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The Rebirth of Retail: What Retail Should Expect When Expecting the End of Lockdown
Retail was rocked—hard—by COVID-19. While no one knows exactly what will happen moving forward, it’s clear that there will be major changes in the retail industry. By some estimates, as much as 55% of small retail businesses will have a difficult time restarting. Several major retailers are on the verge of declaring bankruptcy—and a few already have. While there are certain bright spots, like groceries and home improvement, there aren’t many of them lighting up our current retail environment.
It seems appropriate to start with this challenging vertical as we dive, for the next few posts, into specific industries, examining potential paths out of the pandemic and options for the next normal. In this post, we will explore the five “P’s” for a restart, as well as the framework for the next normal.
People. Retail is an intrinsically social business. For traditional retailers, workforce dispersion is not really an option, since their business model requires employees and customers to mingle in their stores. If they’re unable to make employees and customers feel comfortable and safe in stores, then they won’t be able to operate successfully.
Retailers must begin by focusing on their employees, to ensure their safety and confidence in their place of business. Likely, this will mean assuring everyone that the appropriate and relevant PPE is available and for all employees and customers to use. This should give employees confidence that they are well protected and signal to customers that shopping is once again safe.
As for customers, they will need to see, smell and feel that stores are “clean.” Retailers must make each day’s cleaning efforts visible. Imagine those cleaning logs, which long lived on the back of bathroom doors, now prominently placed at store entrances, perhaps digitized and continuously updated, to ensure shoppers that the store undergoes a thorough cleaning multiple times a day. The scent of bleach may be the new “black” for retail.
Employees and customers will want to maintain appropriate social distancing protocols as much as possible during the shopping experience. For instance, retailers may have to reduce the number of customers and employees in a store at one time and provide appropriate spacing lines. While this may not be as much of a concern for large retailers—who have much square footage and ample space—for smaller shopkeepers, it could be a huge issue to navigate (perhaps through appointment shopping). Also a thing of the past will be the Black Friday mad-dash rushes, where hundreds simultaneously throng stores to get the best door-busters and deals.
Platforms. When retailers examine the next normal, they’ll need to pay particular attention to their platform strategy, something we’re experts on, with our Remote by Design™ approach. Non-essential retailers that succeeded during lockdown did so largely by virtue of their virtual presences, eCommerce platforms and strong balance sheets. What will this look like in the post-COVID-19 world? Will online platform usage drop below current levels? For sure, but will online usage drop down to pre-pandemic levels? Unlikely. So, how much effort should a retailer spend on focusing and refreshing their online presence? How many “stores” worth of sales and business did their online presence generate during lockdown? How will digital fulfillment and operations be supported and expanded after COVID-19?
The next factor to consider: In-store digital experiences. There are some innovations, such as virtual “dressing rooms,” that should fit right into the new post-COVID-19 model, where standard changing rooms, likely havens for the coronavirus, are shunned. On the other hand, innovations such as touch-kiosks, interactive maps, and other “hands-on” experiences may find limited adoption and require a number of adjustments to justify the investment, and some of these may need to be written off as a sunk cost.
And let’s not forget payment systems. It’s unlikely that cash will be a significant portion of the retail economy moving forward, when every bill can be a potential COVID-19 carrier. The change to payment systems goes even one step beyond credit card machines, which ultimately still have a high-touch model with pens, screens and buttons that need to be pushed to process transactions. Watch for frictionless and touchless payments to become increasingly the norm.
Finally, retailers should ask themselves: “Are our technology platforms and analytics working to their benefit during and after the COVID-19 era?” If not then, they might well want to become Remote By Design to ensure their platforms provide a competitive advantage moving forward.
Processes. Retailers need to think about how customers and employees will enter their stores. Will they establish temperature checks, PPE equipment and other measures to ensure access? How will stores manage employee breaks, shift changes and other key employee process associated with store operations? Customer processes like returns, check-out lines, bathroom access, changing rooms and other key elements will need to be completely rethought.
Beyond people processes, there are also many different aspects of operational processes—for instance, inventory management. How will shipping, receiving, storage, unboxing, racking and other inventory replenishment be handled in the post-COVID-19 world? Retailers need to consider how travel or movement restrictions on goods may affect their ability to stock and sell the most desirable products, which may be manufactured abroad and subject to these kinds of restrictions moving forward. These inventory factors must be considered, examined and resolved, because a retail store without inventory is like a forest without trees.
Retail also needs to rethink critical back-office processes. Which ones will need to be changed, tweaked, completely rewritten or rethought? For example, consider that back-office operations in a store (especially small mom-and-pop retailers) can often be cramped quarters where several people are jammed into a small space at the back of the store.
And what of returns management and policies? Retailers may have to adjust to the more lenient return privileges that retailers like Costco, Amazon and others employ in order to ensure that the in-store experience exceeds customer expectations and draws in new shoppers.
Retail must also strategize about managing cash flows, which lately, especially for smaller retailers, can be an existential exercise. Those retailers who fail to manage their cash reserves correctly during the lockdown, and thereafter, may find themselves unable to resume operations or lose market share when they eventually do reopen.
Finally, retail’s sales and marketing processes will likely need to be adjusted. Retail will need to acquire a better understanding of customer demand and determine which goods and products to advertise and promote in a post-COVID-19 world. What will the demand curve look like for a retail store at restart? Will there be pent-up demand that results in empty shelves due to the enhanced savings rate during the pandemic, which is approaching historic highs of more than 13 percent—numbers not seen since the 1980’s. Or will goods go unsold, resulting in yet another season lost? Understanding, anticipating, modeling and predicting customer demand and modeling sales and marketing will also need radical rethinking.
Partners. The retail industry may need to come to the realization that “going it alone” may not be a viable model going forward. Retailers that can form partnerships, either with others in their supply chains or with those in other complimentary industries, will likely be the most successful. Their success will be enabled through better access to customer data, analytics or insights, which can lead to a more profitable retail business model. One option here: Working with those in their ecosystem, like warehousing partners, to create automated and updated facilities to speed and support online distribution along with store-based sales.
Another partnership model includes teaming up with delivery partners to extend the reach of stores, where a retailer cannot afford the capital expense of setting up their own delivery channels. Retailers should also consider collaborating with large tech players, like Google, Microsoft and others, given their ability to support increasingly complex technology needs to succeed in retail. Retailers can provide these technology partners and their ecosystem with access to key customer data and local capabilities, while integrating these tech offerings into their go-to-market and retail store strategy, creating a win-win model.
Retailers could even form their own network of related businesses and partners to extend their customer network, and benefit from the resulting data and information exchanges. For example, grocery stores working with restaurants and chefs, food-delivery businesses, local cooking classes, community education organizations and non-profits (churches and food kitchens) could drive greater awareness of the entire ecosystem’s offerings for consumers in their market, and ultimately result in higher revenues. A key element of this approach would be re-envisioning the retail business—for instance, in-store space rentals, subscription to DIY food services, advertising space and digital fulfillment—which may result in not only new business opportunities for retail about also new revenue streams and customer segments.
Places. Some retailers have already indicated that they’re not reopening their stores after COVID-19, and will instead move to a completely online model, the way Harry & David did. There may be other retailers who will take a similar approach.
Retailers need to address their relationship with their stores and landlords. Maintaining a good relationship with building and mall owners is definitely critical to success for retail. COVID-19 has thrown out the book on business-as-usual, so new relationships and working models may need to be renegotiated.
Then there’s the area outside retail establishments. Curbside delivery is essential in order for stores to open sooner, and many states seem to be leaning in this direction. In fact, curbside delivery may well be the only acceptable approach for worried consumers who don’t want to step into stores but still want an offline retail experience and the instant gratification of goods “now.”
When it comes to timing for reopening, the best bet for retailers is to leave this in the hands of the science and healthcare professionals. While retailers obviously have a vested interest in whatever recommendations this set of professionals make, ultimately these recommendations are necessary for stores to open safely and successfully. If all of the medical professionals are strongly and loudly warning against reopening retail, exactly how many customers are likely to go against “doctor’s orders” and show up to shop? So, any store “going rogue” and opening up without the support of the medical community is essentially attempting to substitute its judgment for the healthcare professionals, which may not be to its benefit. It’s likely the that when retailers do reopen, they’ll reduce store hours, staff and services until the post-COVID-19 world adapts to the next normal, enabling retailers to hit their stride and generate new business.
Retail stores should also plan for an extended timeframe for recovery of traffic. Candidly, store traffic, may never return to pre-COVID-19 levels, as it has been declining for years in malls. Those customers who do want to come back may have difficulty mustering the courage to return to the places of retail business, until a cure for COVID-19 or a way to blunt its worst symptoms is found. Subsequently, stores should plan accordingly as noted when restarting their store operations.
Ultimately, as much as retailers may not want to hear, agree or accept it, public health and safety must come before commerce. Those retailers who heed this reality by pivoting their business during the pandemic to maximize digital operations and set themselves up for life after lockdown, will benefit. Those who attempt to circumvent this principle are likely to find themselves falling behind as we move forward.