How The Coronavirus Will Forever Change Retail
The future of retail is happening right before our eyes. E-commerce, apps, Supply chain, deliveries, automation, influencers... we're seeing it transform to adapt to the new normal. Will all players be able to survive this upheaval ? That remains to be seen.
It’s probable that anyone reading this has recently gone to the store in order to hunt/gather provisions for the coming weeks of confinement. It is also likely that those doing so have wondered when things would get back to normal, and what the world will look like then. Thought it is not my place to speak for the world at large, I do have some (educated) thoughts on the future of stores and the retail industry.
The analysis below take into account the coronavirus crisis, the related confinements, and the upcoming recession. They are also based on 3 key rules, which are often overlooked when panic sets in within an industry :
“We tend to overestimate trends in the short run and underestimate them in the long run” (Roy Amara)
“Changes happen gradually, then suddenly” (Hemingway)
“Plans are useless, planning is key” (Eisenhower)
1. E-commerce becomes a driving force across ALL categories
As of today, every so-called “retail expert” seems to be claiming that no one will ever go to a store again. They point to the fact that e-commerce sales are through the roof (“I like to touch what I buy” sounds trivial when a life-threatening virus is on the lose), and thus assert that customers will keep shopping this way forever. They won’t. Confinement is temporary(ish). Once it is over, it is likely that stores will see their erstwhile customers again. This is especially relevant for fashion, lifestyle and home improvement stores.
What is true, however, is that categories that were once seen as strictly within the realm of brick-and-mortar will become increasingly open to digital sales. One category in particular will be immensely disrupted : grocery. Once e-commerce’s ugly duckling, grocery online sales have nearly doubled in France in 2 weeks, while Amazon, which at a time struggled with getting its customers to order groceries, is now struggling to keep up with demand (Amazon Fresh orders are up 323% YOY as of March 2020). When the confinement ends, online sales will be nowhere near what we’re seeing in March/April, but enough customers will have been incentivised during quarantine to continue using services such as Instacart, PostMates or Shipt to get their groceries delivered straight to their homes (more on last-mile delivery below). In short, COVID-19 is merely finishing the job started by the rise of digital channels.
The coronavirus crisis has indeed highlighted the importance of digital channels for companies, but has also exposed their (many) flaws. Even as e-commerce rises, warehouses are not fully robotised (more on automation below), and many have had to close down to protect workers (I hope those that haven’t will answer to the law). River Island, Next and Tk Maxx, for example, currently take online orders, but will not fulfill them for weeks, and we’re seeing delivery delays get longer week after week. We’ve also seen websites overrun with users, cyber-security issues, communication breakdowns, lack of workers… and don't get me started on returns. Before the changes predicted come about, companies will need to solidify their processes and operations before going forward with a greater integration between their various sales channels.
2. Apps become multi-purpose
Forget e=MC² : Boredom + phones = apps downloads² (take that Einstein)
The e-commerce surge has of course led to an increase in retailers’ apps download : Instacart, Walmart Grocery and Shipt, for example, have seen their daily downloads surge by 218%, 160% and 124%, respectively between February and March 2020. Target’s app also saw 53,100 daily downloads in March, against 25,000 in February.
This is not only an opportunity to convert new customers, but also to bond with them. As people have been (rightly) forced home, they are starved for content, and eager to be engaged with by brands. Once a nuisance, push notifications are now (somewhat) welcomed. Brands, however, have to do it right. Below is an example of what NOT to do in times of social distancing :
Beauty brands have always been particularly good at creating content to engage clients in an authentic way, and more and more companies are catching on, especially in times of increased social cohesion. If you’re a retailer, and haven’t thought about revamping your app from the bottom-up yet, the time is now.
There is clearly an added bonus for companies seeing a rise in app download, and one which will impact retail far more than a temporary rise in downloads : the more customers have a store’s app, the easier customer behaviour changes will be to bring about. I’m thinking, specifically, about contactless payment and check-out free retail (which customers are clamouring for), both of which will see implementation accelerations in the coming months thanks to a rise in app downloads.
3. Supply Chain Planning becomes cool again
2020 is likely to be known as the year of the great economic decoupling. Author Robert Kaplan put it best :
“The coronavirus, I believe, will be seen as a chapter break between Globalization 1.0 and Globalization 2.0”.
For retailers, this decoupling means rethinking their entire supply chain, and moving away from A) their over-reliance on China and B) Just-in-Time models. In a recent pwC survey, 35% of CFOs questioned answered that their supply chain was one of their top 3 worries. One might assume that number is much higher today : companies that may be at risk financially (and many now are) can simply no longer rely on a limited amount of suppliers to serve their consumers. The risk of a new crisis is simply too high.
As such, supply chain diversification will increase in the retail industry (and many others). It is likely to start with an emphasis on locally produced goods (over-correction, but a good news for farmers), but will quickly become a general multiplication of partners. The rise of nationalism that we’re currently seeing, and which will only accelerate, should make the exercise particularly interesting.
We will also see a rise of supply network mapping activities (spearheaded by companies such as Elementum, Llamasoft, Resilinc…) all the way down to the raw materials. This will allow corporations to better understand future risks, and be able to react quickly should a Coronavirus 2.0 strike (boy I hope not). Additionally, employees from procurement, logistics, legal and finance teams within each retail company need to come together to shed a light on existing gaps (tools, information, people, processes…) to protect their supply chain from future disruptive events. Only then will a company truly be able to make and keep a systematic just-in-time promise to its customers.
4. Different delivery modes thrive
For the retail world, upstream supply chain challenges often pale compared to those downstream. This is especially true in time of crisis, and more so if said crisis affects each and every customer one way or another.
Indeed, solving the last mile issue remains one of the biggest nuts to crack in retail, even in “normal” times. But today, this challenge is even more complex : most companies have decided to either protect their delivery crews (or are being criminally negligent), or have seen new rules strongly reduce their capacity to deliver orders. How will these challenges invite retailers to imagine new solutions in the near future ?
As rule 2 (above) of this article highlights, existing projects already offer hints of larger changes to come :
A few years back, Amazon carried out trials in drone delivery, and is continuing to do so
Walmart is partnering with American self-driving startup Nuro to test autonomous grocery delivery
Ford recently teamed up with US startup Agility Robotics to develop bipedal robots in order to automate last mile delivery
Beyond exciting technologies, we’re very likely to see a rise of Drive, In-Store Pick-Ups and Lockers, as we try to move away from overly relying on human contact when shopping. All these innovations could drastically change the face of retail: the highest cost in delivery is labor, which accounts for 60% of the cost. And companies need the money right now.
The coronavirus did not start this specific fire, but will undoubtedly hasten the automation trend.
5. Automation continues and accelerates
Making and delivering goods closer to home while limiting human interactions also means having access to a certain amount of automation (because labour in the “developed” word is expensive). And though we will not be fully replacing humans anytime soon (more on training below), stores will be looking to both cut costs and protect workers from contacts with others in the foreseeable future.
Walmart currently offers the clearest view of what that may look like : Bossa Nova robots (called “Auto-S”), designed to scan items on the shelves to help with price accuracy and restocking, are already present in 1,000 of their stores. These six feet tall devices contain 15 cameras each, which scan shelves and send alerts to employees in real time. This frees workers from the need to focus on repeatable, predictable and manual tasks, giving them time to focus more on order preparation, customer service, or sanitation.
Walmart has also introduced robots to clean floors, unload and sort items from trucks and to pick up orders in stores. It is interesting to note that this niche is quickly becoming increasingly competitive : the Simbe robots have also been deployed at the American distributor Schnuck, with the same value proposition as Bossa Nova, and Lowe’s unveiled in 2016 a robot that can understand and respond to simple customer questions. This competition for the best tech will only increase in the months and years to come.
None of this is new per say, but it won’t matter when the automation tsunami comes. Mark Muro, a senior fellow and policy director who researches automation at the Brookings Institution, said it best :
“Look for accelerated installation of kiosk ordering systems that can easily be layered on — it’s an obvious move in the era of social distancing — and they were an obvious move when the economy was going well”.
6. Sales associates are better trained
Yes, automation will accelerate in the long run. But the short run looks very different.
Exhibit A : Walmart hired 100,000 new employees this month, even as its robotics program grows.
If this crisis has shown us anything, it’s that store associates, long taken for granted, are absolutely vital for our societies to function properly (damn right). And their jobs are complex, especially in times of high demand. Today, anyone working in a store is expected to be able to :
Fill online orders and bring them out to people’s cars
Clean up (especially important in the coming months)
Refill shelves and put wrong items back on the correct shelf
Help and inform clients (and be category specialists)
operate a till
Be human and show empathy in these hard times
This is all very labour intensive, and will require a lot of training so that retailers are not caught off guard again in the short term. It will also be vital to figure out which of the above tasks work well together, so that everyone’s time can be optimised.
In the short term, training programs for store employees will only multiply, even as retailers seek to replace them. Because of the costs entailed, and the coming recession, robotics program will only truly start again in 2022, with a large automation wave in 2023 when margins have recovered. Yet, though the automation apex is years away, the jobs automated today and tomorrow are unlikely to ever come back. As such the discussion on what to do as automation accelerates must begin now.
7. Experimental retail takes a hit
Stores are safe from irrelevance, as they have been for thousands of years. Experimental stores, however, feel the pinch from the increase use of e-commerce somutions. In times of crisis, stores have one job :
Get products to consumers, preferably quickly and safely.
There was a time (a month or so ago) stores were on their ways to becoming extensions of the brand, a place for like-minded people to meet and share within a community. That dream is dead, as no one wants to be part of a physical community right now, and so for another year at least.
Customers do not want to linger in front of a smart mirror, or take cute Instagram pics that will look out of place given the coming recession. They do not want to engage with cheerful associates about their hobbies, and they do not want to go to the store just to see a product they will later buy online. Right now, there’s fear as customers move through a store : they want to get their bread and leave. As such, it is likely that many retailers will cut their losses (and costs), making their experimental stores move online, for the time being.
If we win anything out of this, it’s less branded content on Instagram.
8. Influencers disappear for a while
That’s the one word that keeps coming to mind when I see influencers post ANYTHING these days. As companies look for more content to engage with customers, the pitfalls of doing so have never been more obvious : flaunting one’s lifestyles when thousands are dying and millions are losing their jobs is… a faux pas ? Hella stoopid ? Pick one.
Companies have to be more careful than ever with regards to whom they associate themselves with, at least for the next few months, if not years. This is especially true given retail’s reliance on “celebrities” to promote their wares. Seeing any of the Jenners / Kardashians / Degeneres complain about confinement from their castles while professing their love for overly expensive sweaters or lipstick will seem incredibly crass for a long time. “We’re all in this together” is a flawed, loaded statement when some people have access to resources others don’t.
When “Influencer Who Participated in Toilet Licking Challenge Says He Tested Positive for Coronavirus” is a real headline, it becomes apparent that depriving influencers of attention is like locking someone in a room without oxygen. Indeed, this very specific population is now facing the daunting reality of still needing to “influence” while out of valuable advice to share (and out of travel, parties, and restaurants).
There is a good reason companies have to be careful with their image in these times…
9. Winners and Losers emerge
Once this is over, there will be a price to pay.
The economical hangover is likely to kill many companies, who will not have been able to recover from the lack of sales over many weeks, if not months. The table below, post-2008 crisis, gives a good insight into what’s coming, and who the “losers” are likely to be.
But there may also be an image hangover from companies that put profits ahead of people in visible ways (Friedman be damned).
Sephora is not coming out of this in a good light, while LVMH will (reminder : one owns the other…). Prêt à Manger, McDonalds, Domino’s, Burger King and Starbucks will also get some clout for offering free food to first responders. Coty, Footlocker and Underarmour (among many others), are currently protecting their employees financially, and will be rewarded in the long run : employees WILL remember who threw them under the bus and who didn’t.
It’s really not that hard to be a winner : protect your most vulnerable employees with full pay and send as much resources as possible to hospitals and medical staff.
There, I solved your marketing problem.
10. The Winners eat the Losers
Consolidation is a staple of recessions
Small stores with less than 5 employees are mostly doomed, unless the owners can dip into their savings. They will come back by 2023 (oh boy what a year this will be); but 2020 will wipe out many of them with a few exception such as corner food stores that people will visit more regularly during confinement if they are far from a larger store. For fashion, it will be a carnage, as the market is based on discretionary spending and thin margins.
As in any crisis, entrepreneurs will look to sell. This will allow large companies to become even larger, as they will be able to eat up competition and integrate it faster than would have been possible pre-crisis.
Just as we saw Amazon buy Whole Foods a few years ago, I strongly believe that large tech companies (who are clearly winners this year) will soon start shopping for brick-and-mortar stores looking to get out of their financial pickle. Alibaba, IBM, Microsoft and Google, which have recently dabbled in retail technology, are prime candidates for such consolidation. Retailing titans will also come out on top : companies such as Walmart and Costco have a lot of cash on hand, as well as extensive delivery networks.
Obviously, these trends will not affect all retailers equally, or at the same rates : essential stores which are currently struggling to meet demand will be the fastest to transform, while non-essentials (fashion, cosmetics) will see a longer, yet more diverse road to innovation and transformation. These trends will vastly depends on what customers take away from their imposed isolation. There’s likely to be pent-up demand, but possibly tempered by a new appreciation for consuming less, especially as a recession bears down.
At the end of the day, I simply hope that if we take anything out of this, it’s that taking care of the people is the same as taking care of the business.