COVID-Adaptation Scenarios: RETAILING

July 4, 2020 by David Nitkin | Categories: Scenario Development and Testing | Tags: Retailing

The Issue

The retail industry is being challenged with its greatest disruption in recent memory: a global pandemic with massive economic impacts that have adversely been affected by various critical factors including consumer confidence, mobility, labour availability, public health, and supply chain. Certain aspects of consumerism are described by industry insiders as possibly forever changed.

Three questions addressed here in this blog are:

What adaptations are retailers implementing to address the COVID challenge?
What will the retail landscape look like when the pandemic is over and life returns to normal, whatever that may be?
Are there useful or helpful scenarios created in and outside the industry about what might be the “new normal”?

Retail Business Trends

There were approximately 2.2 million retail trade employees age 15 and over in Canada in 2019, an increase from around 2.07 million in the previous year. The number has increased about ten percent over the past decade. The top worldwide retailers are headquartered in the U.S. (13), Germany (5) France (4), the U.K., Japan and The Netherlands (2 each), and China and Australia (1 each). The sector is diverse. Grocers, pharmacies, DIY, chain-drug stores, and farm supply are seeing a boom in business as they were designated an essential service, while other venues or options were not and were forced to shut down.

A significant portion of the retail industry only needs one bad quarter and it’s lights out. Sales in non-essential goods sectors like furniture, clothing, and sporting goods are down sharply. Once we emerge from this, we could also then fall into a recession or depression, which by some estimates could be deeper and more painful than the 2007-2008 recession. In fact, some are saying that it could make a recession look like a speed bump.

Retail is one of the industry activity sectors most affected by COVID-19, in both positive and negative ways. Since March, the first wave in Canada and the U.S. has seen the following:

A large percentage of retailers have closed up shop temporarily either in response to regulatory mandates, or due to dwindling customer foot-traffic.
A number of retailers remain open for business and under great strain as nearly all remaining retail traffic is funneled to grocery stores, pharmacies, hardware stores and big-box retailers considered to be essential in the eyes of regulators.
Grocers, pharmacies, and e-commerce marketplaces are largely sustaining consumer access to essentials—food, medication, toiletries, and selected “at home” categories—while striving to protect customers, employees, and suppliers.
Store closures and sharp declines in discretionary consumer spending have crippled non-essential retail (apparel, fashion, furniture, sporting goods, and luxury products) sales.
Many retailers who have already had to make tough choices, including temporarily or permanently closing doors, furloughing employees, and more, are beginning this month to re-open, subject to government rules.

Fear, Social Distance and the Meaning of COVID-19:

Fear or “mortality salience” is key. All of a sudden, each of us is either having or has had a brush with mortality. How we behave as consumers will be impacted forever. Hygiene, awareness, consideration, selflessness, empathy, networking, and the importance of staying healthy for yourself and those around you are now critical for us all. We see consumers:

(a) nesting,
(b) spending more time in their home,
(c) spending more time with their family, and
(d) spending money on things that give them comfort and a sense of security. Even food choices can bring comfort, such as baked goods, meatloaf and macaroni and cheese.

Many retailers across the world have taken dramatic steps to prevent the spread of the pandemic by:

(a) offering different formats and delivery,
(b) closing stores,
(c) re-fitting for new, near-term purpose,
(d) reducing hours, and
(e) communicating openly with customers and employees.

It has been heartening to see more progressive retailers adopt strategies like:

(f) offering exemplary communications, pay, and benefits for their associates despite having to shutter physical locations, and
(g) supporting the vulnerable and deserving poor in their midst (food banks, front line hospital workers, and the like).

Distancing is not enough. In the context of pathogen spread, eliminating checkout does very little to reduce risk. The customer still touches every item they place in their cart, with no way of knowing how many other customers might have touched that same product beforehand. Consumers are less receptive to in-store food sampling and more hesitant to use public touch screens, or keypads, or children’s community play areas. Retailers are told they will need to develop a range of no-touch, low-contact customer experiences with an emphasis on hygiene.

When stores reopen, for buying essential or non-discretionary goods, industry experts forecast that consumers will continue to see:

(a) significant social distancing,
(b) an array of health and hygiene programs,
(c) more support for online shopping options, and
(d) stores set up for pickup or curbside pickup. Prescient retailers are looking at possibly needing to address successive waves of virus attacks.

Industry Experts Make Forecasts

COVID-19 has acted as an accelerant to shifting consumer preferences, reinforcing certain technologies, and exposing weaknesses in traditional business models. Industry experts seem to be in agreement on the following forecasts:

1. Acceleration of digital or e-commerce: The growing role of tech will be one of the most pronounced long-term impacts from the global pandemic. While the length of the outbreaks and the potential pace of recovery are still unknown and will differ across markets, digital technology is here to stay. As of 2019, 13% of goods were bought online globally, up from 6% in 2014. The coronavirus pandemic will accelerate e-commerce adoption, as many consumers experiment with and even become reliant on the online channel while in isolation.

2. Boost of contactless payments: Given safety concerns, consumers are opting for contactless card and mobile payments over handling cash or touching POS terminal keypads. As of late March, 22% of connected consumers globally used a digital wallet to buy at least one product in a physical store, according to Euromonitor International’s 2020 Digital Consumer Survey.

3. Robotics and artificial intelligence (AI) are enhancing commerce: There is an exponential growth in robotics to reduce human-to-human interaction (stocking shelves, cleaning premises, order delivery, and order assembly). For example, IKEA acquired an augmented reality start-up that enables consumers to visualize new home furnishings in their living spaces from the comfort of their homes. Chinese delivery app Meituan Dianping started using autonomous vehicles to deliver grocery orders to customers in Beijing in February.

4. Virtual reality: New platforms and apps are emerging that will help smaller retailers take advantage of new technologies such as virtual reality in order to enable them to recreate aspects of the physical shopping experience remotely – whether that’s AI customer service chatbots, or the emergence of digital clothing or footwear, “imagined” for fit and appearance, and bought to wear through the virtual platform.

5. New localism: Consumers have had better opportunity during lockdown to see how important it is to support local business. Going forward, many may continue to trade locally and support local food service, lawn care, house cleaning, painting, and restaurant businesses. More people are appreciating these hard workers as well as the importance of providing opportunity in exchange for services – and in turn, how employers treat their workers is now more top of mind for many consumers in new, powerful ways.

6: Values and brand reputations: People are using social media even more, shopping online in unprecedented numbers, and seeking out purpose in their purchases. In this climate, discount retailers and value-oriented brands stand to win. Consumers are likely to come out from under the scourge of COVID expecting:

(a) more from brands and people,
(b) a rise in kindness and empathy,
(c) a belief that brand personality and responsibility matters more now than ever, and
(d) craving and finding human connection, especially from brands that show their human side and the workers supporting the business.

7. Re-shoring or avoiding China: Retailers have begun looking for a more diversified supply chain not wholly or largely dependent on China. China is now the largest exporter and is responsible for one-third of global manufacturing. The coronavirus outbreak closed factories, leading to a record low in manufacturing, and, ultimately, broke supply chains, making it difficult for manufacturers to obtain components and retailers to obtain finished products. Such realities underscored the world’s dependence on China, showing the need for greater diversification. Apple, Amazon and Microsoft, as well as many Japanese companies, are actively seeking to diversify their supply chain away from China to other countries.

Retail Adaptation Initiatives

Here are some of the reopening COVID-adaptation initiatives noted or recommended by industry watchers:

Worker Health and Safety	Consumer Health	Sales Operations
Maintain exemplary communications, pay, and benefits for associates despite having to shutter physical locations	Control the number of people allowed in the store at certain times	Use virtual reality to envisage, design, custom make, and sell furniture, clothing and other products
Recognize and reward essential workers	Determine appropriate entry rules (mask and disinfection, patron age, and temperature testing)	Explore new models of retailer- stakeholders collaboration to address scarce capabilities and enable workers to move more fluidly in order to meet demand across priority activities
Establish policy to deal with team pay and benefits when a co-worker is diagnosed as infected	Lay out stores differently to align shopping and checkout traffic with social distancing	Offer different security formats and delivery options, including on-line shopping and curb-side pick-up
Employ digital tools to help monitor employee health, including temperature monitoring, sanitation and testing	Where appropriate, close stores, reduce hours, and make it easier for shoppers to maintain an appropriate social distance	Communicate openly with customers, employees, health officials, suppliers and local communities
Have immediate and longer term isolation protocols for staff in place as needed (quarantine, housing, counselling)	Disinfect baskets and carts before handing them off to customers	Address needs of distribution centers and warehouses that are recovering from overload and burnout due to excessive demand during the pandemic
Restrict allocating worker time to support bulk self-service food items, communal buffets and salad bars which are likely to be less popular	Do a remarkable job of restocking frequently to ensure products are available when customers need them	Emphasize no-touch deliveries as the possible new normal

Scenarios

What “new normal” comes after tomorrow for retail? The scenarios currently developed by accounting, audit and other consultants are:

(a) heavily economic,
(b) focus on short term horizons (2-3 years), and
(c) minimize the variation in recovery needs between types of retailers.

These scenarios (unexpectedly) differ in interpreting certain consumer demand topics such as prestige luxury goods, the value of brands, and thrift/value. Most agreed that the ramifications of this “new normal” will persist and re-shape retail going forward. The role of organized labour, climate change, or a minimum living wage are largely absent from this literature.

EthicScan has been preparing resources for dialogue in forthcoming workshops about 15 year horizon scenarios, a glimpse of which is presented here. A more detailed version of one somewhat similar scenario can be found in the EthicScan Blog, “COVID-Adaptation Future Scenarios: GROCERY RETAILING” (June 20, 2020).

Scenario One	Scenario Two	Scenario Three
Traditional Retail Store	Drive through Model	Pandemic Fighter
Tweak existing in-store shopping experience	Stores become localized distribution facilities where consumers choose their delivery method to obtain the products they need	High tech Vending Machine; No store Model. Customers view product displays on television, in subway stations or other locations
Goods into the cart	“Clicks to bricks” retailing	“Clicks to home” retailing
High person-to-person contact	Little interpersonal contact	No contact, with virtual display/selling where possible
Take workers’ and (possibly) customers’ temperatures. Restrict the number of customers inside store at a time.	BOPIS model (Buy Online and Pick up In Store/Curbside)	Go “dark” to the public and convert operations to direct home delivery. Supplement with warehouse curbside pickup
Mark safe distances with tape. Install Plexiglas at every till point	Keep track of inventory movement off the shelf and out of the store	Shutter stores and repurpose them for pickup and delivery only
Essential workers required to clean, sanitize, test for virus. Cashiers also present	More surveillance training. Few or no cashiers	Protect health of workers, more of whom work in order-fulfillment warehouses rather than in stores
Offer in-store promotions (locavore, specialty and upscale products, classes)	Reduce or eliminate checkout system. Reduce shoplifting	The customer orders online and then has goods express home delivered
Traditional shop, pay (more by credit card) and carry out, supplemented by home delivery option	Many customers will embrace online shopping for staples	Stores become like vending machines/ warehouses. Operate 24/7, 365 days a year
Encourage families to cut back on their trips to the store and shop alone if they can	Emphasize attractiveness for time pressured, technology-savvy consumers	Point and click at wall-mounted displays in public places or online. Point and click on-line during specialty broadcast shows

Conclusion

COVID may turn out to be viewed as a useful wake-up call for various parts of this industry. As stores begin to re-open, changes are being made that address consumer fear of mortality issues. Even before the virus, there were shifts in how retailers merchandise to customers and execute transactions.