THE JOURNEY YO REMARKABLE RETAIL

Steve helps organizations understand and respond to retail disruption by creating customer-centric, memorable and profitable growth strategies.

The 6 New Forces Of The Covid Retail Economy

As the pace of vaccinations increases, there is a sense that the worst of Covid-19’s impact will soon be behind us. Yet any notion of being in a truly post-pandemic world, even in a best-case virus mitigation and economic recovery scenario, won’t be fully realized for some time. Many of the changes brought about by the crisis will continue rippling through society (more broadly) and the retail ecosystem (more particularly).

As detailed in my forthcoming book—and discussed on a recent podcast episode—there are six key forces that characterized how 2020 unfolded and that will continue to shape how retail evolves in 2021 and, most likely, far beyond.

1. Bifurcation 2.0
I have been speaking about “retail’s great bifurcation” for years. But the Covid-19 crisis has exacerbated the underlying drivers of polarization, creating greater distance between the haves and have-nots. Retailers that are overwhelmingly focused on delivering extreme value, great convenience, and a highly efficient buying experience are generally widening the performance gap between less focused competition, regardless of whether these leaders are brick-and-mortar dominant (e.g. Walmart, Target, Best Buy, TJX, or mostly online (e.g. Amazon, Wayfair, Chewy). Similarly, higher-end or more precisely targeted specialty concepts are generally performing relatively well, particularly compared to their department store brethren.

A major contributor to these contrasting outcomes stems from the large gap in economic fortunes seen in many countries. In the United States, it has generally been true for many years that the rich are getting richer while the poor get poorer. The pandemic brought these differences into stark relief, with the wealthier classes generally benefiting from continuing strength in the stock and real estate markets, while many Americans have little or no stake in those games. Moreover, increases in unemployment hit lower-income families much harder. These underlying macroeconomic forces will continue favoring success at either end of the business model spectrum.

2. An Accelerating Acceleration
Pre-pandemic, it would have been hard to find a major trend that was not accelerating to some degree. But the Covid-19 crisis injected steroids into just about all of them. What many industry observers have deemed “the great acceleration” has jump-started innovation for many retailers and effectively forced consumer adoption of nascent technologies.

Most obvious is the dramatic increase in online shopping. While e-commerce was experiencing mid-teen percentage growth in recent years, during 2020 the shift away from physical store transactions to online purchases saw a huge spike. Another big change is the rapid deployment of innovation by many retailers. Retailers’ curbside enthusiasm is the most obvious example, but many companies also took other digitally enabled shopping experiences out of the lab or pilot mode and implemented them on a broader scale. The rollout of expanded home delivery, virtual personal shopping, live-streaming, contactless payment, appointment shopping, and buy online and pick up (or return) in store all saw greater adoption

3. Reallocation and the Redefinition of Essential
For individuals and households with significant wealth and/or continued employment, the overall contraction of most global economies has not necessarily resulted in reduced consumer spending. In fact, aggregate spending tended to increase throughout most of 2020 and into 2021. But with lowered outlays for travel, entertainment, work-related apparel, commuting expenses and the like, how we are spending is radically different.

Nearly everyone has been doing a lot more things from home, either by virtue of lockdowns or merely out of a desire to play it safe. Beyond shopping online more, we have also been working from home, eating at home, being entertained from home, and trying to stay fit at home—all of which drove major spending reallocations. The lack of travel opportunities and special events, along with an empty social calendar, have cut deeply into higher-end apparel, beauty and accessories. There’s no point getting all dressed up when there’s no place to go.

As the world recovers from the pandemic, the reallocation of spending we saw during the height of the crisis will moderate. The effect of government stimulus will lose its force in a few months time, a material shift away from grocery back to eating out more seems imminent, as does a robust leisure travel rebound. And most folks aren’t likely to buy more than one Peloton, nor upgrade their home office every year.

4. Power Consolidation
As store and shopping center closings hit new highs and bankruptcy filings (and complete business liquidations) become more common, the remaining retail pie will be shared among fewer competitors. Some categories (dressier apparel, as but one example) and formats (mall-based department stores) are likely to remain contracted relative to 2019 levels, putting even more pressure on remaining retailers to grab a bigger share of a shrinking sector. But even more robust segments are likely to see market share consolidate to the strongest players, as less remarkable, poorly capitalized brands are unable to keep pace.

Moreover, cash (or a bulletproof balance sheet) will be king, allowing certain powerful companies to scoop up businesses, brands, or assets (such as customer lists and other intellectual property) at fire-sale prices. We are also seeing the resurrection of brands that once seemed destined for the retail graveyard, only to re-emerge as online-only entities. Retail Ecommerce Ventures is building an entire business around this strategy, resuscitating Pier 1 Imports, Dressbarn, and others.

5. The Great Rewiring
It remains to be seen precisely how and to what extent the pandemic will alter the retail playing field and reshape customers’ long-term needs, wants, and expectations. But as Rishad Tobaccowala persuasively argues in his article “The Great Re-wiring,” there are six areas in most of our lives where a fundamental rewiring has occurred and where it may well persist for an extended period of time. These places are home, work or school, retail outlets, dining establishments, entertainment venues, and travel.

It appears we will be spending more time at home even in a largely post-pandemic world, given what is likely a permanent significant shift to much more work-from-home. It also seems likely that business travel will remain contracted for the foreseeable future.

6. Hybridization
The lines between online and in-store shopping have been blurring for many years, but relatively few retailers truly embraced this blur. The few that did—the ones that employed a strategy that went beyond thinking about online shopping and brick-and-mortar commerce as largely distinct channels—were better able to respond to the acceleration that was brought on by the pandemic.

Individual brick-and-mortar locations are becoming hybrids themselves. Once largely places to go and buy stuff to take home, they now have increasingly diverse roles. Most stores now act as service centers for online purchases in some way—a place to pick up or return an e-commerce order, for example, or to have a store associate help resolve a customer service issue. Many are also becoming distribution centers, as more retailers are fulfilling e-commerce orders from store stock or performing home deliveries from stores rather than dedicated facilities. Stores are increasingly part of a brand’s advertising strategy, serving in some ways as a billboard for the brand, as a product showroom, or as a place for customer acquisition.

There is also a rise in hybrid physical retail real estate deployment. Whole Foods and Walmart are creating “dark stores” to serve as fulfillment hubs, complementing their “regular” stores. Apple is launching “Express” stores in addition to their flagship locations. Nordstrom is expanding their Local concept, a satellite format that largely serves as a service center in support of their full-line department stores.

Hybrid models are increasingly familiar these days, whether we’re talking about how education is delivered or how industry conferences are hosted. Supporting a healthy lifestyle is also moving to a hybrid world, with tangible products and fitness membership bundled together, as we have seen from Peloton, Equinox, Lululemon, and more.

The degree to which these forces will persist—and precisely how they will have disproportionate impact on particular sectors and categories—remains to be seen. But one thing is certain. Shift happens.

This article originally appeared on Forbes.com where I am a senior retail contributor. On April 13th, at 5pm US Eastern time, we will be doing a virtual book launch event. Save the date and follow me on social media for all the details.

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"The Store Operations Council enjoyed every minute of Steve Dennis's presentation on retail's future. He always keeps it real and speaks the language of retail experts."

Cathy Hotka

Principal

Cathy Hotka & Associates

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"The Store Operations Council enjoyed every minute of Steve Dennis's presentation on retail's future. He always keeps it real and speaks the language of retail experts."

Cathy Hotka

Principal

Cathy Hotka & Associates

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