Business model pivots in time of covid-19 # retail industry

As the economies gradually reopen after the first wave of COVID-19, social distancing may still be shaping consumers behaviours and influencing changes in many industries, including retail.

The coronavirus has brought about significant impact to consumer behaviour, product demand, and retail store, factory and logistics availability. Growth estimates for global retail in 2020 may even be halved from pre-covid-19 forecasts.

What changes are expected in different elements of retail business models? Let’s review some possible directions.

Changing client behaviours

According to recent McKinsey & Company survey net consumer optimism has decreased, and most consumers continue to expect a long-lasting impact from COVID-19, with some exceptions: China and India remain the most optimistic, while Japan remains the least. In many European countries consumers remain pessimistic about an economic recovery.

As incomes have declined, consumers are spending mainly on essentials. Spending on groceries and at-home entertainment continues to show positive momentum. Today, consumers in more countries intend to increase spending on other basic categories, such as household supplies and personal care as well.

For most non-essential categories the outlook remains negative, yet there is reduced pessimism about future spending on categories such as restaurants, restaurant delivery, apparel, footwear, and consumer electronics.

Consumers are shifting to online and digital solutions as well as reduced-contact channels to buy goods and services. Some categories are gaining many new customers who intend to stick with the behavior post-COVID-19, including online fitness and wellness apps, store curbside pickup, and physical telehealth. On the other hand consumers are less willing to continue restaurant curbside pickup, professional videoconferencing, mental telehealth, and remote learning for children.

Consumers also want to see an ongoing emphasis on cleaning and safety. Physical distancing – while important – is less critical in most regions.

Channels and client relations

Instore experience

Following the BBC reports, the research led by Lan Xia, professor of marketing at Bentley University in Massachusetts showed that in the offline store people are looping through a shop to look around because they want to gather information, but also for pleasure.

Browsing in physical stores offers therefore the opportunity for occasional buying. According to Xia, factors such as store layouts, levels of crowding and exposure to colors and smell offer a higher level of stimulation in order to enhance recreational browsing.

A 2019 report from online merchandising company First Insight found that during a typical shopping visit consumers spend more in store than they do online.

With shopping restrictions now in place as a result of Covid-19 and the inability for multiple customers to touch the same things consecutively – the future of browsing may be endangered and so may be the part of sales coming from “serendipity” buying.

As the customers are less willing to stay longer in stores the retailers will have to adopt to new buying behaviours. What they will need is not only a solid technology foundation, but also an ability of flexible innovation in order to prepare for what may come.

Omnichannel retail

Due to covid-19 more customers are more willing to shop online and this involves older consumers as well. According to Statista, 31% of consumers aged 65+ expected to increase spending on goods from online marketplaces because of the pandemic.

COVID-19 encouraged the acceleration of omnichannel retail. One example of retailer scaling up digital investments is Levi’s – not only to engage customers but also to streamline operations. They introduced 3D technology for sampling and design, eliminating the need for physical samples to sell to merchants.

Innovative self-service solutions

As shoppers are willing to limit their interactions with human staff, self-service solutions powered by AI, facial recognition, and infrared technology can make online and in-store experiences better for customers.

Technologies that promote self-service behaviour such as better product search tools can make shopping more intuitive, helping customers find and buy the items they want—faster and easier.

New ways to fulfill orders

The boom in online shopping will put greater emphasis on delivery options. Curbside pickup could become a prevailing option.

While retailers could lose on upsell from consumers browsing their physical stores, they will also need to explore more pickup options in order to find a way to control delivery costs. As of the late March fielding, one-quarter of global connected consumers viewed click-and-collect options as an important delivery feature, according to Euromonitor International’s 2020 Digital Consumer Survey.

Boost of contactless payments

For safety reasons consumers are opting for contactless card and mobile payments over cash or touching POS terminal keypads. According to Euromonitor International’s 2020 Digital Consumer Survey, as of late March 22% of connected consumers globally used a digital wallet to buy at least one product in a physical store.

Players are coming with response: Mastercard raised the limits for contactless payments across 29 European countries to remove the need of a PIN; Walmart modified self-checkout stations to make these systems contactless; and Publix Super Markets sped up its tech transition to accept contactless payments ahead of intended plans.

Value offer

The changing consumer behaviour poses not only threats but also opportunities for new value creation. What may be the new sources of value for retail customers?

Shift to value for money

An economic downturn will probably lead consumers to demand value for money across retail sectors. This is already happening in essential categories, as private-label sales at grocers and pharmacies are increasing, and pricing and promotion strategies are emphasizing value.

Focus on meaningful luxury

It’s being said that millennials might be significantly changed by the pandemic. For the first time they are confronted with the hard fact that growth is not guaranteed and that their generation might not be better off than the previous ones.

The conspicuous consumption might be therefore less acceptable for a while and the newly discerning customers will be more cautious about their choices. Luxury brands will have to focus on experiences, storytelling around purpose and values, heritage and authenticity to remain relevant to the changing customers.

The future of secondhand shopping

Economic, technological and environmental factors boosted the secondhand shopping in recent years. There are voices that because of psychological reasons and fears from virus consumers may think twice about wearing second hand clothing or borrowing apparel or accessories for a fee.

The most recent numbers indicate however that covid-19 will rather drive the growth of the second hand market: according to thredUP, a major online secondhand shopping site, the resale market is projected to reach $64 billion in five years. The most recent research led by thredUP showed that consumers plan to shift their spendings from department and luxury stores to off-price, Amazon and second-hand stores.

The trend is not ignored by traditional retailers who are linking up with resellers. Among them, Walmart Inc. said last month it is partnering with ThredUp to bring secondhand clothing to the Walmart website. Macy’s Inc. and J.C. Penney Co. Inc. have also added secondhand clothing to their portfolios.

Activities and resources

A diversified supply chain

The coronavirus outbreak has left countries vulnerable to the breakdown of global supply chains. The manufacturers of both essential and non-essential goods faced shortages of critical components which hampered their production of finished goods.

Luxury industry has relied on global supply chains too. In automobile, they are the norm. Luxury fashion brands have often off-shored to low-cost locations.

In order to mitigate such challenges in the post-covid future companies may consider reshoring important parts of supply chains and start keeping buffer inventories in regions.

From globalization to regionalization

It is possible that logistics hubs will re-emerge at the regional level.

To eliminate single-source dependencies, and to establish a flexible and adaptable supply chain, product integrators, sub-system suppliers and component suppliers will source, assemble and deliver from their own backyards.

A return to regional supply chains presents a complex challenge. However, that challenge might be worth taking in the post-COVID world.

 

Experts commentary

Eusediu Margasoiu, CEO and Co-Founder of Feexers, an on-demand mobile platform that connects homeowners with service providers, in real time:

If we think about DIY retail, we observe a bloody red ocean with more and more retailers moving towards omnichannel and online shopping. Most likely the battleground could be the enhancement of customer experience. Every step of the way, end-to-end.

The customer experience might not end up with product delivery, whether it’s curbside pickup or drone delivery or whatever. I believe we could identify rather two dichotomous behaviors: one with customers doing things by themselves, amid Coronavirus and one with customers not willing to do so. For the latter, in a post-COVID world, time might become the ultimate luxury: ‘My own time. Time for me, for family and friends. The ‘priceless’ time…’

The winning DIY retailers might be the ones that will manage to deliver customer fulfillment to the end. Those who will be able to ‘release’ the most time for their customers. Those that could streamline the entire value chain process with technology as an enabler; be it own development or forward integration. Those that will quickly augment, adjust or rethink customer experience from end-to-end not only in the product but in terms of service.”

 

 Tiberiu Lupu, COO and Co-Founder at Evertoys, the subscription-based platform that provides meaningful entertainment and education for children:

By paying a monthly subscription, our customers have access to an ever-growing library of used toys, games, and books. When the pandemic started and governments around the world were implementing lockdown measures, we feared the worst. The worst for us meant that we would have lost a significant part of our customer base. We anticipated that because of rising hygiene worries our service would be deemed unsafe. We were mistaken.

Evertoys was among the fortunate companies to experience higher growth during the lockdown. In various categories of goods and services, ours included, demand exploded, and e-commerce became supercharged in a couple of weeks. For the first few weeks we could not cope with the demand. Educational toys, family games, indoor sports & movement were on every parent’s wish list. Parents everywhere found themselves stuck with children. They were struggling to cope with the need to provide them with activities, education, while at the same time trying to work. Buying is a solution, but how long could they keep doing that?

As a result, borrowing and using for a flat fee became a viable solution. Also, raw consumption was replaced by cautiousness and more careful spending. Registering a credit card for a subscription service is always an important barrier. However, during these times we have seen the strength of this barrier fall. On the other hand, all the couriers we work with raised their prices which meant that our margin become smaller, since we have the delivery included in the subscription price. Delivery times have more than doubled.

Analysts in our market say that even as stores begin to reopen, e-commerce is going to become a more important part of retail in the wake of the pandemic and that retailers should be preparing for that. For example, Zara is closing a lot of shops and is investing $1 billion to boost its online shopping platform over the next three years. 53% of the online shoppers in our market discovered new online stores in pandemic period.

In conclusion, I think that some of the newly acquired behaviors are here to stay. And it’s not all bad. Everything as a service, prudent spending and value for money will be in the customers’ crosshairs for the foreseeable future.

 

About the author:

 Agnieszka Węglarz is an independent consultant, business strategist and practitioner in B2B and B2C as well as lecturer, speaker and blogger. She has over 20 years of professional experience working as a manager in both large corporations and SMEs, where she was responsible for strategy, marketing and business development. She uses her long term executive experience and training expertise to assist companies and their managers in building their business development strategy through a series of workshops. She specializes in business modelling, segmentation, value proposition, sales and marketing strategies and consultative selling. She runs her business blog on www.agnieszkaweglarz.com and her own YouTube channel – Biznes Ring by Agnieszka Węglarz. You can contact her by writing to: agnieszka.weglarz@g2m.biz.pl or by directly sending a message via LinkedIN.