We keep talking about being customer-centric, and retail is where the rubber hits the road, as it used to be the place where products meet real customers. This highly fragmented industry represented in 2019 more than $26 trillion worldwide sales.
If we go back 200 years, all retail was a small “mom-and-pop store” business. Their “Good Morning Madame Smith” business model was based on customer intimacy. The merchants knew their customers by name, made recommendations on what they might want to buy, and extended credit. Then, at the beginning of the 19th century, a new business model was introduced by department stores like Le Bon Marche in France and Macy’s in the United States. At the end of the 19th century, mail-order catalogs emerged as business model innovation. These innovations took many years to transform into the current consumer trend that we know of.
Nowadays, with the rise of COVID-19, we see retailers being challenged to adapt their models in a few weeks or even days. Some feel that this is a temporary change, but the virus framed challenges will resonate for the years to come and 2020 will be termed as the time where everything changed. Meanwhile, we cannot peak into the future but can contemplate the effects brought by this pandemic.
1. Back to the basics
Online and offline grocery stores witnessed ‘panic buying scenarios’ and bulk shopping for categories like fresh food, household chemicals, personal hygiene, and health. Other sectors that have been affected positively are books, media, do-it-yourself items, pet store commodities, and sports. In China, fresh food-related sales at JD.com jumped by 215 % during 10 days in February 2020.
Before the crisis, online grocery had low adoption. Nevertheless, according to Adobe Economic Index, grocery orders placed for online pickup grew 62% between February and March vs. 2019. Many merchants stepped in to answer this demand, and many others weren’t ready, or the consumer experience is not reliable.
But, not every segment is so lucky. As customers increasingly focus on their primary needs, segments such as jewelry, fashions, automotive, and luxury commodities have been hit the hardest. These companies must play the game differently and plan accordingly if they have to survive in a post-COVID world.
2. Touch-free shopping
One of the most important factors influencing consumer behavior in these uncertain times is the interpretation of social distancing measures that include (but not limited to) shelter in place, working from home, and homeschooling. These have abruptly shift routines and attitudes that resulted in behavioral changes in the way consumers buy and what they buy.
For many retailers including local shops “foot traffic” is crucial for sustaining their business models. Others, that have based their development on pure eCommerce and low contact models. These companies are seeing a big difference since the coronavirus outbreak. Amazon revealed a 26% sales increase in the first quarter of 2020.
Online shopping, virtual solutions, and low contact transactions skyrocket during the last months. According to the ACI Worldwide study, global e-commerce retail sales rose by 209% during April, as consumers moved in-store activity to online and mobile channels.
3. Operations and supply chain agility
Retailers have been forced to transform their operations and supply chain management to answer “new normal” demands. This is translated in the form of strengthening new services like online ordering, door-step delivery, and pick-up.
Ecommerce platform Shopify Inc. sales grew by 47% vs. the same quarter in 2019. Electronics and office supply retailer Best Buy has already offered curbside pickup but moved to a curbside-only service for all its 977 U.S. stores on a trial basis.
FIS research found that 40% of consumers would shop online rather than in-store in the future, and 38% would rely on food delivery services or take-out due to the coronavirus. Merchants are being forced to adapt their operations in a very short time frame.
4. Low contact delivery and pickup
Between the most popular Go-To strategies right now we include curbside pickup and home delivery. Many “non-essential” businesses are closing their doors to shoppers and turning them into pickup points for online orders brought to customers’ cars. This “Buy Online, Pickup In-Store” model is exploding as many retailers are using it as their main survival strategy during the crisis.
Door-step deliveries are also getting very common for goods from restaurants, groceries, and medicines. Companies like Instacart, Dominos, and Doordash had increased their capacity to answer the demand in this period.
This would not be limited to essential items, as some cities start to open up, the delivery strategy to categories like liquor, apparel, and cosmetics. Nordstrom Inc. is already setup to handle curbside orders, while others, like fabric retailer Joann, decided to launch curbside in response to the coronavirus, and are determining the operational tactics on the fly.
Though, curbside pickup and home delivery are more costly to operate and decrease traffic. Forrester’s research shows that 30% to 40% of shoppers who go into a store to pick up an online order end up buying additional items. As many retailers model still depends on foot traffic, we still uncertain about the long-term sustainability of this model for several retailers.
5. Local shopping
As consumers are in lockdown and stuck in their localities, many are moving to local and small shops. Big Red Rooster survey shows that 72% of interviewed people have shopped online to support local businesses during the pandemic as ways to help their neighbors and community.
Cash flow is the most common struggle for small businesses, but since the pandemic, this has become the priority. Therefore, they are testing the waters of online ordering, curbside pickup, free delivery or even gift cards to be used at later date.
Small businesses are finding ways to connect with their customers, and services that help to redefine “shopping locally” are emerging. Grocery delivery application Instacart has seen record download +218% and weekly income sales rates10 times higher in March vs previous weeks. They are currently looking to hire 300,000 contract workers over the next three months.
Could we change consumerism and create more empathy for a small business after COVID-19?
6. Contactless transactions
Efforts to eliminate human-to-human contact and touching of cash have also triggered a rise in contactless payments and retail mobile applications. According to the payments firm FIS survey, 31% of respondents would be using contactless or mobile payments instead of cash due to COVID-19.
South Korea has seen a 30% increase in card and mobile payments between January 2020 and February 2020. People in the United States have been turning to Target to stock up on groceries, entertainment, and everyday essentials. March 15th’s downloads of their mobile app saw an increase of 98% over the average number of daily downloads in February. Walmart updated its mobile app to remove the need for shoppers to make physical contact with a self-checkout station when paying with the retail giant’s QR-based.
7. Deeping digital divide
McKinsey consumer-sentiment April 2020 survey, showed a decline in offline purchase intent of 70% to 80% in Europe and North America. The pandemic has accelerated the use of digital technologies including mobile, data analytics, and biometric applications. These technologies are being adopted to improve the effectiveness of transactions and user’s low contact experience.
Chinese e-commerce giants Alibaba, Suning, and JD.com, as well as Amazon in the United States, were already set with retail stores that are fully automated in major cities, equipped with various technologies such as electronic shelf label, Radio-Frequency Identification (RFID), computer vision, and facial recognition.
Other retailers are using facial recognition and/or voice biometrics to authenticate their customers and provide personalized services. Facial recognition and voice are especially handy as they enable seamless and low-touch transactions.
The contact-free economy is merging and getting automation to a new level. However, companies need to pay extra attention to their digital experiences right now and focus on user experience and trust.
Will many of these changes remain after the pandemic is over? Once the COVID-19 crisis ends, a lot of customers will probably appreciate the convenience of these services and all of the above effects may remain relevant. The big question is How to keep them and make it sustainable?
This pandemic has forced new consumer habits, and retail organizations are looking for innovative ways to adapt accordingly. With Stay-at-Home orders and social distancing guidelines, some retailers being closed forcefully while others are looking for more staff to meet the increasing demand for specific items online.
The challenge to retailers is to stay agile and creative while ensuring the safety of customers and employees. Taking these steps will only help in transitioning from reacting to the current situation and growing success as we all move forward in such uncertain times.
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Here a useful guide to help you adjust your shopping habits to stay safe and save money during COVID-19.
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