disadvantage to those who can. Moreover, 67% said inventory visibility across both stores and digital spaces is an important service to offer. Companies must be able to showcase inventory in multiple mediums to satisfy consumer demands going forward.
A large percentage of individuals demanding supply chains adapt to the ins-and-outs of the digital world are millennials or gen Zers—two generations whose purchasing power will only continue to grow over the next 5-10 years. As analysts forecast demand schedules and draft distribution and operation plans for the next 5-10 years, it’s important to understand the power of this consumer shift towards e-commerce.
The pandemic has also presented a framework for companies to eliminate or cut back on one of their biggest expenses—rent. Companies such as Google and Microsoft intend to keep workers working from home for the foreseeable future, leaving large swaths of unused, expensive office space to be subleased or sold. Total sublease space in the U.S. has climbed to 157 million square feet, the largest since the metric began being tracked in 2005, according to data firm CoStar Group Inc. Such high subleasing rates suggests many tenants are in precarious positions for rent long term. Further, as online retail continues to outpace growth in brick-and-mortar-stores, retailers across the country are looking close or sublease stores in favor of an online only business model.
The abandonment of office space and brick-and-mortar stores could undoubtedly have an impact on America’s real estate markets. Though it is common for companies to sublease office space during market downturns for an influx of cash, experts suggest this current trend is different because of cultural and technological shifts toward working from home. Over 60% of workers currently working from home plan to continue working from home after the pandemic is over, according to a recent Gallup poll.
The world of e-commerce and work-from-home has created new challenges and opportunities for supply chain professionals everywhere. Companies that are able to take advantage of consumer demands for increased inventory visibility and expanded shipping capabilities will find themselves in a good position moving forward as online retail continues to grow. Individual operations teams that continue to build culture and double down on training in a virtual environment will be better off as telecommuting adrenaline begins to wane. Now more than ever it is important for supply chain professionals to keep their skills refined and look to adapt to the ever-changing climate.