CHAPEL HILL – The coronavirus crisis is shaking up a lot of sectors – not the least of which is retail, and how we shop.
UNC Kenan-Flagler Business School Professor Katrijn Gielens will cover how COVID-19 is affecting retailers’ efforts to shift from brick and mortar to online services today as part of a webinar convened by UNC Kenan-Flagler Business School and its affiliated Kenan Institute of Private Enterprise.
WRAL TechWire’s Chantal Allam had the chance pose a few questions ahead of the meetup. Here’s what she had to say:
- Give us a little sense of the backdrop facing retailers today.
Few retailers are still purely online or purely brick and mortar. If anything most retailers have been pushing consumers who want the time and spatial convenience of ordering online to pick up their orders curbside (the so-called click and collect model) allowing them the convenience of faster fulfillment of the order (without having to wait at home).
Fulfilling and delivering online orders to individual store steps is extremely expensive for all retailers, regardless of whether you originated as a pure brick and mortar retailer or as an online retailer, aka the last mile problem. That is why over the last years, all retailers have been working towards an omni-retail model that allows consumers to order online but pick up and return to stores.
Also, typical digital players more and more seek a physical footprint because the stores act as a small “distribution center” and make the cost of fulfillment more manageable. Still, a potential downside of this omni-retail model is that people tend to behave more rational online so less impulse and unplanned purchases are made, which obviously leads to lower sales. To avoid this, retailers still want to get people to come to the store where they are easier to influence.
- What are you observing during COVID?
Consumers are indeed ordering more online. This, however, does not necessarily imply that they abandon stores as the click-and- collect model is especially gaining a lot of traction, especially in grocery where people typically want fast delivery.
For example, in Italy (a “lead” country in the COVID crisis), online channel sales doubled in the first days of COVID-19 exposure; Click and Collect went up three to four times from the same period in 2019. In the US, e-commerce is expected to see an additional uplift of 5 percentage points to growth of 18.3 percent in 2020 driven by a surge in demand for online during the first quarter and the second quarter.
The pandemic has therefore seen an unprecedented surge in e-commerce, accelerating an already strong growth trend often combined with store-based pickup. For this reason, the importance of “frictionless” as a store characteristic is brought to the forefront.
- Is COVID-19 just speeding up the inevitable?
Over the last years, the pace of change in the retail industry has undeniably accelerated. Not only do many established retailers face declining sales, rising costs, online shopping has roiled the industry, resulting in an unseen number of store closures.
In the US market, for example, over 9,000 stores were closed in 2019, and in the first four weeks of 2020, more than 1,000 already disappeared, suggesting an increasing pace of store closures. This onslaught will most likely only get worse due to the corona pandemic (see, e.g., Neiman Marcus’ recent filing).
Indeed, the true retail apocalypse is upon us now: the retail industry shakeout that was expected to take five to ten years is happening in a matter of weeks. Retailers that sell discretionary goods, like apparel, and department stores, will be hit particularly hard, according to Coresight. Home goods, electronics and appliance retailers are also likely to be significantly impacted (meanwhile, grocery retailers should expect to see continued demand, including a boost in the short run).
- What are some potential retailer reactions?
Everything that touches upon accelerating fulfillment options and creating more frictionless store environments is essential.
In the short term, in-store frictionless measures focus on the “immediate” need to meet increased demand for online orders – through the scaling of pickup services, intermediary partnerships, and adjustment of store hours to provide exclusive windows for store picking.
Retailers may seek partnerships with on-demand delivery intermediaries to address the immediate requirement to meet elevated demand for online services amidst the COVID-19 pandemic. In South Africa, retailer and brand partnerships are opening trade and commerce opportunities that may not have otherwise been considered.
For example, Pick n Pay, has partnered with startup Bottles, an alcohol delivery app who are now able to help the delivery of essential groceries from over 70 Pick n Pay stores during the country’s lockdown. With regular online delivery services (including Pick n Pay’s own) being overwhelmed, this partnership between otherwise potential competitors is helping solve a critical challenge; getting essentials into customers’ hands in a timely fashion.
Retailers also may consider converting stores to temporarily pickup only, or adopting hours when stores are pickup only.
Longer term, the additional store pickup and fulfillment capacity brought online during the COVID-19 crisis will lead to a significant step change in the utilization of store assets in online operations.
Longer run developments could include further adoption of mobile scanning for product information and ingredients (a subsequent reduction in touch-screen technology), artificial reality integration for product experimentation/try-on tools, in-store campaigns and promotions linked to social media. To reduce congestion at checkouts, further roll out of ‘Scan & Go’ Mobile functionality will occur, enabling customers to shop, pack and checkout, contact free.
This also includes a wider adoption of contactless payment solutions. This will result in an acceleration in retailers’ mobile app development programs. For example, Tesco has seen a rise in those using its Pay+ service, a contactless mode of payment with a spend limit up to £250.
Retailers could accelerate the rollout of existing store-based pickup points, or introduce their first pickup and drive through services.
- Will everything go back to how it was?
Many conflicting elements are at work.
New habits that are adopted and learned during recessions tend to stick. People may be forced to try something new because of tight budgets and learn about the quality of the product or service. Hence, they do not revert (or partially revert) back to their old habits. However, does what happens during a recession translate to a pandemic?
On the one hand, the newly acquired online shopping habits may stick and consumers will tighten their purse strings and devote a smaller fraction of their budgets to discretionary goods after weeks of suspending those purchases during quarantine.
Alternatively, they may engage in “revenge shopping” as observed in the luxury goods categories in China.
Overall, insights from research on how to respond to the Great Depression may not simply generalize, as the pandemic has not just led to financial distress at the consumer level, but also to sensory deprivation and loneliness, to which consumers may well react differently and even lead to a swing back to physical shopping.
Before the crisis, the winning formula that was placed high on the C-suite agenda included in-store experiences (to increase consumers’ engagement) and localized assortments in neighborhoods beyond the main shopping thoroughfares (to address consumers’ need for convenience). Given that consumers still like to try fashion items before they buy, the industry was well placed to benefit from these themes. However, both themes may change in importance given the current corona crisis. On the one hand, in-store experiences may be more effective, given consumers’ sensory deprivation during the crisis.