It’s hard to conceive how things could have been more difficult for retail than they have been in the last few years. The sector was already talking about the immense challenges it was facing before COVID-19 was even heard of. High competition, low margins, fickle customers, high rents and the challenge posed by eCommerce pure plays – all these factors contributed to making a very difficult environment for operators. Then came the coronavirus, adding a further brutal chapter to retail’s difficult recent story.
With the end of the pandemic now thought to be in sight, at least in the UK, thoughts are now turning to recovery.
For retailers, this is likely to be a complex journey. There’s been significant disruption on many levels, and the competitive landscape may have changed simply because many players just haven’t survived this tricky period. Retailers also need to confront new realities such as population displacement, which may have changed their audience footfall.
There’s likely been a loss of talent in the sector as workers don’t return to previous roles after periods out of work. Consumers have changed too. Ecommerce has had a significant boost, particularly for some goods such as groceries, and spending patterns have changed.
How can retail recover from all this?
The answer is the same one that’s been repeated for years. The retailers that can survive, even thrive, tend to be the most nimble ones. Retailers that can keep pace with change are more likely to be the last ones standing after the latest assault on the sector. We saw this illustrated in the first UK lockdown when many businesses had to pivot quickly to adapt to changing circumstances.
Electronic retailer AO found that consumers switched to online channels in the pandemic, often for the first time. The business expanded its warehousing and logistics operations to reflect the new normal.
There have been retail winners and retail losers of these unprecedented times. Pet retailer Pets at Home was fortunate to be classed as essential retail and remained open throughout the lockdowns, also seeing growth in demand across all channels as many households bought pets whilst stuck at home.
Luxury online retailer Farfetch saw a sales boost as shoppers who couldn’t get into stores such as Prada and Stella McCartney instead shopped for their favourite luxe brands online. Many boutiques closed, especially in important luxury retail locations such as Italy and France.
Farfetch had to work with these partners to ensure goods could still be dispatched. With this change in channels thought to be a permanent one for many shoppers, the long-term prospects for the brand are now being talked about in different terms than before the pandemic.
Whilst the coronavirus was still at its peak, Farfetch was expanding into Asia with key partnerships with major local players in this market.
Losers included high street stalwart Debenhams, which found its costly physical presence was the final nail in the coffin when footfall suddenly stopped. The department store’s online presence didn’t offer anything that other retailers weren’t offering, with particular competition from newer brands such as online-only beauty retailers.
Ultimately, Debenhams was already in bad shape at the start of the crisis and had nothing to offer during the unusual retail circumstances that followed.
With no online presence, Primark was severely affected by the closure of non-essential retail. But stores are now striking back by offering beauty services in-store in an attempt to improve the retail experience.
Shoppers seem to have returned to stores but it’s not been an easy time for a brick-and-mortar retailer with a heavy high street presence and no revenue for an extended period. But there were losers online too: short-form video streaming service Quibi launched at a spectacularly bad time for a streaming format aimed at commuters.
Some retailers effectively won the COVID lottery and got lucky that their offering happened to fit these strange times. Although luck certainly plays a big part in this, the retailers that managed to adapt best already had a solid multichannel offering.
Retailers such as AO that managed to pivot their existing multichannel offering towards the online side of their business tended to fare well.
Some businesses have managed to pivot to cater to new types of customers. As we emerge from the pandemic, an absence of tourists still lingers. Global travel is down and only cautiously resuming. For many businesses, overseas visitors are a significant chunk of custom and their absence will be felt. The part of the hospitality industry that caters to business travellers and conferences will also have to wait to see activity resume.
The tourism industry is also seeing a much higher rate of domestic bookings, leading to a rise in prices in many areas. Many have sought out new customers to fill the gap. The luxurious Langham hotel is focusing on offering staycation packages as a lot of the hotel’s overseas trade will still be absent for some time.
It’s doing this for both its Hong Kong and London hotels. The brand also offers a special package for pet owners, including a pet styling service and photoshoot.
Room for optimism
Retail sector insights from Ernst and Young advise that there’s plenty of pent-up demand from consumers as the social restrictions drop away. Yet unemployment is high and growing as the furlough scheme ends.
Ernst and Young predicts a significant return to physical stores and advises retailers that consumers remain anxious about hygiene. There’s evidence that people are ready to shop in-store again. Consumers reported frustration with the limitations of the online shopping experience, citing the cost of delivery and delay in receiving products as major pain points.
Although the study identifies high consumer anxiety, particularly around health, there’s also a desire to spend. If retailers can reassure customers about their safety, they may see footfall resume.
A good proportion of consumers have come out of the pandemic in a better position than they went into it thanks to a period of enforced saving whilst many businesses were closed.
Some sectors, in particular, are expected to see strong demand. Consumer spending has been robust in the home goods and improvements categories and this is expected to continue even as consumers are released from their home-based lifestyles.
Pet spending is also expected to remain strong because more households now own a pet than before restrictions were implemented. Research suggests that what consumers most want after lockdown is a haircut and a day out and there are opportunities for brands that can cater to that need.
To take advantage of new opportunities, retailers need to give anxious customers confidence about the safety of their in-store experience. Customers may have adapted to use online channels but they still experience frustrations with eCommerce that retailers need to minimise as much as possible.
Customers seem to be keen to have real-world retail experiences and retailers need to make sure these are positive ones despite lingering restrictions that can be an annoyance. It’s also really clear that the joined-up online/offline experience needs to be made as good as possible.
Responding to a changed consumer
Consumer behaviour has certainly changed during the pandemic. Perhaps the biggest change has been a jump to online sales occasioned by the pandemic. Ecommerce was already rising at a healthy pace in many world markets but there’s evidence of an acceleration of this trend as consumers sought to buy more safely or because local shops were closed.
The change wasn’t evenly distributed around the world though. In the UK, already one of the world’s most active online markets, the jump was noticeably larger than other Western European markets.
Korea, also a thriving online market, also saw a big jump in the share of online sales. It seems the more active eCommerce markets were some of the ones where sales shifted even more towards eCommerce.
This may have been helped by the existing infrastructure and environment that supports eCommerce: consumers tend to have smartphones and relatively fast connections. They have online payment systems set up or know someone that can help them set it up. And retailers are already geared towards online retail and can in many cases quickly expand their offering.
Although non-essential retail is now open again in the UK following the end of lockdown, the promised pent-up consumer spending is being seen online. In March 2020, less than a quarter of retail sales were online; in March 2021 online sales were 78% higher and made up a full third of total spending. Some key periods saw unusually high levels of online activity, including Mothers Day.
The rise in spending has dramatically affected some types of online retail. Online retailers that sell household goods have seen a rise of over 99%.
Other types of retail, such as DIY retailers, have noticed a particular shift to online spend. Research from the Kingfisher groups suggests that a lot of the growth is driven by younger consumers, with those aged under 35 either doing DIY for the first time or increasing their DIY activity during lockdown.
Clothing retailers in particular noticed a shift in the type of clothing consumers wanted. Predictably, sales of smart clothing such as officewear have plummeted (-145% in November 2020 according to data gathered by LovetheSales.com) and loungewear boomed. Hoodies and jogging bottoms are selling well compared to the times before the pandemic. Partywear, unsurprisingly, has not.
What’s been particularly interesting is seeing the standard of clothing consumers are buying. With no immediate opportunity to show off expensive branded items, consumers are buying less luxury clothing (down 44%). But premium brands are doing very well. Perhaps this is because consumers feel less pressure to keep up with trends but are investing in pieces that will last instead.
With the economy now mostly re-opened, things are still far from back to normal. Many businesses are struggling to recruit post-pandemic talent, despite the high unemployment rates. There’s been a general loss of skilled workers as people were laid off during the crisis and may not have returned to the same employer or area of work.
It’s particularly apparent in the hospitality sector, where businesses tend to have no shortage of applicants but still aren’t finding workers with the experience they need.
Some areas have seen one additional impact from the pandemic – population displacement. In London, that effect has been striking, with some estimates saying a million people may have left the capital in the last year or so.
Partly this is the result of homeworking and job losses caused by the pandemic but Brexit has also contributed to a loss in European workers in recent times. This has impacted footfall in shops, particularly in those that serve a younger more geographically mobile population. It’s also meant a loss of workers in the wider London area.
With global eCommerce sales skyrocketing during multiple lockdowns, there are still a number of opportunities brands can take advantage of to ensure success in the future as the retail industry continues to get back on its feet.
Notably, cross-border eCommerce could be another avenue for growth for many retailers as eCommerce growth continues to skyrocket. New post-Brexit trade agreements with non-EU countries, such as Australia, New Zealand, the US, could see a whole host of opportunities for some of the more popular UK consumer goods brands to expand into non-EU regions.
Identifying new markets for growth, adapting supply chains and setting up multilingual stores using localisation and transcreation services could play a key role in how brands navigate the post-pandemic retail landscape.
It would be wise for brands to heed the cautionary tales of Arcadia and Debenhams and adapt to changing consumer behaviour sooner rather than later to achieve, and maintain, success in the future.