Just a phase or here to stay? Picking out long-term retail trends from the Covid era

Covid cases are falling, restrictions are slowly easing, the sun is shining, and shops are open for business. Come on in, just don’t forget your mask please. It’s been 2 months and counting since non-essential stores began to reopen in the UK. Initial reports of a V-shaped recovery after the dark days of lockdown have been tempered by the looming threat of a UK economy sliding into recession. With the furlough scheme tapering down, businesses will be forced to restructure, and retailers will be no exception.

A period of restructuring will almost certainly entail some regrettable measure of job losses and store closures across the sector, but retailers also have a critical opportunity to reset and make the big strategic or operational changes that will help them to survive, or even thrive, in a post-Covid economy. At this stage, it is vital that retailers try to form a clear picture of the future and set themselves up accordingly. With Covid turning retail upside down, forming any sort of clear picture may seem like a near-impossible task at the moment, but picking out some key long-term trends is a good place to start.

Trend #1: The great online shift

The biggest and most obvious long-term trend, the shift from physical to online retail was a pre-existing trend that Covid has accelerated further. In fashion, ecommerce pureplay retailers or platforms have fared much better than their high street cousins, with Asos and Farfetch both reporting strong results recently. More on fashion later, but turning our attention to grocery, online food shopping hit another record high in the month to mid-August, with 13.5% of all groceries sold in the UK now being ordered online. Expect to see food retailers continue to move operations online with increased delivery slots, bigger assortments and more convenient fulfilment options. While physical supermarkets still account for a healthy majority of grocery sales, this trend is only going one way, particularly while consumer confidence remains low, with currently just over half of shoppers saying that they feel safe in stores. Shopping habits formed during the Covid period may well stick, with about 40% of people saying they will continue to shop online more now than they did before the outbreak.

Trend #2: Partnerships, collaboration and specialisation

M&S will be hoping that its long-awaited tie up with Ocado, which comes into effect next month, will help achieve a much-needed strategic and operational pivot towards online grocery. Deemed a non-essential retailer, M&S suffered during lockdown. Even on the food side, where the market has remained strong throughout, M&S began the crisis on the backfoot, running a relatively low-volume ecommerce operation compared to competitors. Ocado’s increasingly slick online fulfilment operation should give M&S the capacity boost it needs to compete in a growing market. On the restructuring side of things, M&S is set to cut 7,000 jobs over the next three months – shedding roughly 12% of its shopfloor workforce. In contrast, Morrisons managed a quick and adept ramp up of online operations in response to Covid, securing online fulfilment partnerships with Deliveroo and now also Amazon. As a result, Morrisons enjoyed the strongest performance among the Big 4 in terms of sales growth and market share increase for the 12-week period to August 9^th. These stories highlight a trend of supermarkets teaming up with delivery service platforms specialising in the tricky and often unprofitable last-mile segment of the fulfilment journey. Deliveroo have been particularly busy during the pandemic, launching further collaborations with Aldi and Co-Op, while Asda has partnered with Uber Eats.

Trend #3: Leveraging social media as a genuine multi-purpose customer engagement channel

Social distancing measures have driven people increasingly online, not just for buying groceries but also for substituted forms of social interaction via social media. With frustration and distrust of traditional media on the rise, people are spending longer on social media to get their news, and interact with friends and businesses. Kylie Cosmetics are a leading example of a CPR company generating sales almost entirely through Instagram influencer marketing activity. Retailers could also take inspiration from the likes of Gymshark for their innovative social media marketing strategy, mixing paid engagement (e.g. paid promotions via influencers) with organic (non-paid) engagement, including a combination of live streaming events and catchy campaign initiatives linked to social health policy during Covid.

Trend #4: Sustainable alternatives to traditional retail business models

In last week’s issue, Lucy looked at the increasing importance of supply chain transparency as a consumer ethics issue. But will the economic pressure of the Covid crisis force consumers to abandon their green values and return to cheaper but less sustainable retail choices? For some shoppers, green often means expensive; think organic food, fairtrade coffee, sustainably sourced cotton. But environmentally sustainable business models can also be economically sustainable. Selfridges is following the likes of Rent the Runway by expanding into clothing rental, second-hand, recycling and repair. Resale is already the biggest growing market within fashion, and retailers may be wise to explore variants of this business model, with the potential to attract both eco-conscious and cash-strapped shoppers.

Trend #5: Shrinking store estates and the changing face of the high street

The Centre for Retail Research has issued a stark prediction that 20,000 shops could face permanent closure this year. With a Covid-induced recession looming and footfall still at worryingly low levels, retailers will have to consider drastic action to optimise their store estates, whether this is divestment or repurposing of space to e.g. online operations. The loss of 20,000 shops would obviously have a huge impact on high streets across the country, perhaps changing the landscape of our town centres for good. And retail is not alone. Things are looking bleak for the hospitality industry as well, with restaurants and cafes remaining significantly subdued despite the government’s Eat Out to Help Out scheme, with Pizza Express and YoSushi both announcing major staff cutbacks and closures this week. The changing face of the high street may now change faster than anyone predicted before Covid. With fewer shops and fewer restaurants, what will fill the void left by Covid? Only time will tell.

Retailers cannot wait for a clear post-Covid picture to form before acting. The trends we are seeing emerging from the pandemic are driving pace and complexity into retail operations at an unprecedented rate. The double challenge for retailers now is how to increase flexibility in operations in order to mitigate future risk and demand spikes, while delivering the transparency in supply chain that customers are increasingly looking for. Identifying key trends early and being willing to rapidly adopt new working practices and supporting digital technologies will ultimately determine success for retailers in this new era.

Author

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Edward Jobson

Senior Consultant, Retail Supply Chain (Operations Transformation)

Ed has a proven track record of helping multiple major international retailers through large scale business transformation programmes, with a strong interest and recognised expertise in Business Process Design, across Grocery and GM.