Retail revolution: The changing retail space and why these impacts could be built to last

Retail revolution: The changing retail space and why these impacts could be built to last
By Ann Gersna
Apr 23, 2020

What is happening now in retail will determine the rules of the “New Normal.”

Perhaps more than any other segment, retail brands came into the COVID-19 crisis in a particularly difficult position. Despite a decade-long economic surge in the U.S. and across the globe, retail has been contracting. We see challenges such as changing consumer habits, growth of e-commerce and direct-to-consumer brands, rising commercial rents, and a tightening of the labor market. Retail balance sheets were not built to weather an economic crisis like COVID-19.

There are hopeful signs many retailers can, and will, grow in this “new normal” economy. As we continue our content series on how brands are managing the business curve of COVID-19, let’s explore retail brands’ response to this disruption, what implications the industry faces coming out of it, and mechanisms and mindsets to get ahead of it. 

Rethinking what it means to be “Essential” and “Frontline”

The U.S. Census Bureau reported that by the end of March 2020, 35 states and Washington, DC, ordered the closure of nonessential businesses, which led to a record -8.7% decline in overall retail sales that month.

Craft/hobby stores were one of the hardest hit, with a -23.3% sales decline. That is probably why some brands like Hobby Lobby chose to keep their doors open in spite of outrage from their employees and in defiance of local orders. These retailers’ eventual store closures brought significant attention to “essential” and “nonessential” labels.

Total retail sales only dropped 8.7% largely due to essential food and beverage store sales surging +28% YOY as widespread stay-at-home orders took hold. Numerator tracked retail sales weekly from March through April via their Shopping Behavior Index, and it’s interesting to watch the evolution of consumer patterns. F&B channels saw an early surge with panic buyers stocking up on household essentials. Led by Liquor and Club channels, and then Dollar and Grocery, these quickly emerged as the core channels.

The role of essential retailers also dramatically evolved, as they’re continually lauded as frontline heroes, with several states officially designating grocery workers as emergency personnelsimilar to paramedics and nurses (this also provides employees access to free childcare.) The in-store shopping experience has transformed into a “we’re all in this together” mentality, with stores taking extraordinary steps to protect their workers and shoppers for everyone’s safety. From exclusive early openings for compromised individuals, to limitations on the number of people in the store, to lines on the floor to space out shoppers, the retailers’ flexibility has been an invaluable service to us all.

A digital roadmap taking the lead

The growth of e-commerce is nothing new, but with the shutdown of brick-and-mortar retail, consumers who preferred shopping in person are now forced online. This crisis might be the watershed moment retail needed for full adoption to the digital world.

According to ICF Next partner Adobe, average daily e-commerce sales grew 25% in March, again fueled by grocery, where click-and-collect and delivery options attracted new demographics (with more seniors and young singles taking advantage of this option). Orders for other types of goods also saw surges, with Best Buy reporting that domestic online sales are up over 250% and Adobe reporting a 55% increase for workout equipment like kettlebells, dumbbells, and treadmills due to gym closures.

To sustain that e-commerce growth, non-big-box retailers will need to improve their digital fulfillment, especially to stay competitive with Amazon. Many smaller to mid-sized retailers have struggled to keep up with increased consumer demands. Maintaining inventory presents its own challenges due to supply chain issues with transportation. Investments in automated warehousing technology will allow retailers to close the gap with the likes of Amazon.

What the future of brick-and-mortar could look like

When stores do re-open, retailers will need to make operational changes to ease shoppers’ lingering concerns linked to the crisis.

Retailers will most likely continue to be judged on their cleanliness; safety equipment; method of sanitizing and stocking; communications regarding safety measures; and new technologies like contactless payments, curbside payments, or BOPIS (buy online, pick up in store) options that don’t involve direct interaction with a store worker. In fact, according to new research by Shekel, 87% of shoppers say they would prefer to shop in stores with touchless or robust self-checkout options.

Some consumers might also re-evaluate what items are essential and nonessential--especially when compounded with any negative financial impacts due to the crisisand search for better prices online. Ultimately, retailers that can attract a digital community through deals, represent their value to nurture that community (and use their store as a gathering place for “retailtainment” experiential marketing), and provide strong customer service will turn consumers into loyalists who find their goods essential.

Questions surround the long-term implications for retail

In the near-term, when people finally venture out from their homes, will the retailers that remained open be able to keep their customers? What about online brands that developed new customer relationships because of temporary store closureswill those customers keep buying? And for brands that were shut down, will their customers return?

While these questions remain answerless for now, retailers have their work cut out for them. We all do. It is a difficult balance to strike, but the roadmap includes  leveraging crucial insights, identifying key opportunities, and investing in the right data and digital strategies. All the while, we must remain fearlessly authentic and customer-centric as we travel towards the “new normal.”

ICF’s global marketing services agency focuses on helping your organization find opportunity in disruption.
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  1. Ann Gersna

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