COVID-19 Expedites Changes in Retail
The retail industry was already ripe for disruption—but the current health crisis certainly brought about major disruption in a much shorter amount of time than retailers were prepared for. Especially hard-hit are retailers in hospitality, as well as those selling hard goods and soft goods, and many of them have temporarily closed their doors while staff is sent home. Others have restricted their opening hours or are renegotiating rental contracts with their landlords. Other parts of retail, however, are working double shifts to be able to help all customers. Think about grocery stores, pharmacies and drug stores, as well as e-commerce and home deliveries.
How Retailers Are Dealing with COVID-19
In a recent interview
, Richard Yeung, CEO at Circle K in Hong Kong indicated that the traffic into their stores has gone down approximately 35% in the urban areas and about 8% in the residential areas. As a response, this Hong Kong store chain now tries to grow revenue per customer while also paying special attention to customer loyalty
: “We are kind of lucky to experience what we consider as mild impact (when compared to our peers). As we cannot control the traffic, we just try to work on increasing the basket size. Also, another learning is that the loyal customers in the CRM program also cushions us against a big fall and the sales to this segment are holding up.”
To deal with revenue loss in their stores, some retailers are now quickly ramping up their digital channels
. According to Forbes
, the COVID-19 pandemic is rapidly accelerating the transition to digital commerce. The online order volume from grocery merchants rose by 210% from March 12 through March 15, compared with the same period a year earlier. According
to EDGE, we see that online grocery apps, including Instacart, Walmart Grocery and Shipt, are hitting record heights for daily downloads with 218%, 160% and 124% hikes respectively. As consumers are being asked to avoid public spaces and stay home as much as possible, e-commerce orders for groceries and other essentials have become a survival tool for many families in Europe and North-America.
In China, e-commerce giant JD.com is collaborating with various brands
to provide USD $212 million in promotional coupons to stimulate sales across Mainland China. The coupons cover online retail categories such as electronics and CPG, aiming to support brands and merchants in working towards recovery.
Next to promotions and ‘going digital’, many retailers are also creating new journeys and new ways to minimize human-to-human interactions
in the store. In a number of European supermarkets, customers are urged to use handheld devices to self-scan their groceries, or else to use the self-checkout (SCO) devices in the checkout zone. And in the Netherlands, several of the large grocery chains have introduced a dedicated shopping hour for the elderly
, sometimes combined with a priority checkout lane for senior citizens, so they can shop in a less crowded environment.
In most stores, shopping carts are now mandatory, and the number of customers simultaneously allowed inside a store is restricted. Staffed checkout lanes are partially closed, and the ones that are still open, have been extended with a protective Perspex shield that physically separates the cashier from the customer. In addition, customers are asked to use contactless, non-cash payment options as much as possible, to further bring down the number of hand-overs between customer and staff. In this respect, Mastercard is supporting contactless payments
by increasing the payment limit. In most European countries, the limit for accepting contactless payments has been increased, typically by 200% (and in some cases even more).
In Europe, on-demand food delivery startups are starting to add ‘contactless’ deliveries
in response to COVID-19. They are following U.S.-based startups like Postmates and Instacart, which recently added an option for customers to have their meal dropped off at their door without the need for human interaction. Unfortunately, e-commerce and home deliveries are not yet that well-established in every country, which then sometimes leads to an overload in demand, because too many customers are currently asking for home delivery services.
Journeys and Experiences May Change…
These examples show how both consumers and retailers are changing their habits. They are using new journeys (like online grocery ordering), adjusting existing ones (like skipping signatures at home delivery) and putting more emphasis on loyalty and promotion. The question is whether these changes will only be temporary, or will have a lasting impact.
According to Jason Goldberg at Forbes
, it is essential for retailers “to anticipate what a post-pandemic world will look like”. How will COVID-19 impact the behavior of consumers, and how will it impact the landscape for brands and retailers?
According to Goldberg, the retail industry will be transformed and shaped by three forces:
Short-term consumer behaviors during the pandemic will in many cases become permanent.
Consumers will emerge from the pandemic in a new economic reality, sometimes without a job or with a significant set-back in their wealth and savings account.
A shake-out in the market will expedite the already on-going trend of consolidation of retailers, altering the competitive and supply chain landscape.
As a result, it is likely that consumers will continue to focus on in-store hygiene
, with minimal ‘direct consumer-to-staff experiences’. It could also very well be that consumers have now had the opportunity to experience new brands and new types of journeys
they did not consider only a few weeks ago, and that they’d like to continue to use these brands and journeys in the future as well.
Another likely result of COVID-19 will be that it can force many economies across the globe into a recession
. This may be temporary only, but even when the economy rebounds, consumers may continue to buy value-oriented brands
(i.e. discount brands) for a much longer period of time. This may help some retailers and sub segments come out stronger out of this situation, while others, such as specialty stores, keep on struggling to survive. As a result, according to Goldberg “this dramatic consolidation
would result in the surviving retailers having increased leverage over their manufacturer partners.” This is a trend that was already well underway before COVID-19, but now has an extra impetus. In addition, we may expect less retail space
in total. Retailers’ IT budgets will also be impacted, either in a positive or a negative way. Some retailers (e.g. in grocery) may have the opportunity to expedite the transition to more checkout-friendly stores with more self-service lanes, while others may need several months if not years to recover from the crisis and cut IT budgets accordingly. In addition, both successful and struggling retailers are likely to decide to permanently close under-performing stores and take drastic cost-cutting
efforts to improve their balance sheets.
From Evolution to Revolution…
According to Goldberg, “the COVID-19 pandemic is accelerating the inevitable digital disruption of commerce.” And he is right: As some changes will take place at a low pace, more in an evolutionary way, other changes, like those we’re experiencing today due to COVID-19, are more like a revolution. It’s too strong to say we’re facing a ‘retail apocalypse’, but trends and transitions that were already on the way are likely to happen much faster now. And however it may turn out in the end, retailers need an adequate response to the continuous changes and innovations in consumer and staff journeys. For us, this would be StorevolutionTM
, a strategy to cope with continuous change and adaptability in retail, with a clear focus on optimizing consumer experiences while lowering costs at the same time. The focal point is on adapting to changes in consumer and staff journeys, where Storevolution supports retailers in designing, enabling and operating relevant journeys on a daily basis.
Storevolution includes a program built around four pillars that allow retailers to successfully navigate the new era of retail based on their brand, being consumer centricity, store digitization, high connectivity and store-as-a-service. In a follow-up article, I’ll take a deep-dive into Storevolution and each of the four pillars.