Over the course of just a few months, the COVID-19 pandemic has permanently redefined the retail landscape.
A great transformation is already in motion as society evolves from a carefree world to one under strict restrictions. Even as economies reopen, social distancing may become a way of life until there is a vaccine for the virus.
New consumer behaviors formed during the pandemic will become habits the longer these measures last, and now brands and customers are navigating the new normal.
Though uncertainties remain, these observations point toward initial changes expected for the retailing industry ahead.
One of the most profound behavioral changes unfolding in retail is the shift to digital.
Online retail has become a real and credible alternative to physical stores since the start of the crisis. This consumer choice is likely to continue growing as both retailers and brands build their online capacity and capability.
Online sales grew nearly 50 percent at the peak of the pandemic as consumers stayed home but continued to shop. The shutdown of physical stores has forced consumers to question their regular shopping habits.
People who had previously been reluctant to shop online are setting up online accounts and experiencing an entirely new customer journey. And once they get a taste for online convenience, they may never go back to their old ways.
Many customers have also tried new omnichannel models: buy online, pick up in store grew 28 percent year over year in February compared with 18 percent in January, and grocery delivery is up by 57 percent.
Decrease in physical stores
While consumers have figured out how to do all or nearly all their shopping online, retailers are figuring out how to do all or nearly all their selling online, too.
Traditional retail has been struggling with closures, job losses and single-digit annual growth rates even before the pandemic. The global lockdown has accelerated an existing trend that has been on the horizon for decades.
Microsoft recently announced that it is closing all of its 83 Microsoft Store retail locations. While this is a clear sign that online retail is the way forward, Microsoft also says that in the future it will operate what it calls “Experience Centers” in some of the world’s most famous cities.
It is precisely that shift—from large numbers of stores all over to fewer stores that serve different purposes than just selling products—that many brands are now talking about.
The aim is to use stores to build awareness, educate consumers, define identity based on shared values and develop association. Of course they also want to sell product, but stores are less critical for that now. There are other ways for sales to happen and a store can be a catalyst for sales and growth without having to conduct the sale inside the store.
Given health and safety concerns, consumers are opting for contactless card and mobile payments over handling cash or touching card terminal keypads.
As of March, 22 percent of connected consumers globally used a digital wallet to buy a product in a physical store, according to Euromonitor International’s 2020 Digital Consumer Survey.
MasterCard, which reports that 75 percent of its transactions in Europe are contactless, raised the limits for contactless payments across 29 European countries to remove the need of a PIN.
Prolonged social distancing will further ingrain this consumer habit, which will likely stick long term due to increased precautionary measures even after lockdown restrictions are eased.
Automation and technology
Technology has been front and center during the outbreak. The trajectories of technologies are bound to accelerate, making businesses more agile and flexible.
The retail industry is about to see a major automation boom. In many cases, COVID-19 has sped up the timeline to create safer and more enticing shopping environments.
Automation happens in-store and on the back end. Many retailers started automating their supply chains to limit human exposure during the pandemic. It’s much more efficient for a robot to fulfill orders than a human employee who has to observe social distancing.
The robotics industry is seeing exponential growth to reduce human-to-human interaction. Big retailers like Amazon and Walmart are using more robots to track and clean inventory, and many smaller stores will follow suit.
In February, Chinese delivery app Meituan Dianping deployed a fleet of autonomous vehicles to send grocery orders to customers in Beijing’s Shunyi district in an effort to curb the coronavirus’ spread, several months after it tested deliveries by indoor delivery robots and drones.
In stores, customers are looking for touchless and automated options, including kiosk ordering and self-checkout. Stores that offer the most in-store automation and the healthiest environment may have a competitive advantage in the post-pandemic era.
Augmented reality is an underutilized technology in the retail sector. But now, this technology could define the future of a business. Augmented reality removes clouds of skepticism involved in buying from a store because customers are able to virtually try out your collection and proceed to buy.
IKEA even acquired an augmented reality startup that enables consumers to visualize new home furnishings in their living spaces from the comfort of their homes.
Embrace an agile operating model
The pace of change in the post-pandemic environment will force retailers to continually reassess their strategies. This approach requires more real-time insights on customers as well as a new agile operating model to harness these insights and put them into action.
Another phenomenon we have seen developing during the lockdown is queues outside stores which have, on occasion, been the cause of frustration due to length and lack of organization.
In the UK, an app named ‘Supermarket Check-In’ recently launched, allowing people to check their local supermarket information and stock levels – as submitted by other users – and then ‘check-in’ themselves to share their own experience.
Users are asked to record the name and address of the store they visited, the time, the length of the queue and the stock levels of specific categories, for example, milk, bread, meat, pasta and cleaning products.
We have already seen companies transition from straight selling to producing empathetic and helpful ads, and that will continue. Retailers will focus more on building relationships instead of just pushing products.
With an impending recession and historic unemployment, customers will be more thoughtful about their spending, which means companies will focus on creating messages that connect with customers.
The crisis has shown that customers will gravitate towards brands that are empathetic and supportive of their values. Retailers will need to go back to the basics, start with what the customer expects of them and act accordingly.
As we look to the future, this pandemic will undoubtedly have some lasting effects. Ultimately we know consumer expectations and shopping behaviors will change; comfort levels with technology platforms – and a greater dependence on technology, overall, will rise.
Retailers in turn need to boost their omnichannel strategies in order to meet the increased demand, dependency and consumer expectation.
The focus should be on stabilizing, getting back to recovery, and changing operations to adapt to the new normal. Those retailers quick to adapt will ride the next wave of growth.