How do traditional retailers that have a mix of Bricks & Mortar stores with some online presence navigate their business successfully post Covid-19 pandemic?
Even before Covid-19 the retail sector was facing disruption, and there were several contributing factors such as:
Decreased brand loyalty, Growth in online shopping, Political instability, Increases in tariffs, Supply chain bottlenecks and a demand from consumers for environmentally friendly & sustainable products. These are just to mention a few.
As we move closer to living with Covid, what will the “New Normal” mean for retail. Well, no one truly knows, but we do have some clear indicators that can help:
Behaviors will become habits, what do I mean by that? According to a study published in the European Journal of Social Psychology, it takes 18 to 254 days for a person to form a new habit. The study also concluded that, on average, it takes 66 days for a new behaviour to become automatic.
It’s safe to say that shopping habits have changed dramatically over the past 21 months and many are now automatic and the default behaviour.
Work from home element is here to stay. COVID-19 has forced HR and business leaders to change the way they engage with their employees. A recent McKinsey research study estimated that more than 20% of the workforce could work remotely three to five days a week as effectively as if they were working from an office. If remote work took hold at that level it would have a profound impact on urban economies, transportation, and consumer spending, amongst other things. More people will leave cities & move to rural towns; the concentration of wealth will be re-distributed, meaning less office space & less spending in cities.
Ecom has been growing ever since the first transaction in 1994. Ecom is a mainstream part of our lives and will continue to grow. Ecom giants like Amazon, ebay, Alibaba’s Tmall/Taobao, Shopee & Lazada to mention a few will continue to dominate the digital space. They will continue to expand into new categories & offerings to touch every aspect of our lives, like Insurance, Air Tickets, Healthcare, Real-Estate, Automotive and Banking.
With continued Ecom growth Digital spending per person is up 60% compared to 2020 in SEA (South East Asia). With the shifting of sales from Bricks & Mortar stores to online, this has a negative effect on retailers’ margins, as online sales generally have a higher cost per transaction. With the erosion of margin retailers will need to adapt their strategy & framework accordingly.
For retailers to navigate their business successfully post pandemic I would like to share 5 points:
1. Cash is king – Companies with healthy cash flow and liquidity have options. This can be as simple as acquisition opportunities, investment into the digital space or enhancing their store fleet as well as improving infrastructure, however liquidity is important to maintain and grow business for long term success.
2. Adapt your strategy to new consumer behaviours. Where & if appropriate build digital competence to give your consumers a full omni-channel experience.
3. Rightsizing the store footprint. It’s fair to say that older traditional retailers have too many stores or are over spaced. Retailers that deliver a remarkable consumer experience, that have purpose in their product or company regardless of channel are closing very few stores, in fact some are expanding their Bricks & Mortar footprint, but it’s about rightsizing the portfolio whether internationally or locally by way of location, size and footprint.
4. What we haven’t seen yet is higher retail prices, these are coming in 2022, with the cost of raw materials increasing substantially this year and the added costs of supply chain, these will be converted to higher retail prices for consumers or lower margins for companies or a mixture of both. Companies will need to review their operating costs, sales channels and pricing.
And finally Connect & build communities with consumers, successful companies are doing this, consumers will support companies that have purpose and do the right thing.
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