The pandemic has changed the retail delivery of products forever. This article will explore some of the trends impacting retailers, and then look at ways to evaluate and monitor retailer’s performance going forward.
Industry Trends
Where are consumers shopping?
According to the National Retail Federation, the largest US retailer in 2019 and 2020 was Walmart, although Walmart’s percent of the market decreased from 15.9% in the 2020 rankings to 14.1% in the 2021 rankings. Amazon became the second largest retailer in 2020, when it surpassed Apple for the number two position. Industry experts believe Amazon will surpass Walmart as the number one retailer sometime in the next few years.
When Amazon began offering Amazon Prime 2-day delivery service in 2005, Amazon’s impact on product delivery started a tidal wave that has only been exacerbated by the impacts of the Covid-19 pandemic.
Industry trends show consumers have changed who they buy from and how they make purchasing decisions, as evidenced by the significant growth of internet retailers. In addition to the growth Amazon is experiencing, companies such as Boxed.com have taken advantage of the consumers’ transition from in-person purchasing to internet purchasing to take on retail giants such as Costco. Boxed.com is planning to go public with a $900 million SPAC deal, after beginning operations in the garage of one of the owners in August 2013.
Large retailers have worked to move beyond traditional brick and mortar stores. For example, Walmart US has increased its online sales from $15.7 billion in 2019 to $24.1 billion in 2020, and is projecting online sales to be $43.0 billion in 2021.
Companies that traditionally sold their products through brick and mortar locations or online retail store channels have also expanded their own websites’ reach into consumer purchasing decisions. For example, brands such as Kerastase previously only sold direct to consumers through inventory maintained by salons. During the pandemic they expanded their approach to also sell direct to consumers, including offering discounts and free shipping, and provided credits to a customer’s designated salon. This allowed the company’s sales to consumers to continue, even while the salons were shut down or consumers reduced the number of salon visits, and protected the brand’s relationship with the salons. Other cosmetic companies adapted their online shopping approach to include more interactive experiences. Wine companies such as Becker Vineyards in Texas transitioned to weekly online tasting packages and events when their tasting rooms were closed.
The lines between retailers have also been blurred. Panera Bread began providing groceries for pick up with its meal offerings, and grocery stores such as Publix and Whole Foods created meal pick up packages that were available to be delivered via Instacart or Amazon or other delivery service competitors.
Consumers have become comfortable with online purchasing, and now are expressing satisfaction with online browsing or window shopping. Bazaarvoice, a leader in product reviews and user generated content solutions, surveyed over 9,000 consumers globally and discovered that 64% of the consumers found online browsing to be easier than in-store browsing, and 54% found online browsing to be more enjoyable than the in-store alternative. The research found that spur of the moment purchases are more likely to occur in-store, and that information helps retailers identify ways to compete with their online competitors.
How are consumers receiving products?
The shopping experience has certainly evolved to include multiple options in addition to in-store and online. These options include delivery of products by stores, curbside pickup, and in-store appointments.
Instacart’s growth during the Covid-19 lockdown transformed a company that in 2019 was losing $25 million per month, to a company posting a $10 million profit in April 2020. In May 2021 Instacart’s CEO indicated the company had already surpassed its 2022 goals. Instacart has expanded its focus to include options for smaller, locally owned retail stores, and sees that as an ongoing growth opportunity.
Ubereats is the most popular food delivery service with 66 million users, and it controls 29% of the global food delivery market. Its revenue increased from $1.9 billion in 2019 to $4.8 billion in 2020. Competitors include DoorDash and Grubhub which also experienced substantial growth. DoorDash reported 241% growth from 2019 to 2020 and Grubhub reported 52% growth during the same period.
Instant gratification is key to the success of the retailer. Providing a product to a consumer quickly and efficiently is a key decision point for consumers. Consumers have reduced their wait-time standards, and retailers are working to meet the demands. This requires inventory management, product delivery alternatives, and evaluation of brick and mortar investments.
As retailers reimagine their floor space post Covid-19, there has been a move to smaller footprints, emphasis on personalized in-store shopping experiences, and use of space for fulfillment centers for delivery and pick up options.
How do businesses communicate with consumers?
Successful online businesses have developed communication methods involving emails and texts. The ability to influence search engines has also been important. In the past year, this communication has expanded.
One new communication method is the virtual reality experience. For example, GlassesUSA was founded in 2008 with a goal to cut out the middleman between consumers and eyeglass manufacturers. During the Covid-19 shutdowns, consumers looked for alternatives to in-person shopping and GlassesUSA was a beneficiary. It provides an online experience allowing a consumer to try a variety of glasses on their own face. Gucci and Tommy Hilfiger use augmented reality to allow customers to superimpose garments and accessories onto themselves.
To meet the changing consumer experience demands how do retailers respond?
The successful store of the future will need to embrace these trends and also stay in front of future trends.
Brick and mortar locations need to consider ways to provide simple pick-up service or curbside delivery services. This puts additional pressure on locations without easy access to parking spaces.
Stores need to consider ways to personalize the shopping experience. Personal shoppers have been common in high end luxury stores for years. That personal shopper approach has moved down market to other stores and consumers enjoy the service. Stores used appointment shopping to bring consumers back to the physical stores during the pandemic and consumers responded favorably to the personal attention and service.
Evaluating Performance
The evaluation of 2019, 2020 and 2021 performance will be difficult for retailers. Industry metrics such as year over year sales, same store sales, etc. will need to consider comparing 2019 to 2021 rather than 2020. Some retailers benefitted during 2020 and will not be able to repeat that performance. Perhaps a comparison to 2019 is a better indicator of performance for that retailer. Many retailers are expanding their financial reporting to include 2019 to 2021 performance, as well as the traditional year over year metrics.
The monitoring of sales by in-person versus online has been occurring as internet sales gained strength. That performance metric will need to continue to expand and include methods of online sales – Amazon versus brand proprietary sites versus retail store sites, for example.
Sales by delivery method will also have to be tracked. For example, in-store versus curbside versus delivery versus online will need to be tracked.
Geographic locations will need to be evaluated with more scrutiny as demographic trends shift population centers, and the WFH movement impacts office locations.
Working capital management is increasingly difficult as supply chain issues and product delivery changes work together to impact inventory levels and locations. The investment in inventory is a primary use of cash for retailers. Maximizing that investment is even more difficult today.
In Summary
The retail sector of the economy has always experienced risks subject to changing consumer demands and unforeseen disruptive factors. The move to internet based sales coupled with the Covid-19 impacts definitely increased the risks and possibly rewards for this sector. A successful retailer will need to continue to mine its own data and its competitors’ information to anticipate emerging trends, and then the successful retailer will need access to capital to allow it to continue to evolve.