Cracking the case of missing retail revenue: Brick and mortar after COVID-19

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In many ways, the current state of the retail industry resembles the pinnacle scene of a good mystery, with folks trying to solve what will happen to brick and mortar after COVID-19.

The triggering event occurred several scenes ago. When the pandemic caused shutdowns around the globe, retail foot traffic had gone missing. For example, the U.S. had an 82.6% year-over-year foot traffic plunge for the week ending April 18.

Since then, the intrepid detectives in our story – retail brands – have launched widespread investigations into their business models. Their goal has been to restore order by finding a digital-first path to short term resilience, medium-term recovery, and long-term growth.

With 2020 behind us, brands have gathered facts, analyzed clues, and identified key suspects. Now, with suspense filling the air, they’re ready to present their case for a more resilient growth strategy for 2021 and beyond.

Fact: Digital-first business models help preserve market relevance

Once the lockdowns began, retail brands jumped into their digital strategy with both feet out of necessity. Ratul Shah, head of product marketing for SAP Customer Data Cloud, says signals of online activity skyrocketed soon after January:

“All of a sudden, digital had to support the physical business. More and more people went digital. Apps came out at a rapid rate. More accounts were created…”

Still, the key question remained: Could the increases in online sales make up for the loss of foot traffic?

After all these months, results are mixed. Increased e-commerce activity has helped bring in revenue, but in many segments hasn’t made up for the decreases incurred by in-store and wholesale business models.

Exhibit A: Comparing Q3 2020 and Q3 2019: 

CompanyE-commerce growth for Q3 2020 YoYOverall Sales for Q3 2020 YoY
Levi Strauss & Co.52%-27%
Office Depot20%-9%
H&M24%-16%

As these numbers show, even retail brands with successful digital strategies are facing an uphill battle recovering from the pandemic, yet this doesn’t mean they’re pulling back. On the contrary: many brands are accelerating their digital transformation even more.

As H&M CEO Helena Helmersson said in her company’s earnings statement: “We are now accelerating our transformation work so that we continue to add value for our customers.”

The new suspect: Online baby boomers

If nothing else, the pandemic has sparked a dramatic change in online shopping audiences.

In a recent survey by the Economist, Baby Boomers demonstrated the biggest shift to online activity since the start of the pandemic. This group increased their online spending as a share of their total spending from 25% to 37%. Gen X came in second, increasing their share of online spending from 39% to 47%.

This shift to online shopping – especially among older cohorts – presents a unique opportunity for brands and retailers to engage new online customers.

The clue: New perceptions of convenience

Thanks to digital-first strategies, consumer expectations are rising even higher. Lisa James, product marketing manager for SAP Commerce Cloud, said convenience is a primary driver of these expectations.

“The convenience to shop anywhere is the number one reason why consumers are preferring to shop online, and they’re likely to continue to shop that way even as COVID restrictions ease.”

For most shoppers, the idea of a convenient customer experience centers on friction-free engagements. If brands can make everything from the log-on, shopping cart, check-out, and e-receipt process seamless, they’ll be in good position to win repeat business.

The “friction-free” factor isn’t limited to the online experience. In anticipation of shoppers returning to stores, retailers are focused on ways to make physical shopping more convenient as well.

As a result, many brands are working now on processes to offer contactless payments and app-based scan-and-pay systems in store so they can lift conversion and retention rates when the foot traffic returns.

The verdict: The connected store will be vital for brick and mortar after COVID-19

Retail brands have pursued the idea of the connected store for many years now. This idea involves blending online and in-store experiences to give customers what they’ve been asking for: security and convenience.

The connected store concept includes:

  1. Faster checkout productivity
  2. Higher staff productivity
  3. More inventory turns
  4. Reductions in shrink
  5. Better conversion rates

While technological and organizational silos – combined with the dominance of in-store shopping – often prevented many brands from achieving this vision, now, because the pandemic has forced digital acceleration to the top of the boardroom agenda, the connected store vision is a blueprint for future success.

What’s the future of brick and mortar after COVID-19? We’ve got the answers!

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Maria Morais

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