How COVID-19 Changed Retail for Good

How COVID-19 Changed Retail for Good

By Andrew Cutter |

2020 was a year like no other, and now retailers the world over are reckoning with re-emergence from the pandemic. They’re relinquishing the illusion that retail will ever return to 2019 conditions, but they know 2020 isn’t predictive of retail’s future, either. Consumer behavior has changed forever.

Initially, pandemic conditions shocked consumers into new shopping habits. They stayed home, motivated by fear of contagion or adhering to the ‘stay home’ guidance issued by government. Consumers’ fear of shortages triggered actual shortages. Retailers implemented rationing and were forced to identify new sources of supply. Authorities shut down non-essential establishments, forcing retailers to find new ways to move merchandise in order to survive.

Consumers also found new sources of supply and changed their shopping habits too. They responded to pandemic conditions by shopping online. They enjoyed the safety, convenience, selection and price-competitiveness that ecommerce offered. Brick-and-mortar stores responded by offering online ordering, curbside pickup and offering next-day or sometimes same-day delivery options. Rapid implementation of these new services ensured retailers’ survival.

Retail has experienced a pivot in manpower, whilst many stores were left with no option but to furlough or lay off staff, stores who adapted quickly were recruiting delivery staff and expanding on-line teams. The pandemic saw consumer spending shift toward food and household goods, home entertainment, and home improvement and away from fashion, luxury goods, dining out, and travel. But as the rich continue to splurge online, and the poor flocked to budget-friendly shops, it’s players in the middle such as department stores and specialty retailers that struggled the most.

While sensory and social aspects of shopping are luring customers back to stores now – particularly in sectors like apparel, shoes and beauty – consumers have moved online for good for many purchases. Now, retailers are wondering how to master hybrid physical and online models.

Here we explore the trends retailers are using to survive and look at how they can manage the associated risks.

The Growth of Online Shopping, Fueled by COVID

  • Adobe’s Digital Economy Index, measuring digital purchases in the US, UK, and Japan, found June 2020 online sales in the US alone were up more than 76 percent year-over-year.
  • Shopify’s first Annual Future of Commerce Report found over 150 million consumers shopped online for the first time in 2020. 79 percent said they’d continue to do so.
  • One third of Australians also say they’ll shop more online now, according to the Australian Bureau of Statistics’ Household Impacts of COVID-19 November survey.
  • United Nations’ Conference on Trade and Development (UNCTAD) found consumers in Brazil, China, Germany, Italy, the Republic of Korea, Russian Federation, South Africa, Switzerland and Turkey shop more online now. “The COVID-19 pandemic has accelerated the shift towards a more digital world. The changes we make now will have lasting effects as the world economy begins to recover,” said UNCTAD Secretary-General Mukhisa Kituyi.

Once consumers start shopping online, they’re likely to increase that behavior. ‘In-store shoppers’ get an influx of dopamine when they buy; online shoppers experience that dopamine influx twice: when they click to purchase, and when they receive their orders. “I don’t think we will see a ‘snap back’ to the way we previously shopped,” said Australian retail expert Louise Grimmer. “… Growth in online shopping… has led to retailers having to offer more value in their online range and increase online delivery.” These days many retailers see ecommerce not just as an additional channel of delivery to in-store sales but a central tool to survive in a post-COVID world.

Increases in online traffic put new strains on retailers who’ve started locating fulfillment centers closer to consumers. “Dark stores” are mini-fulfillment centers set up on the site of shuttered retail establishments. Retailers built fleets to deliver orders, enlisting “gig economy” workers and using smaller vehicles to circumvent commercial driver’s license requirements.

Best Buy: An Example in How to Retrench

  • Best Buy offered curbside and in-store pickup. They provided same-day delivery from “almost all” stores. “Even as our online sales ramped (and, as of Q3 [2020], they were up 175 percent-ish), 40 percent of those sales were still being picked up either in our stores or curbside,” Chief Executive Officer Corie Barry said. “There was this real demand to be able to come to the store to get this item when I wanted it, where I wanted it and as fast as I wanted it… the idea of stores as fulfillment epicenters is really important.”
  • They repurposed space to operate fulfillment centers where workers assemble online orders for consumers waiting curbside. “The customer has completely changed the way they are thinking of shopping,” Barry said. “We are doing all we can to adjust to that new reality.”
  • They reduced its work force by several thousand, but trained remaining employees in the skills their new business model required.
  • They provided generous hazard pay to its workers, as well as raising starting pay to $15 per hour last August. Barry also announced bonuses of $500 for full-time and $200 for part-time employees in the United States “in recognition of their ongoing efforts in the face of pandemic fatigue.”
  • The Brookings Institute called out Best Buy as the only retail company in their analysis whose CEO took a pay cut.
  • Barry said: “There isn’t a world where people revert back to their 2019 behaviors.”

New Operating Models Bring Unforeseen Risks

The retail sector has adapted at lightning speed in order to meet customer needs whilst operating in a safe manner and adhering to government guidelines. However, these new operating models bring unforeseen risks to retailers which if not managed correctly could lead to further issues.

Online retail carries risk that brick-and-mortar establishments don’t face including cybercrime, web site downtime, compliance violations, intensified price competition and complex delivery networks.

  • Cybercrime is a huge threat. Websites hold valuable information, from data on consumer shopping habits, to personal credentials and payment card details it is a hackers dream. On-line retailers must manage cyber risk and maintain compliance with data-privacy regulations like GDPR to safeguard their customer data.
  • Successful online retail starts with well-founded assumptions about demand, traffic and volume, as well as marketing and web operations costs. Risks that could result in website downtime or reduced traffic must be addressed as a priority.
  • Retail is becoming more highly regulated, from trade compliance to the myriad of regulations regarding data privacy and PCI compliance. Large retail organizations need a structured regulatory compliance program linked to a control framework to ensure requirements are met and risks and properly managed and mitigated.
  • The complex delivery networks needed to support the short delivery timescales customers are demanding can pose complex risks. Companies that outsource delivery face a whole host of third-party risks while those that choose to use their own supply chain to deliver goods find themselves facing a whole host of operational risks and safety requirements.

Best-practice risk management starts with anticipating what might happen and deciding if it is s an opportunity or a potential risk. GRC thought leader Norman Marks said in our recent webinarRisk is not necessarily something that needs to be managed and mitigated, sometimes it is something you need to take!”.

Retailers must consider external risks including; changing consumer behavior, competitor behavior & economic conditions, alongside operational risk and compliance regulations to ensure they understand their risk profile and are able to identify opportunities for growth.

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Risks like cybercrime, system failures, customer complaints, returns, delivery errors and taxation across diverse jurisdictions are inevitable, but once identified, they can be monitored, mitigated, and managed.

Andrew Cutter – Vice President, North America, Camms

 

Tackling the Increasing Regulatory Compliance Demands on Retail

Retail is an industry that by may not appear to be as driven by regulatory compliance to the same degree as perhaps Healthcare or Financial Services. This may account for why so many find themselves still trying to manage this complex area through spreadsheets or disparate legacy systems that don’t stand up when under pressure and are unable to deliver the reporting needed to drive effective decisions.

However, that is not to take away anything from the complex governance, risk and compliance landscape that retailers are facing, but it does put these businesses in an interesting position. One where compliance is key, but they are also increasingly motivated by other driving factors, like ethics and how to achieve competitive advantage.

Retailers Must Become Agile

If the Covid era has taught us anything, it’s to be ready for the unexpected. Retailers in privileged parts of the world are feeling the relief of re-emergence while remaining cautious of what the future may bring. Responding to changing consumer behavior is timeless advice for retailers and, accommodating consumers’ new shopping habits and mitigating risk is key to thriving in the post-pandemic world.

When risk management is automated, streamlined, and is critically able to drive a single source of demonstratable proof of compliance, and be integrated with the strategic objectives of the business, this will enable a truly agile approach and in turn drive business success.

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Andrew Cutter
Vice President – North America

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