Retail's New Normal :Factors that drive Survival and Success
The world has changed drastically requiring quick adaptability throughout the retail industry in order to survive and thrive. Factors driving the new future of retail include a shift in consumers’ shopping behavior, new shopping patterns, global supply chain challenges, perception of brand trust, the influence of social media, and the evolution of new digital sales channels. Understanding and adapting correctly to these factors will be the difference between thriving and potentially failing in the new normal of the consumer in the age of the coronavirus.
Changing Landscape of Retail
The Revenue Tilt: Online vs Offline
In Q1 and Q2 eCommerce saw an increase of $107B above original projections; equivalent to 75% of the 2019 holiday spend (the 2019 holiday season eCommerce spend was $142B).
This resulted in a 30% growth of eCommerce in the U.S. Q-o-Q. The previous trend is 5-10%. Even so, we cannot write-off offline commerce. In fact, we expect it to remain strong. Let’s explore why.
Shifting Consumer Behavior
Not surprisingly, shoppers are very cautious about their health and safety right now. They are also concerned about job security and the impact the economy will have on their savings. As the economy slowed down, 61% of consumers reduced their luxury spending.
But for essential spending, Omni-channel was a key differentiator. One in three consumers ordered home delivery or curbside pick-up in the last 6 months. Interestingly, 30% of online consumers prefer using BOPIS (Buy Online Pickup in Store) or curbside over home delivery. We have seen a 16.9% Y-o-Y increase in online food delivery. These shopping habits are bound to last beyond the current health crisis, potentially for years to come.
The influence of social media and voice/video technologies is now taking center stage in our daily routines. Some data points to ponder – we see a 61% increase in social media usage in the past 2 quarters and 72% of consumers who own voice-activated speakers now use them as part of their daily routine. Up to 30% of all browsing sessions will include a voice search by 2020.
The Supply Chain
As the coronavirus took hold world-wide, the supply chain suffered in managing demand fluctuations. It was a struggle to handle the cost of scaling up of online-ordering and delivery systems. The strategy of reliance on a single geographic location or a single supplier for key products was upended due to the virus and resulted in failures.
Limited Customer Service
While the pandemic reduced direct interaction with customers, retailers struggled with customer service calls, which increasing by 43.4%. Chat-based customer service support increased by 22%. The inability to handle virtual customer inquiries, and the resulting longer wait times, dinged brand images.
It was paramount for retailers to provide safety and security to their consumers and employees, which came with significant additional expenditures. For example, Walmart, Target, and Home Depot collectively spend $2.75 billion on personal protective gear and extra payroll in Q2.
Liquidity & Financial Stability
As buying patterns changed from in-person to online and the focus shifted to essential purchases only, retailers faced a huge inventory challenge. Stranded inventory added to the financial pressure on the market. A stunning 31% of retailers reported that they have a 50% chance of going bankrupt.
Future of Retail
Key influencers of the future of retail can be summarized as follows:
1. Accelerated Shift to eCommerce
Six out of 10 consumers say they will continue to buy as much online even after the pandemic has passed. This would be a 20% increase Y-o-Y in the permanent shift of shoppers to digital channels. As a result, eCommerce will reach an all-time high of 14.5% of total retail sales in 2020, the biggest share increase in a single year.
2. Building Brand Trust
Losing brand trust is a deal-breaker. The vast majority of consumers (81%) said that brand trust is a decision-maker in their buying and 60% turned to a brand that they absolutely trust. Consumers look for value-driven relationships, environmental consciousness, community engagement, and -- most importantly -- a sense of empathy as key drivers in determining brand value and trust.
3. Omni-Channel Capabilities
Faster recovery in these trying times belongs to those who have strong omni-channel capabilities. Omni-channel strategies should continue to focus on:
- Seamless brand experiences and customer engagement.
- The ability to buy anywhere, get anywhere, and particularly anytime.
- Consumer touchpoints focused on consistency, best price, and promotions.
4. Supply Chain Transformation
Statistical supply chain forecasting models could not predict or manage an outlier like COVID-19. Supply chain strategy should consider:
- Elimination of single-source dependencies, Reversal of Globalization (i.e., Beijing to Washington), and broadening the supply base.
- Real-time visibility of the entire supply chain and the ability to withstand flexibility in demand volume.
- Advanced analytics to improve forecasting accuracy.
- Supply chain flexibility – Managing flex in demands (SKUs and volume).
- Adjusting the assortment to become recession-proof.
- Increasing E2E supply chain visibility and built-in resilience.
5. Contactless Customer Interaction
Consumers expect to increase the use of touchless technologies even after the crisis. Consumers continue to look for Applications for mobile apps in retail stores for Self-identification, Sharing product information, Product scanning, in-store navigation, self-checkout and payments. BOPIS and curbside pick-ups are imperatives and no more Options. Voice-enabled services and contactless services are must-haves.
6. New Shopping Enablers
Live stream shopping is turning mainstream. It brings:
- Human, entertaining, and real-life shopping experience to the digital world.
- The conversion rate for live commerce is usually higher than that of traditional commerce.
- Comes with more qualified leads, opportunity to up-sell/cross-sell, lower operational costs, and deep insights into customer behaviors.
- The Global Video Streaming Market is estimated to be $184B by 2027. Taobao Live reported that their gross merchandise volume has grown by 150% per year over the past three years.
7. Social Media-Driven Shopping
A recent survey showed 70% of Gen-Z consumers turned to Instagram for product discovery. Several major retailers have signed up for “Checkout on Instagram” since its introduction. In this market, UGC (User Generated Content) will have a significant influence in conversions.
In conclusion, COVID-19 is NOT a death knell to physical retail. However, success will belong to those retailers who can adapt to shifts in consumer behavior, new sales channels, and who have the ability to transform into a resilient supply chain. Brand trust is more important now than ever before.
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