When Covid-19 broke out 21 months ago and rocked retailers around the world, it just seemed like another chapter in the sad tale of an industry’s decline.
However, the reality of the pandemic era has not turned out that way.
Yes, there was a shakeout where thousands of stores and some chains were closed for good. A wave of store workers lost their jobs, some permanently, and an unknown number became ill. But Covid’s shock to the system also brought back changes that will bolster the industry in the coming years, including major investments in technology, creating new ways to connect with consumers and accelerating online delivery.
Despite all the human misery the coronavirus has brought, it’s not hard to say that the pandemic will eventually bolster the global retailers that have survived. It is a surprising reversal from forecasts of doom and gloom for the industry in mid-2020.
“The idea that stores are dead has been proven to be a misconception,” said Michael Baker, an analyst for DA Davidson who has reported on U.S. retailers for more than two decades. “A lot of retailers come out of this stronger than going in.”
The pandemic forced shoppers around the world to adapt quickly, forcing retailers to do the same. For the first few months, they were locked in their homes, and when they reopened, they were wary of visiting stores. Inundated with money from government incentive programs — along with savings from not traveling or eating out — consumers embraced e-commerce like never before. That’s why the prospects seemed so bleak early on for retailers who depended on foot traffic to brick-and-mortar locations.
Retail vs Ecommerce
Ever since Amazon ignited the era of online shopping more than two decades ago, the big question has been how can legacy retailers survive? The industry’s response eventually became ‘omnichannel’, a vague buzzword about the interconnectedness of stores and the Internet. Retailers had invested in that area – think of innovations such as online ordering with in-store pick-up – but sporadically.
The pandemic created the existential threat that many needed to fully embrace that vision. They responded by shaking up their business models in unprecedented ways, from how they handled customer service to the way they fulfilled orders (a few hours later, groceries ordered online were delivered to the back of an SUV in a Walmart parking lot).
“It has completely changed the way we shop,” said Greg Buzek, president of researcher IHL Group. And now, retailers are deploying technology at a “once-in-a-generation” rate, with a huge increase in the use of warehouse robotics and inventory management tools such as electronic shelf tags, he said.
In China, one of the world’s most advanced retail markets, stores quickly dived into e-commerce. More embraced the use of chat groups to complete orders and keep in touch with customers who no longer wanted to meet in person, according to consultant Kearny. Retailers of all types have increased their sales through live online video streaming (like a home shopping channel for the digital age). In Wuhan, the original epicenter of the pandemic, a food delivery service helped retailers set up contactless takeout, which was booming in that kind of fulfillment.
Marks & Spencer, the British department store chain that has been trying to change itself for more than a decade, used the pandemic to accelerate transformation by closing underperforming stores and investing in digital offerings, including online groceries. The chain has doubled its profit forecast this year — its first upgrades this millennium — as its stock rose more than 60%.
With stores closed in the US, retailers have adopted new ways to serve customers. Livestream sales spread from China and became a bona fide revenue stream thanks to cheap and easy-to-use software. Chains has also pushed more of the traditional in-store experience to the web. Signet Jewelers, owner of the Jared brand and other chains, added video calls with an employee from its locations, removing resistance to making a major online purchase.
And retailers have also come up with ways to push more e-commerce to their locations. That included making it easy for store associates to help online customers by chatting and sharing photos and videos via the mobile app.
How Covid changed consumer behaviour
Shopping patterns also changed dramatically in places where e-commerce was still in its early stages of development. Retailers in markets from Mexico to Russia were forced to accelerate delivery and build more secure payment systems. In just one example, the Mexican division of US retailer Home Depot now lets customers buy and pay for items online in a store, including with cash, which is still the dominant way to pay for goods there.
Of course, the success of many of these developments will depend on how well this new consumer behavior holds up after Covid. Retailers are betting that services, such as picking up online orders from a store, will become a larger part of their sales. The pandemic also tightened supply chains and caused labor shortages that soared wages. It remains to be seen how long these hurdles last.
The Covid era will also be remembered for all the shopkeepers who didn’t make it and the employees who became infected with the virus. Pier 1 Imports in the US and UK Arcadia Group, owner of Topshop, was among the chains to close their branches. And many others who don’t have as much money to invest as major players are unable to undertake meaningful hinges. They still look fragile, especially as pandemic-era stimulus programs run out and the rise of the omicron variant is causing a surge in Covid cases in different parts of the world.
Retail sales on the rebound
But for the big players who got it right, 2021 saw a remarkable revival. In the US, retail chains with more than 50 stores are expected to add more than 4,000 stores this year, led by discount chains Dollar General and Dollar Tree. According to IHL Group, this would be the first net increase since 2017. The total number of closures among this group in 2021 is estimated at 3,500, a quarter of the total for 2020.
The comeback is a key reason why exchange-traded fund SPDR S&P Retail, which tracks the S&P Retail Select Industry Index, is up 32% this year, easily outperforming the broader S&P 500 Index. However, retail stocks in other parts of the world did not perform as well.
Even with Covid strains plaguing some parts of the country, total visits to U.S. stores this year are just 0.8% lower than the same period in 2019, according to Placer.ai, which uses anonymous cell phone data to estimate foot traffic. . Many of the largest chains in various categories are attracting more customers than before the pandemic. These include Target, Lowe’s, Dick’s Sporting Goods, Ulta Beauty and Bath & Body Works. Visits to Walmart, the world’s largest retailer, are just 2% below 2019 levels so far this year, data from Placer.ai shows.
Pedestrian traffic is aided by shops that fulfill online orders for collection. Best Buy is one of the chains that built on-the-fly streetside pickup systems during the pandemic so that customers don’t have to enter stores. With Target’s Shopping app, drive-up customers can now choose exactly where bags are placed in their cars.
In addition, physical stores are still where the vast majority of goods are purchased. While in China e-commerce accounts for about 30% of total retail sales, in giant markets such as Japan, Mexico and India, it is less than half that.
Even brands born online are constantly demonstrating the value of brick-and-mortar locations by turning to them to fuel growth after e-commerce profits stop. In the US, Warby Parker, an eyewear company that has helped spark the rise of digital-native brands, is increasingly turning its future towards brick-and-mortar. Stores can also increase profitability in a myriad of ways, including reducing returns, a major blow to ecommerce margins.
“The biggest changes going forward will be the relationship consumers have with the store,” said Deborah Weinswig, an accomplished retail analyst and founder of Coresight Research. “I’ve never seen such a great opportunity for retail as I do now.”
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)