Monday Morning Moan - let’s get physical, but retail has to change if this is to be a long-term relationship
- The Future of Retail in the Vaccine Economy hasn't been determined yet, but if physical stores want to play a part in an omni-channel world, we need to talk...
I went shopping at the weekend. Not essential shopping for milk and eggs and bread, you understand - proper shopping. Frivolous, wandering the aisles, impulse-buying, non-essential shopping. And you know, what? It was ruddy marvellous…well, for a bit.
After over four months of lockdown in the UK, store fronts have re-opened across the non-essential retail sector and I was intrigued to see what the shopping experience would be in this latest pandemic phase.
Last year when restrictions were lifted, lines formed outside stores as numbers were strictly limited through the doors at any one time. That was less in evidence this time around, although the Apple Store was a notable exception, while getting into Lush is more akin to crossing a frontier than a threshold. (Highly-fragranced memo to Lush management - when there are more store associates standing around inside doing nothing than there are customers actually allowed into the shop to buy over-priced dollops of grease, there’s a problem brewing!)
But it was the sad sight of the closing down sale at Debenhams, the UK’s biggest physical retail casualty during COVID, that got me thinking the most. As we’ve noted before, for all that the pandemic was cited as a final blow to Debenhams, its decline had been well underway for years, with its inability to adapt to an effective omni-channel model being a key contributor. There were gestures - digital dad dancing, I called it - and all the right words were said in mostly the right order about building a multi-platform future, but it was not to be.
As the Vaccine Economy kicks in, the lesson other retailers need to take away from Debenhams is how to avoid the same fate. There’s a lot of talk about what will the Future of Work look like; there are other iterations of that same basic question, not least, what will the Future of Retail look like?
The digital shift we’ve seen everywhere over the last 12 months isn’t going away. However much I initially enjoyed wandering the aisles on Saturday morning, I ended up coming home and making several purchases online, partly out of convenience, partly through habit now. That learned behavior of reaching for the iPad is pretty deeply engrained at this point. Once the novelty of actually being able to go back into a store declines - and it will - what’s going to entice me back?
The latest quarterly Shopping Index numbers from Salesforce make clear once again the scale of the digital migration that’s taken place in retail. Global digital revenue grew by 58% in Q1 of 2021. Both traffic and spend were up, 27% and 31% respectively, and that increased spend isn’t going on groceries and toilet rolls - luxury handbags and electronics are among the top categories for online shoppers right now.
The precise figures vary around the world - Canada saw 111% year-on-year growth, the UK 91%, while the US was relatively far down the ranks on 45% - but the consistent factor is a still-climbing upwards trajectory. That US figure, it’s worth noting, is still well above pre-COVID levels, so even though retail has been re-opening faster there than in Europe, for example, there hasn’t been a flip back to in-store shopping just yet.
As the Salesforce report states:
Q1 data indicates that the habits formed over the course of the year and the 2020 Holiday season are here to stay. As countries like the United States begin to re-open, retailers and businesses will need to rethink the role of the store (and store associates) and how it can serve as a critical component of the digital shopping experience in 2021.
Let’s get physical
You can see this question raising its head everywhere in the non-essential retail sector. It was front-and-center at last week’s JP Morgan Virtual Retail Round-Up event among retailers which haven’t ‘had a good war’ during the pandemic. Take Macy’s, for example, where CEO Jeff Gennette says hope is being pinned on the vaccine rollout:
You are seeing that really take root at different rates at different parts of the country…we don't know where we are right now in kind of the end of the pandemic cycle, what that looks like, so we remain taking a measured view to the back half of the year…When you look at the vaccine rollout and the recovery of the economy, we expect the ramp up of some of these categories that have been really sleepy.
Given Macy’s status as a heavily ‘tourist retail’ brand, there might be some hope to be gleaned from an uptick in spend in one area:
One of the biggest improvements is luggage. [That was] really dormant in 2020, and you just feel customers are getting ready to travel. You see that about the activities that they're most, they're not international travel, they get into a car, or they get into a plane and they're going somewhere, they're visiting relatives that they haven't seen in a year and a half, and we're seeing that in our luggage business.
So people are eager to visit Grandma, which is good. Sadly, that doesn't mean they're keen to venture into a city center department store.
That said, there are retailers with confidence that the offline world will be back. Take Ulta Beauty. Prior to COVID, 83% of Ulta’s customers only shopped in-store. The pandemic saw e-commerce business boom, CEO David Kimbell told JP Morgan, but he insists:
We're really confident in the future of physical retail. The reason we're confident is we continue, as we've emerged out of COVID, to see behaviors that our guests are coming back in the store. All of our research continues to suggest that while digital and e-commerce will play a bigger and bigger role in our guest total experience with Ulta Beauty, we know that the primary source of engagement and the highest level of service that we'll be able to give, the human experience that we'll be able to give, happens in our stores.
Certainly, COVID will change a lot of things and we're working hard to make sure we really understand the consumer dynamic. We don't go through what we've all been through over the last year-plus and not have some lasting changes in our behaviors and how we engage with the world around us. So we are certainly anticipating change. We have been just hyper-focused on understanding and staying connected to our guests throughout this, tracking along with our guests to understand the ebbs and flows of their confidence and how they're feeling.
A recent study came out with teens, and we ranked #1 with teens. It's their preferred retailer by a significant amount. One of the things that continues to be top of mind for teens is a preference to shop in store and we think that's because of the role of beauty in their lives. So when you have an emotional category and a desire for human connections and exploration and discovery, we really feel confident that that will stay true.
That ‘human aspect’ Kimbell references will be crucial across all retail sectors in the coming months. There’s nothing I bought in store over the weekend that I couldn’t have ordered at the click of a mouse - and more cheaply - but I just wanted to get out of the house! The Ulta CEO is seeing that same impulse at play in his business:
People are ready to get out. There’s some definite pent-up demand. And I think as the vaccine is starting to come through in the US a little bit more, people are ready to get out and look their very best…We like what we're seeing right now.
There is a new retail future out there, argues Carlos Alberini, CEO at fashion company GUESS, and physical stores will play a part in it:
When our stores are open, they are performing well, with solid product sell-throughs. Our customer traffic is showing sequential improvement, while still significantly below pre-COVID levels…We are confident in our business as we emerge from this pandemic. As vaccination levels increase across different countries in the upcoming months, as we have seen in the US, the consumer will be inspired to venture out and buy new clothes.
Our capacity to adapt to each and every change in the industry and the business has been validated by the multiple business model changes our company has endured successfully over the last 40 years…I strongly believe that our company's ability to adapt to change is the foundation of our business success and value creation.
But the question remains how many firms genuinely have that ability to adapt? The in-store shopping experience hasn’t changed much for far too many brands for far too long a time. Even my few hours in the mall on Saturday found me grumpy when I couldn’t find a particular item on the shelves and the shop assistant wasn’t able to find it on her system, let alone tell me when it might be back in stock. That was one of the items that I painlessly ordered on my phone ten minutes later while having a cup of coffee and it arrived on my doorstep 24 hours later.
There are retailers which, as they emerge from the pandemic, tell us that they’ve used the interregnum wisely, to re-think their entire modus operandi beyond just ‘keeping the lights on’ during lockdown. As Bed, Bath & Beyond’s CEO Mark Tritton said last week:
We reformed the past, overcame extraordinary circumstances of the present, and established a firm foundation for the future.
Or as GUESS’s Alberini puts it:
This past year was truly a year of crisis, but, like Winston Churchill said, we didn't let the crisis go to waste.
How many retailers had their own 'Finest Hour' during COVID is a moot point. Sadly I suspect the answer may not be the one we might hope for…