The Robin Report recently conducted a survey among readers to check the retail industry’s pulse regarding how their business is being affected by the three major issues and challenges of the day: Covid-19, the economy, and social injustice. We were also able to gain an understanding of the short- and long-term views on the U.S. economy, how business models would be transforming, as well as some new operational functions driven by the virus that will stick going forward.
The New Normal as Defined by the Consumer
One of our questions was: “Thinking about what you’ve learned over the past three months, what will the “new normal” likely be for your organization?” Among the many prescient responses, one respondent’s answer is noteworthy and in my opinion spot on. “Nothing that we have experienced has prepared us for this phase…there is no normal and only the consumer will define what is next.” Of course, this is indisputable. The consumer is always, and now more than ever, in the driver’s seat. Pre-pandemic, armed with technology — and most importantly the smartphone which made each consumer the point of sale — they were already driving huge shifts in the retail ecosystem. From the creation of the value to its final consumption, consumers were raising the satisfaction bar to a level only the best, brightest and well capitalized retailers and brands could reach.
If you were not headed in the right direction and well-capitalized pre-virus, you might get a short-term reprieve, but I would suggest that you take whatever money you can get for your dying business and run (away from it).
Then came Covid-19. In addition to depressing the global economy, it is forcing the acceleration of the transformation retailers were already making pre-virus to serve tech-armed consumers. Furthermore, and from a morbidly ironic but positive perspective, the pandemic and collapsing economy is wiping out a big chunk of excessive stores and malls. It’s forcing the bankruptcies, liquidations and consolidations of heavily indebted and/or poorly run retailers.
A New Model in the Making
So, while it is difficult to envision what a “new normal” will look like post-pandemic and an economic recession, there are some indications of major model changes, strategic and operational shifts as well as the ongoing dynamics of technology, including both its integration with physical retailing and its transformation of consumer shopping behavior.
Our survey supported/confirmed the following major components of what a “new normal” would look like, after a vaccine is discovered and the economy is in a recovery mode.
The Losers Going In Will Disappear Coming Out
While many major retailers were teetering on the edge prior to the coronavirus, including Neiman Marcus, JC Penney, J. Crew and others, it’s possible that the more iconic brands, such as those mentioned, will get rescued in bankruptcy by P/E firms and those malls (primarily Simon Properties, who have a major interest in keeping anchor tenants alive, lest they lose income from smaller brands, whose lease agreements include rent reductions if the anchors leave). Optimistically, these retail acquisitions would turn around these losers in about five years. UBS analysts predict that 100,000 stores (not a typo) will be shuttered by 2025. Is that not five years from now? And am I to believe that those big legacy brands I just mentioned will not be amongst those 100,000, even as the P/E firms and mall developers put their weight and wisdom (?) into turning them around? “I’ve got a bridge…….” (fill in the blanks).
It has also been estimated that of the roughly 1100 malls in the U.S., the 800 or 900 B, C and D malls would either have to be transformed into mixed-purpose destinations or shuttered.
And let’s not forget that during the pandemic shutdown, the population writ large learned how to love shopping online. Rather than putting on a mask to trek back to an unpleasant distancing experience, they will opt for the convenience of either having their online purchase delivered or they will pick it up in the store or parking lot. According to most experts, online shopping could reach as high as 50 percent, depending on the category.
Bottom line, if you were not headed in the right direction and well-capitalized pre-virus, you might get a short term reprieve, but I would suggest that you take whatever money you can get for your dying business and run (away from it).
By definition, physical footprints will shrink, and any new store openings will be smaller and easily accessed by targeted consumers. Again, due to increasing online business and the use of data analytics, the surviving retailers will be able to accurately curate assortments for both online and in-store shoppers, as well as in the smaller neighborhood stores. They will know where, when, and how their consumers choose to engage, shop, purchase, and how they wish to receive the purchase. This also leads to greater personalization and better service.
The move to less, but correct inventory, greater efficiency and higher margins will emerge in the new normal. This too is a result of superior data analytics and knowing the personalized desires of each consumer.
The Consumer Solidly in Control
Consumers’ behavioral takeaways from living through the virus will change everything.
Regardless of their demographics, many consumers lost jobs and are coming out of the pandemic on very shaky financial underpinnings. They will be frugal and very selective in whatever they choose to buy. This characteristic was beginning to define the young consumer cohort well before Covid-19. It will just be more pronounced as we find the new normal. Another pre-pandemic characteristic that will stick in the new normal will be the next-gen’s prioritization of health and well-being. And this characteristic also extends to the health of the planet. Sustainability and circular commerce will be even further accelerated coming out of the pandemic. Community and society, and how we live together, including equality for all, will not only stick, due to the national upheaval occurring during the crisis, it will fundamentally change the American culture, embracing diversity and inclusion in all parts of our lives. This also came up strongly in our survey. Finally, this new consumer culture in the new normal will demand the elimination of pain points. So cashierless, cashless, touchless commerce is coming.
Quality Over Quantity
Before the pandemic, another accelerating trend among the dominant young culture was their growing disinterest in accumulating stuff, particularly linked to their concerns about the planet. Thus, along with financial concerns coming out of the virus, they will be more efficient and selective in their consumption. During the pandemic, consumers would plan their shopping, their needs and wants, and would make fewer trips to the store; however, they would buy more during each visit.
More DTC, Private Brands and Controlled, Fluid Supply Chains
Also trending prior to the crisis, and which continues to accelerate, is the control, greater efficiency and productivity, less costly, and differentiation that ownership of one’s supply chain provides. This verticalization is defined as a seamlessly integrated and omnichannel supply chain from creation to consumption. It also provides the capability to get the right product to the right consumer, when they want it, where they want it, how they want it and how often. Read: pricing and margin integrity, a happy consumer who will visit your store more often and will spend more. This is all part of distribution and delivery and includes “last mile” one-day or two-hour deliveries and/or any number of online ordering and pickup options.
Work from Home Will Stick
This phenomenon is a direct result of the virus and economic shutdown, leading to Zoom-like technology which is changing the way we live and work. The residual effects — less commuting time, more family time, better productivity, less costly for the business, less business travel, less lodging and entertainment costs, fewer conferences, less commercial space needed and other lower costs — are too many to list.
The Survey Signals
When we asked readers about the biggest constraints they face in achieving a new normal, by far their biggest challenge is in responding to new, permanent consumer behavior (47%). Access to capital (18%) follows at some distance; customer and employee safety (14%), excess real estate (12%), and store closures (12%) are seen as lesser challenges.
As for their organizations’ most pressing operational concerns, revamping the business model is their biggest concern (30%), followed by employee safety (25%) and, again, by capital shortfall concerns (24%).
In terms of the specific social issues that retail leaders need to address, readers give them generally favorable marks on the issues of inclusion and diversity. More than half of readers (56%) think leaders perform very well or well on the issue of diversity and inclusion of employees and slightly less so on the issue of board seats (51%). Readers rate inclusion and diversity among senior management teams somewhat lower (40%).
As for the U.S. economy, readers are hardly optimistic – only 14% think it will bounce back quickly. More than half (52%) believe it will go into a mild recession and almost a third (32%) are even more pessimistic, believing the country will go into a deep, long recession.
In our survey four months ago, we asked readers about the short- and long-term impact the coronavirus would have on their business-and we asked again this month to see if perceptions have changed. As for their short-term outlook, readers remain severely impacted by the virus; however, they are significantly more positive now than they were four months ago, with 44% saying the short-term coronavirus impact will be severe, compared to 61% earlier.
Readers’ long-term (3-5 years out) outlook is more disheartening. Fully 41% indicate that the long-term impact on business will be devastating or extreme. This grim outlook is only slightly improved from March (49%).