By T. Leigh Buehler | 01/31/2024
All companies understand that risks and crises are an inevitable part of doing business. There can be economic downturns, natural disasters, global pandemics, and even sudden shifts in consumer behavior. Retailers especially need to have a plan in place to handle crises and times of uncertainty.
Being able to manage a crisis efficiently can make or break an organization. For instance, look at how many retailers across the country folded during the COVID-19 pandemic. Similarly, many supermarkets were unprepared for certain items – such as hand sanitizer and toilet paper – to sell out and create a disruption to their customers.
As for the larger companies that survived, many were stuck with altering their hours of operations, downsizing more than half their staff, and even closing stores and offices. These strategies involve the kind of tough decisions most retailers face when a crisis strikes.
“Crisis management is like your dad stockpiling MREs before Y2K,” Steve Baker, the CEO of Brandfolder, explains. “It seemed like overkill, like preparation for an event that was never going to happen. But they had a strategy, supplies, even communication plans mapped out and documented, so that if the worst happened, they were ready. As brands, you hope that, like Y2K, a crisis never happens, but if it does, you want to have the mother of all crisis management plans ready, so that your company and your brand are protected.”
Risk Management
Retail crisis management is an integral component of a company’s comprehensive risk management strategy. Risk management involves identifying, assessing, and mitigating any potential risk to the company’s operations and reputation. But managing a crisis focuses on preparing for and responding to unforeseen or severe events.
Within the broader scope of a risk management plan, businesses should develop management plans to address various issues. These plans outline response procedures and responsibilities for handling crises. A retail crisis might come in the form of a natural disaster, a cyberattack, or even a public relations issue.
Risk Assessment and Training to Effectively Manage a Crisis
As with all risk management plans, the plan involves training employees and conducting simulation drills to ensure the response team is prepared should a crisis occur. Active shooter drills, for instance, are a useful way to determine how people should act during an emergency.
A retailer might recognize the potential threat of an active shooter incident in one of its stores. The company would then conduct a risk assessment by considering the store's location, crime data for the area, and any other characteristics of that retail environment that may contribute to an active shooter risk.
From there, the retailer can establish a team and a plan to handle the crisis and determine who is responsible for what actions. The team should consist of personnel from various departments, including security, operations, human resources, and public relations.
Training may either be conducted through videos, pamphlets, or actual drills (depending on the plan). Additional proactive risk management plans would then be put into place to mitigate the potential of an active shooter. These plans may include increasing security, running background checks during the hiring process, or implementing security measures before customers enter the store.
Now, the risk of an active shooter becomes lower. If an incident still occurs, the team has a plan to follow.
What Is Risk in Retail Management?
Risk has many definitions, but it is generally associated with uncertainty surrounding a potential loss. Some common risks retailers face to their operations include:
- Supply chain and distribution disruptions
- Brand or reputation damage
- Technology failures that can lead to disruption in company services, offline or online
- New regulations (such as changes in minimum wage or workers’ compensation laws)
- An inability to respond to and meet customer needs
- Employee turnover
Most companies prioritize mitigating traditional risks like workers’ compensation or general liability. A great example is a retailer developing plans for dealing with the aftermath of a hurricane. When the stores are not too severely damaged, workers may follow established company protocols to reopen and operate stores efficiently.
Crisis management is an important element of a retailer’s risk management strategy. Looking back at the example of the hurricane, the retailer can first identify the risk of being in the path of a potential hurricane.
Now, a hurricane may never hit a certain store. But in the event that it does, the plan is in place to guide business continuity following the disaster and ensure that the store can still operate normally.
Effective Management Strategies in Action
Back in 1982, Johnson and Johnson gave the world a lesson on how to manage a crisis. Their example is still followed by many companies today.
Seven people in Chicago died after taking Tylenol that had been laced with cyanide. Unfortunately, this crime remains unsolved.
Immediately, the company responded by pausing all product advertising and sending over 450,000 messages to healthcare facilities and stakeholder groups. Safety warnings were also sent to consumers.
Even though evidence indicates the poison was introduced to containers on store shelves, Johnson and Johnson chose not to hide the truth. Instead, the brand issued a mass recall – the first in U.S. history. Johnson and Johnson also implemented tamper-proof packaging, which eventually became standard practice for food and over-the-counter medicine.
Unfortunately, yet another consumer was killed by ingesting cyanide-tainted Tylenol capsules in 1986. Then-CEO, James Burke, publicly acknowledged the death and expressed his own disappointment in the company for not having switched to a more secure tablet following the deaths in 1982.
This crisis could have easily brought an end to the Johnson and Johnson brand, but all these years later, the company remains as strong as ever. Consequently, Johnson and Johnson’s handling of the situation is studied in business courses worldwide, and many companies have since used their response as a blueprint for effectively managing a crisis.
As the Tylenol incident demonstrates, businesses can navigate nearly any crisis and still emerge strongly on the other side with proper strategy and swift decision-making.
Risk Assessment and Preparedness
Conducting a thorough risk assessment is the first step of retail crisis management. This work entails identifying potential threats to the business and evaluating the likelihood of those risks occurring. Then, the impact each potential risk would have on the business must be estimated and assessed to clearly identify and control any business challenges.
For example, a cybersecurity breach of customer data is a threat most businesses face today. The severity of this threat depends on the cybersecurity measures a company has in place to control internal or external threats.
But for this hypothetical example, we will consider a small retailer who has taken minimal precautions. Under these conditions, there may be a 60% chance of a customer data breach. The likelihood of a breach occurring may only be 30% since this is a small business, but this figure also depends on where the store is located.
How would a data breach impact the business? The damage could be major to that small business owner with the cost ranging from thousands or even millions of dollars in legal fees.
When you know what risks you may incur, you can proactively develop strategies to respond to potential future crises. Being prepared requires having contingency plans in place for various scenarios, ensuring that all employees are aware of the contingency plans, and conducting regular drills to test an organization's readiness.
In the case of the small retailer example, the business could recover faster from a cybersecurity breach by installing a plan to handle the situation ahead of time. A strong plan might involve having a store manager notify all customers of the breach; the owner's responsibility would be to notify the authorities and follow the law enforcement investigation. With an additional PR plan in place, the small business could then weather any resulting negative publicity.
Agile Supply Chain Management
Retailers with an agile supply chain can survive nearly any disruption. An agile supply chain is one that can adjust quickly to be able to meet unexpected needs. To have agile supply chains, retailers must diversify suppliers, maintain strategic stockpiles of products, and establish clear communication channels with suppliers in their supply chains.
If a crisis occurs in the retail industry, the ability to quickly adjust supply procurement and distribution is critical. Retailers can also stay in contact with business partners and leverage technology to improve their supply chain visibility, monitor their inventory levels, and enable real-time tracking.
Amazon is a great example of a company with an agile supply chain. This retailer ensures that customers receive their orders in a timely manager and its focus is on coping with disruptions when they occur.
Effective Communication Strategies
Communication is one of the most critical challenges of any emergency plan. Company teams must communicate to others in a transparent and timely manner, both internally and externally.
Internal communications should prioritize notifying employees of any changes to procedures and the resulting impacts on their roles and services. External communications should focus on building trust with suppliers, customers, and the community. Platforms like social media and email are powerful examples of tools that can help to spread information to customers quickly.
E-Commerce Readiness
A healthy e-commerce infrastructure can help physical retail stores to adapt a time of crisis. Retailers should have user-friendly online platforms with secure payment systems to bolster sales in the event that customers aren’t able to shop in person. Online storefronts help to provide additional revenue streams for retailers and serve as a lifeline for maintaining customer satisfaction.
Still, not all small businesses in the retail industry will have e-commerce infrastructure in place before a time of crisis. If it does not make sense for a retailer to maintain an e-commerce platform, then the retailer can instead develop a strategy to launch one as part of their plan for business continuity.
Taking preliminary steps upfront (such as prospecting potential website hosts and credit card servicing companies) will help to shorten implementation should a potential crisis arise that does not allow for in-store shopping by customers.
Financial Planning
Retailers should maintain contingency funds for emergencies. These reserve funds create a financial buffer to rely on during times of crisis. Likewise, working relationships with financial advisors and financial institutions may offer access to additional resources.
One retailer that did not plan well for a disruption was David’s Bridal. The pandemic in 2020 brought this lack of planning to light.
In April of 2023, David’s Bridal filed for bankruptcy and it was not for the first time. The company pulled itself out of its first bankruptcy in 2019, just before the COVID-19 pandemic. Then, when weddings came to an abrupt stop, the demand for wedding apparel declined dramatically and the organization's business continuity suffered.
Since that time, David’s Bridal stated the company continued to suffer as consumer preferences regarding wedding apparel changed after the pandemic. They’ve also cited other macroeconomic issues as contributing factors throughout their financial struggles.
Legal and Regulatory Compliance
The retail industry is bound by a number of regulations. Retailers must adapt to various laws regarding everything from customer safety to working conditions for employees. In the event of a crisis, retailers must stay abreast of policy changes and government announcements to remain compliant, protect consumers and employees, and avoid costly legal issues.
Workforce Management
In the wake of a crisis, workforce needs can change rapidly. Determining appropriate staffing levels and making arrangements to support productivity – as well as employee well-being – is a must for any emergency plan. As we saw during the recent pandemic, teams who were able to work remotely proved to be the most resilient.
While most organizations could not have predicted the government-mandated shutdown COVID-19 brought, companies that already had remote work contingency plans fared far better than others early on in the pandemic.
Cross-training employees in different roles can also add much-needed flexibility. This flexibility is especially helpful when a natural disaster takes place, as versatile employees are able to better serve the organization.
Post-Crisis Analysis
In the aftermath of any unforeseen challenge, businesses in the retail sector are wise to conduct a thorough post-crisis analysis. This analysis involves evaluating the effectiveness of the management strategies, identifying any potential threats that need solutions, and updating crisis response plans accordingly.
By learning from past experiences and assessing their strengths and weaknesses, retailers can solidify their plans ahead of future business threats.
Crisis Plans Are Essential for Business Continuity
Within the retail sector, crisis management is an elaborate process. It requires flexibility, strategic preparation, and clear communication.
The best plans are created based on retailers’ most prominent threats and then modified along the way to ensure business continuity. Upon execution, these plans allow teams to navigate unpredictable times with confidence, clarity, and an understanding of how to best serve customers.
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