The reality of the pandemic era, however, did not play out that way.
Yes, there was a crisis with thousands of stores and some chains closing permanently. A wave of retail workers lost their jobs, some permanently, and an unknown number fell ill. But the Covid shock to the system has also brought overdue changes that will strengthen the sector for years to come, including big investments in technology, creating new ways to connect with consumers and speeding up delivery in line.
For all the human misery the coronavirus has brought, it’s not hard to argue that the pandemic will ultimately strengthen those global retailers who have survived. This is a surprising turnaround from the pessimistic forecasts for the industry in mid-2020.
“The idea that stores are dead has proven to be a mistake,” said Michael Baker, an analyst for DA Davidson who has covered US retailers for more than two decades. “A lot of retailers come out of this stronger than they come in.”
The pandemic has caused shoppers around the world to adapt quickly, forcing retailers to do the same. Stuck at home for the first few months, then wary of visiting stores when they reopen, consumers are brimming with cash from government stimulus programs – plus savings from not traveling or eating not in the restaurant – have embraced e-commerce like never before. That’s why the outlook looked so bleak at first for retailers that relied on foot traffic to physical locations.
Retail vs eCommerce
Since Amazon ushered in the era of online shopping more than two decades ago, the big question has been how do traditional retailers survive? The industry response eventually became “omnichannel,” a fuzzy buzzword about the intertwining of stores and the internet. Retailers had been investing on this front – think innovations like online ordering with in-store pickup – but sporadically.
The pandemic created the existential threat that many needed to fully embrace this vision. They responded by disrupting their business models in unprecedented ways, from the way they handled customer service to the way they fulfilled orders (groceries ordered online being delivered to the back of an SUV in a Walmart parking lot a few hours later).
“It completely changed the way we shop,” said Greg Buzek, president of researcher IHL Group. And now retailers are deploying the technology at a “once in a generation” rate, with a dramatic increase in the use of warehouse robotics and inventory management tools like electronic labels, he said. .
In China, one of the most sophisticated retail markets in the world, stores have quickly embraced e-commerce. According to consultant Kearny, more have embraced the use of focus groups to complete orders and stay in touch with customers who no longer wanted to visit in person. Retailers of all kinds have increased their sales through online live video streaming (like a home shopping channel in the digital age). In Wuhan, the original epicenter of the pandemic, a food delivery service helped retailers implement contactless pickup, sparking a boom in such fulfillment.
With stores closing across the United States, retailers have embraced new ways of serving customers. Direct selling has taken off from China and has become a real source of income thanks to inexpensive and easy-to-use software. Chains have also pushed the traditional in-store experience further to the web. Signet Jewelers, owner of the Jared brand and other chains, added video calls with an associate of its locations, which eased resistance to making a big online purchase.
And retailers have also found ways to push more e-commerce into their locations. This included the ability for in-store employees to easily help customers online by chatting and sharing photos and videos via a mobile app.
How Covid has changed consumer behavior
Shopping habits also changed drastically in places where e-commerce was in the early stages of development. Retailers in markets from Mexico to Russia have been pressured to speed up delivery and implement more secure payment systems. In just one example, the Mexican division of US retailer Home Depot now allows customers to purchase items online and pay for them in-store, including cash, which remains the dominant way to pay for goods there.
Of course, the success of many of these advances will depend on the quality of these new post-Covid consumer behaviors. Retailers are betting that services, like taking online orders from a store, will become a bigger part of their sales. The pandemic has also numbed supply chains and caused labor shortages that have driven up wages. It remains to be seen how long these obstacles will last.
The Covid era will also be remembered for all traders who did not survive and employees who were infected by the virus. Pier 1 Imports in the United States and British group Arcadia, owner of Topshop, were among the chains that closed their stores. And many more without so much money to invest that the big players haven’t been able to undertake meaningful pivots. They still look vulnerable, especially as pandemic-era stimulus programs run out of steam and the emergence of the omicron variant is causing an increase in Covid cases in several parts of the world.
Retail sales rebound
But for the big players who got it right, 2021 has seen a remarkable rebound. In the United States, chains with more than 50 stores are expected to add more than 4,000 locations this year, led by discount chains Dollar General and Dollar Tree. This would mark the first net increase since 2017, according to IHL Group. The total number of closures among this group in 2021 is estimated at 3,500, or a quarter of the 2020 total.
The comeback is a key reason why the SPDR S&P Retail exchange-traded fund, which tracks the S&P Retail Select Industry Index, has jumped 32% this year, easily outpacing the advance of the broader S&P 500 index. . However, retail stocks in other parts of the world have not held up as well.
Even with variants of Covid hammering parts of the country, overall visits to US stores this year are just 0.8% lower than the same period in 2019, according to Placer.ai, which uses anonymized mobile phone data. to estimate foot traffic. Many of the larger chains spanning various categories are attracting more shoppers 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, according to data from Placer.ai.
Foot traffic is facilitated by stores filling online orders for pickup. Best Buy is among the chains that have built curbside pickup systems on the fly during the pandemic so customers don’t have to walk into stores. Target’s shopping app now lets drive-by customers choose exactly where bags are placed in their car.
On top of all that, physical stores are still where the vast majority of merchandise is purchased. While in China e-commerce accounts for around 30% of total retail sales, the rate in giant markets like Japan, Mexico and India is less than half.
Even brands born online are continually showing the value of physical locations by turning to them to drive growth after slowing e-commerce gains. In the United States, Warby Parker, an eyewear company that helped kick-start the digital-native brand boom, is increasingly betting its future on bricks and mortar. Stores can also increase their profitability in multiple ways, including by reducing returns – a big hit to e-commerce margins.
“The biggest changes going forward will be the relationship the consumer has with the store,” said Deborah Weinswig, veteran retail analyst and founder of Coresight Research. “I have never seen a retail opportunity as big as it is today.”
–With help from Deirdre Hipwell, Irina Anghel, Daniela Wei and Alexander McIntyre.
