Has the pandemic forced change within the retail sector?
Since the pandemic, more consumers have shopped more often and spent more online, and there is no going back. While there have been regional variations in the adoption of ecommerce, this has been a global phenomenon. In October 2021, according to ONS statistics, UK online retail sales made up 26.3% of total retail sales. In October 2019, the equivalent figure was 19.1%.
In Brazil, an economy at a very different stage of development to the UK, Mauricio Salvador, president of the Brazilian Ecommerce Association, said that 6m Brazilians shopped online for the first time in the four months after the pandemic hit the country in 2020. At the beginning of 2020, the association had predicted 4m Brazilians would try e-commerce for the first time over the whole course of the year.
Nevertheless, it’s becoming increasingly clear that we should treat reports of the pandemic leading to a complete re-ordering of the consumer landscape with some caution. As lockdowns have eased, so has the percentage of consumers buying items online. To focus on those UK figures again, the last two years reveal three peaks in ecommerce:
- In May 2020, 32.8% of total retail sales were online.
- In November 2020, 37.1% of total retail sales were online.
- In January 2021, 37.6% of total retail sales were online.
Clearly, while the share of total retail sales taken by ecommerce has risen over the past two years, the rise has not been consistent and sustained. Rather, the three peaks we have highlighted correspond to times when the country was in lockdown. In November 2020, for example, non-essential retailers in England and Wales were forced to close because of concerns that a rise in the number of cases of Covid-19 would overwhelm health services.
Or, to look at that another way, there is ample evidence to suggest consumers return to stores when stores are open.
How much of the rise in ecommerce would have happened anyway?
Looking at these figures, it’s clear that both retailers and brands need to be able to distinguish between pandemic-driven temporary change and the underlying trends in the market. This is a question that affects not just the retail sector, but brands and suppliers too. To take just one aspect of retail, if consumers are doing less of their shopping in town centers and city centers, this profoundly affects how supply chains operate.
A useful way to think about the issues here is to begin with worldwide ecommerce figures. According to Statista, in 2014, global retail ecommerce sales were worth $1,336bn. In 2019, the equivalent figure was $4,891bn (up from $3,535bn in 2019, a big jump that can be attributed to the pandemic). By 2024, it is projected this figure will rise to $6,388bn.
It follows that Covid-related spikes have taken place against a backdrop of increasing e-commerce activity. Indeed, this may have contributed to forecasters over-emphasizing Covid’s effects at the height of the pandemic, with earlier estimates suggesting the value of e-commerce would reach $6.5bn as early as 2023.
Nevertheless, there is every reason to suppose that even traditionally reluctant e-shoppers, such as older consumers worried about the possibility of fraud and unconfident when dealing with technology, will continue to do at least some of their shopping online once the pandemic is over. They will have seen for themselves how this is a secure and convenient way to buy goods.
Which companies will succeed in this new world?
But it’s less clear from which companies these consumers will choose to buy. This is because, for all that online shopping has boomed over the past two years, the revenue this has generated often represents a larger share of a smaller overall pot. Many retailers have not replaced the income from their stores.
This came home brutally at the turn of November and December 2020 in the UK when two major retailers failed: Philip Green’s Arcadia Group, famed for such brands as Topshop, Miss Selfridge and Dorothy Perkins, and the department store Debenhams. While these failures were down to a number of factors, it is telling that both relied too heavily on their bricks-and-mortar presence. This left already struggling businesses exposed to the loss of footfall from government-imposed lockdowns.
In contrast, the luxury brand Mulberry credited its digital strategy with helping to shield it from the worst of the Covid downturn. Its online sales jumped from £13.9m in the six months to September 2019 to £23.4m in the same period in 2020. In the first quarter of Mulberry’s financial year, e-commerce accounted for 67% of its sales. The point here is not that Mulberry maintained its overall sales – what it calls its omnichannel retail sales fell by 25% to £42.9 million and it was forced to make redundancies – but that its strategy was robust enough for it to cope with an extraordinary situation.
What do changing shopping patterns mean for retailers’ strategies?
These companies’ contrasting fortunes point to wider lessons. First and foremost is the idea that businesses must adapt to changing consumer behavior, whether that’s caused by a pandemic or underlying trends. Traditional retail is certainly not dead, but the pandemic has made it acutely clear that many retailers have struggled to keep up with how their customers are shopping.
Or to reframe how we think about the issues here, it’s arguably time to retire the idea that e-commerce and traditional retail are somehow separate from each other. As we explore in our Black Friday blog, consumers increasingly range across different channels as they make their way towards purchases. It’s this behavior for which retailers need to cater.
One part of doing this involves getting the functional part of retail right. During the Covid pandemic, consumers were often unable to go out to browse for items and had to buy online. While consumers would not use this terminology, the value of logistics expertise – reliable and flexible deliveries and click-and-collect services – became clear to them.
The evidence is that customers will continue to reward those businesses they most trust to fulfil orders or make it easy to get hold of products, whether there’s a pandemic or not. In the USA in 2021, a survey revealed that 47.1% of consumers who opted for picking up groceries in the store or at a kerbside pickup did so to avoid going into stores. This is hardly surprising during a pandemic, yet it’s revealing that 46% of consumers also thought in-store pickup was a time-saving alternative to home delivery. This suggests a deeper trend.
In such a business landscape, those retailers and brands that don’t invest in the functional side of retail risk getting left behind. According to a 2021 report, investment in technology to improve supply chain flows and to make logistics faster and more efficient nearly doubled on a YOY basis to $8.6bn.
Is efficiency enough in itself?
No, retail is about more than functionality, it is also about emotion and drama. A well-run corner store projects a reassuring sense of community. A great music or clothes shop is an exciting social space where customers end up buying things they did not even know they wanted. With so much shopping moving online and likely to stay online, traditional town and city centers will struggle unless they can create a sense of place, somewhere to visit rather than just somewhere to spend money.
This process was already reshaping shopping areas around the world and the pandemic has accelerated this process. Specialist and smaller retailers may well prosper in such locations, perhaps especially if a folk memory of these shops being there when the pandemic raged lingers. Larger retailers, some of which have already begun to push for turnover-based rents, may be less willing to commit to long leases.Pop-up stores, which lend themselves to creating drama because they are ephemeral, will likely become more commonplace.
Is continual change the new normal?
A retail landscape that simultaneously emphasizes both efficiency and excitement may at first glance seem contradictory. However, in its fundamentals, retail is about keeping promises to consumers. This has always meant first meeting customer expectations and then surpassing these expectations with new ideas and products.
The developments within retail that Covid has accelerated are in many ways just a new spin on why this idea remains so central. This is not to underestimate the effects of Covid-driven market volatility, or for that matter the ongoing difficulties inherent in businesses refining multichannel offerings, but retailers, brands and suppliers must be clear about the business imperatives here, to adapt to an era when continual change is the norm.
For subtly different reasons, all kinds of businesses in such a world need to have tight control over inventory and the data that underpins inventory. In this way, they will be able to get products efficiently moving through the supply chain and into warehouses and stores and then, in turn, out to customers across different locations and channels. It is no coincidence that businesses with strong digital strategies have proved most adept at surviving or even thriving during the pandemic.
The Covid-19 pandemic did not create this business landscape, but it has brought it into the sharpest focus.