How will retailers adapt to the change in customer behaviour that we’ve seen as a result of the pandemic?
The UK retail industry is gearing up to re-open in June, as Boris Johnson has announced that non-essential stores can resume business if government safety guidelines are met.
Outdoor markets and car showrooms can reopen from 1st June, while high street shops and shopping centres will be able to reopen from 13th June, but only if retailers are confident that they can properly manage the risks.
This marks the biggest development since lockdown began, with retailers now hoping to repair some of the damage that the coronavirus pandemic has done to business. Of course, some stores will not get the chance to re-open; the likes of Cath Kidston and Warehouse are now shut for good.
But what state will the rest of the industry be in going forward, and how will retailers adapt to the change in customer behaviour that we’ve seen as a result of the pandemic?
April sees record sales decline – will retail bounce back as stores re-open?
UK retail sales suffered a record decline in April, falling 18.1% compared to March. Fashion retail was the worst hit sector, seeing a 50.2% fall in sales compared to the previous month. With high street sales collapsing, consumers have naturally shifted online. According to ONS figures, online shopping as a proportion of all retail reached a record high of 30.7%.
As with March, however, it’s not simply a case of online sales being up across the board. The online grocery sector once again saw the biggest surge in sales, with food retailers seeing its proportion of online spending increasing from 5.7% to 9.3%. In contrast, clothing retailers reported a monthly growth rate of -14.5%, despite still reaching a record proportion of online sales at 46.4% when compared with 26.6% in March 2020.
Overall, April further cemented the shift in consumer behaviour that occurred at the start of lockdown. In short, that more people are buying groceries and household goods online, but people are not regularly buying clothing or footwear (presumably due to the lack of social interaction and events that might spur people on to buy). There have been some exceptions, such as Boohoo, which has seen success on the back of its clever content strategy (and pivot to loungewear).
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— boohoo (@boohoo) May 27, 2020
It’s also the case that retailers like Boohoo, i.e. those with experience or prior success with ecommerce, have fared better. Richard Lim, chief executive of Retail Economics, told the BBC that the shift to online had benefitted “those retailers with the slickest e-commerce operations and who managed to cope with the shift in demand.”
In contrast, for retailers who have been slow to adapt to ecommerce – such as bigger department stores or niche retailers with less of an online presence – the decline has been more dramatic. Consequently, these retailers will be left with a much bigger hill to climb once stores re-open.
But will customers want to return?
With the government announcing that non-essential stores will reopen in June, it’s likely that sales will regain some momentum. But of course, this depends on stores being able to open in the first place; retailers will be required to take the necessary steps to become ‘Covid-19 secure’ in line with the current health and safety legislation, and pass a risk assessment test.
Alongside safety, there’s also the question of whether or not consumers will immediately return to stores, or even want to in the long-term.
There are two main reasons this might not be the case. The first and most obvious being safety concerns, with customers resistant to enter stores despite the safety precautions there are in place. For most retail stores, this will involve limited entry, additional cleanliness and sanitation processes, as well as perspex partitions at the checkout. Bigger shopping malls are also set to implement technology in order to monitor the amount of people inside at any given time. Scott Parsons, managing director of Westfield told the Today programme: “We’ve got digital footfall trackers so we can safely manage crowds; as they enter and exit we can impose one way systems and markings on the pavements.”
So far, the opening of garden centres and non-essential stores appear to have been welcomed, with some B&Q outlets reportedly seeing huge queues upon re-opening. Of course, these queues were also likely to due to social distancing measures (and not necessarily an inordinate amount of customers), as well as the novelty of stores being open again in time for a bank holiday.
Another reason why customers might not return is that many are now used to what has been dubbed the ‘new normal’, which is perhaps not as inconvenient as first thought. In fact, the way that customers now shop – buying items online as well as direct from brands and wholesalers – has become a habit. Recently, industry figures including the CEO of M&S, Steve Roe, and retail entrepreneur, Theo Paphitis, have both suggested that retail will never be the same again as a result. During the past eight or so weeks, the lockdown has rapidly accelerated adoption of ecommerce, speeding up both the consumer shift and retail response to digital shopping.
For retailers like M&S, coronavirus has accelerated digital transformation plans, which include making its partnership with Ocado a more central business focus. M&S is now reportedly planning to allow customers to order non-food items in with their grocery shop, including clothing and homeware. The aim is clearly to offset dwindling retail sales, as well as to help combat the closure of some of its stores. In a broader sense, it also aligns to a new or stronger consumer reliance on ecommerce.
It’s getting closer and closer to the big day. On 1st September we’re introducing 1,000s of Marks & Spencer products to our range of own-label and big brand products. pic.twitter.com/96YKAp1Wt5
— ocado (@Ocado) May 24, 2020
How will consumers adapt?
The impact of Covid-19 will continue to be felt by retailers throughout 2020 and beyond, particularly those who have taken up government-backed loan schemes throughout the pandemic. While loan support has undoubtedly saved retailers from shutting for good, the resulting debt, combined with potential customer apathy towards brick-and-mortar retail going forward, is likely to mean an uncertain future for many high street names.
Another burden is the huge amount of excess stock that has piled up over the past few months, which the majority of retailers are currently attempting to combat with heavy discounting strategies.
However, some retailers are going beyond this. Harrods, for example, has announced that it will be opening a concept store in London’s Westfield, which will exclusively sell leftover stock from the previous season. The move will also help Harrods to ensure that social distancing is maintained in its Knightsbridge store, as well as allow for the kind of in-store experience that long-term customers have come to expect. The strategy is not going to immediately reverse the impact of Covid-19, but alongside shifting excess stock, it’s also a good example of how retailers should strive to adapt to the new retail landscape, rather than just expect customers to return to ‘normal’ once shops re-open.
Again, it’s important to recognise that stores won’t yet be able to re-create the retail experience that existed pre-coronavirus, which again could be a factor in customers’ reluctance to return. Now, the in-store shopping experience is going to be limited, and lack some of the elements that perhaps attracted customers in the first place. The absence of dressing rooms, in-person consultations, and even interaction with staff will be apparent. Unlike supermarkets – where shopping for groceries is a necessity rather than a luxury – other retail stores are going to have to find new and different ways to satisfy shoppers.
Much of this is likely to remain digital for the time being, creating an even bigger gap between retailers who have or are able to further invest and excel in ecommerce. Indeed, retailers who have strived to adapt to and meet the needs of customers throughout the pandemic – both in terms of fulfilling orders, but also through virtual consultations and other forms of digital content – are perhaps more likely to tempt customers back into stores eventually.