The global pandemic has had a seismic impact on our day-to-day lives. Working from home has become standard practice for millions of us, the wearing of masks is now the norm on public transport, and the term ‘social distancing’ is now part of everyone’s everyday vocabulary. But the retail sector has had a particularly challenging time.
Many retail businesses have had to pivot in myriad ways in an attempt to carry on serving people safely and without too much disruption to their revenue, while others have rapidly accelerated their online offerings. But how has the economic uncertainty affected the behaviour of customers?
While previous recessions have created generations of cautious spenders, followed by boom periods of reluctant savers, the rise of credit-based ‘have now, pay later’ attitudes have led to a succession of generations that are happy to spend money they don’t have while assuming they will settle their debts further down the line. With the world-changing impact of the COVID-19 pandemic, could we see a return to more cautious spending habits?
The numbers suggest not. While the level of savings appears to have only temporarily skyrocketed early in the pandemic only to return as the pandemic progressed. Online shopping in particular has been on the rise for a number of years and accelerated during the pandemic. In 2018, the worldwide e-commerce business was worth $2.9 trillion, but by 2020 it had risen to $4.2 trillion, and now in 2021 it is estimated to be approximately $6 trillion – that means it has doubled in just three years. The pandemic has merely hastened a trend that was already underway. As the general uncertainty surrounding the immediate future dissipates, there is significant pent-up demand that may lead to a rapid return of more impulse buying, particularly with the growth of online shopping that makes those impulses easier to act on than ever before.
The rise of online shopping has also seen an erosion of traditional brand loyalty, as product comparison has become easier. This coupled with sophisticated, targeted advertising has exposed more recent adopters of e-commerce to the alternatives available to them. Recent years, have seen customers become much more sophisticated in their purchasing and selective decision making. People are now shopping around and technology has enabled easy access to well informed price and value comparisons before making their purchase. Talking to friends and family, and consumers doing their own research into the best places to buy have been supplemented by a myriad of online applications and internet customer reviews that now provide much more information to consumers before they reach for their wallets. Younger shoppers in particular are also much more comfortable with a ‘buy and try’ approach, where they will order multiple items and happily return the ones they don’t want. This means varied shipping options and flexible, convenient returns policies will also be crucial in securing a potential customer’s business.
This increasing levels of consumer convenience is growing, and they are here to stay. Any retail business that does not offer online purchasing is likely to struggle going forward. For bricks and mortar to thrive in the future, retailers must think carefully about what their physical locations can offer that online shopping cannot match. This is predominantly a tangible experience that allows consumers to see, and to some extent try out, products before they buy them. Experiential shopping is particularly important for larger purchases such as furniture and cars. For example, a sofa-bed company in the south of Italy began selling online during the height of the COVID crisis. From this success, the owner has now started turning bricks-and-mortar stores into showrooms, leading to 22% month-on-month growth, according to Raffaele Salese, a restructuring partner with RSM Italy.
As customer behaviour changes, it is also likely that a hybrid shopping process may evolve, where potential customers may want to browse online from the comfort of their homes but still make a specific trip to a nearby store to see the product in the flesh before actually making a purchase.
In general, shoppers are more demanding now than ever. Those brands and retailers that already pride themselves on delivering high-quality products and second-to-none service have suffered less over the past 12 months, despite the challenges created by the pandemic. For example, some luxury car manufacturers and high-end handbag makers have had record years. Premium, high-end shopping malls fared much better during and following the pandemic than their lower tiered competitors. While there will always be demand for the lower-end, more basic products driven by price alone, it is those retailers in the middle that may struggle the most in this new shopping landscape. Can they still appeal to both ends of the consumer spectrum?
Failure to adapt to the demands of the post-COVID consumer could have disastrous consequences, as already seen in other industries such as hospitality. One 50-year-old chain of restaurants in Canada has already gone out of business because it was modelled on a buffet. This traditional cafeteria style eating experience is not particularly conducive to the heightened awareness of hygiene and surface contamination that COVID has created. Many restaurants have only survived this pandemic period by pivoting to take-away services. This is just another example of how e-commerce is coming to the fore as a result of the pandemic.
The future of retail will continue to be determined by changes in customer behaviour and the relationship between the ease of online and the benefits of an in-person experience. The central issue as we go forward is how to respond to a rapidly accelerating pace of change. If retail businesses owners want to determine their future, they will need to understand, react to, and creatively respond to shifting customer behaviour and preferences, both digitally and experientially.
For more information on how RSM can help retailers adapt to change, please contact us.