Insights

Time To Look At Costs

This article was first published on November 5, 2020.

Editor's note: Oliver Wyman is monitoring the COVID-19 events in real time, and we have compiled resources to help our clients and the industries they serve. Please continue to monitor the Responding To Coronavirus Hub for updates.

The top 100 Chinese consumer goods companies and top 100 retailers managed to keep sales stable during the rocky period, despite the turbulence that COVID-19 has brought to China’s retail sector.

The operating costs, on the other hand, deteriorated due to the pandemic.

While the top third of consumer goods companies and online retailers still managed to reduce their operating cost base amid the pandemic, all offline retailers took a hard hit. The combined impact of the reduced foot traffic during the lockdown, lower consumer willingness to spend amid the economic uncertainty, and inflexibility to adjust operating costs due to a higher fixed-cost base created higher cost ratios and thereby severely challenged the ability of many offline retailers to survive.

The outbreak has accelerated another trend that has long haunted offline retailers, namely, the growing share of the online channel. Between 2014 and 2019, offline retailers had already seen much of their value being captured by e-commerce players.

Transforming the cost base of retail and consumer goods companies has become an absolute imperative. The traditional approaches to cost transformation are failing, and new and bold paradigms are required:

  • Act now and think big, broad, bold!

  • Push for a more horizontal perspective on cost.

  • Adopt a zero-based approach to organizational redesign.

  • Nominate leaders not controllers to run the program.

We argue for bold ambitions and a massive commitment to execution, especially in the context of the post-COVID “new normal”. Companies should build upon their experiences during the pandemic in framing their next cost transformation program.

Rainer Muench, Head of Retail/CPG Germany and Marco Kesteloo, Partner of Retail & Consumer Goods also contributed insights to the report.

Time To Look At Costs

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Time To Look At Costs (Chinese)

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