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  • Writer's pictureSEIC
    • Aug 5, 2020
    • 7 min read

COVID-19: Is this the last nail in the coffin for brick and mortar stores?”

By: Adam Afiq, Dominic Wong

Editor: Akshat Daga

Illustration by Ka Ling


1. Abstract

“Pandemics aren’t unprecedented but the way we respond to them today are”. The world has a long history of pandemic outbreaks and it is arguably only a matter of time until we face another. It is therefore imperative that we become wiser with each ‘iteration’ so that we can manage them in the most effective way possible. This article aims to discuss the considerations for retail brands while societies transition into some form of normalcy, post-Covid. The article will be covering the probable changes in a shopper’s retail experience and explore alternative channels through which businesses could adopt, to maintain their customer engagement. It also uses a retail performance metric, footfall, to demonstrate our expectations of “the new shopping experience”. The article concludes by evaluating the silver lining through new expected changes, moving forward.

2. The Traditional Retail

In the case of a fashion retail outlet, traditional shopping includes being able to freely enter a retail outlet and walk down their aisles to browse through the collection of fashion apparels. The shopper could pick out an apparel of their choice and try them on. With that, they would be able to make their most informed purchase of a product that they want. However, this customer experience (CX) flow would prove to be extremely risky for shoppers and staff as society makes attempts to coexist with Covid-19. Covid-19 is primarily transmitted between people through respiratory droplets (e.g coughing or sneezing) and more crucially, contact routes (e.g direct contact with infected people and indirect contact with surfaces/items used by infected people) (WHO, Mar 2020). It is now crucial that retail outlets manage the shopper flow into their stores, give ample time and also ensure the hygiene of all products that will be handled between shoppers.

3. Post Covid-19 Retail

The potential outbreak of this virus compels businesses to consider sanitary/disinfection processes to be incorporated into daily operations to ensure a safe retail environment for both for employees and shoppers. Businesses will have to schedule regular cleaning on their premises and ensure that everyone abides by hygiene standards as advised by relevant authorities on the re-opening process (CDC, 2020). With a quota on allowed footfall within retail spaces to observe social distancing and limits for physical customer engagement, brands will need to make conscious efforts to assist customers on their online platforms. Customer engagement will have to be done even before shoppers leave for the stores. Technology would be heavily leveraged from contactless/online payments, to store pickups/deliveries and also for refund and exchanges (Ahuja M, Forbes 2020). Along with these changes and shifts in shopper mindset, retail expects a slow initial increase. Spanish retail sales observed a 20% footfall drop and 19% sales drop since their initial closures and

do not expect these numbers to resume within the coming 12 months (Floquet M, Mar 2020). A drop in employee productivity due to additional hygiene processes and an approximate 0.8% increase in hygiene costs is expected within retail spaces.

3.1 Fashion-Type Retail

Fashion-type retail stores with product variety on aisles will have to allocate resources to ensure that items are disinfected between shoppers for their safe shopping. For instance, every apparel that a shopper tries on in the fitting room and subsequently chooses not to purchase, that particular apparel needs to be disinfected before it is put back on the shelf. This could potentially result in other shoppers not being able to pick out the item that they would want. From an operations perspective, a desired service level may be compromised with the availability and accessibility of the items affected.

3.2 User Experience-Type Retail

For Experience-type retail such as consumer electronics, ensuring hygiene on the displayed items will be relatively more manageable. Businesses will have to enforce the use of sanitizers and disinfectants for shoppers, staff and devices respectively. Ensuring that shoppers sanitize their hands prior to testing the electronics and also a thorough wipedown of these products between shoppers will suffice.

4. Changing economics of retailers

With the expected limit of shoppers for a particular retail space, footfall will decrease, resulting in lower sales per square foot. Traditionally a metric to gauge the effectiveness of employees salesmanship, conversion rates based on time of day or day of week. With data associated with footfall, management would be able to influence aspects such as employee training, staffing requirements and in-store promotion performance and calculate projections with greater confidence (Ipsos, Oct 2018).

After understanding footfall, how can a new normalcy, post-Covid, change the economics of operating a retail business? To get a clearer picture, it is imperative to consider existing trends.

Over the recent years, the rise of e-commerce companies such as Amazon and Alibaba, has dimmed the outlook on traditional brick-and-mortar retail stores. To illustrate how important e-commerce has been, Forever 21 (F21) will be used as an example. In 2019, F21 filed for bankruptcy, citing declining mall traffic and the rise of e-commerce as key reasons to their demise (Maheshwari, Oct 2019). With existing headwinds in the brick-and-mortar retail business, it is likely that e-commerce benefits from lock-downs globally. The graph below illustrates how footfall has been negatively impacted by a lockdown in the United Kingdom (UK).


Source: Statista

The steep decline in footfall must mean that people are getting their necessities through other means, and it is likely through e-commerce. With reference to the graph below, there were surges in online retail orders ever since lock down.


Source: Statista

Prior to Covid-19, e-commerce was already putting pressures on brick-and-mortar stores and brands that are unable to keep up were pushed out of the market, as with F21. With COVID-19 lockdowns forcing people to turn to online retail, it is likely that this existing trend of e-commerce will be accelerated and more people will transact online more frequently instead of heading to brick-and-mortar stores. However, one limitation is that since these statistics are ex-post, it is difficult to establish with certainty, how big of a role e-commerce will play moving forward given that countries are still in the process of lifting lockdowns. Nevertheless, there will be a greater volume of online transactions moving forward.

Returning to the question on how the economics of retailers will change, with knowledge on the declining footfall and pick-up in e-commerce, it is likely that retailers will reduce their brick-and-mortar stores and move online. In the same vein, retailers will begin to focus on investing into developing last mile delivery infrastructure instead of leasing brick-and-mortar stores. Also, a retailer’s workforce will change. Instead of hiring more front-line staff to sell, more staff will be reskilled to handle enquiries online or on the phone. As such, expectations of greater investments into R&D to build the infrastructure required to support these operations instead of capital expenditures, changing what is traditionally known about the economics of retailers.

5. The Silver Lining

While economies progress into gradual reopening, it is important to note how different societies react to it. Some took it too literally, assuming immediately business as usual. While others remained wary, taking precaution while working towards the resumption to normalcy. With that, observations of several silver linings are expected to be made for retail businesses, as a result of this pandemic. To remain relevant and engaged, businesses are now placing greater importance on social capital - having a sense of shared identity and solidarity. All employees through the organization have a heightened responsibility for all stakeholders - fellow staff, suppliers and customers - and are empowered to do so. A company culture of mutual responsibility will be able to emphasize the ‘power of we’, instead of ‘the power of me’, ensuring a safe shopping environment for everyone (Koh T, Apr 2020).

Another notable silver lining would be the extensive digital transformation to small-medium enterprises (SMEs) that will leverage on online marketplaces and technology so that they remain relevant and competitive. This process is further accelerated by government support in the form of partial-funding, for SMEs to go digital and do away with unnecessary physical contact (Navarro K, Apr 2020). This also means a wider range of products and options for platform users to choose from.

6. Conclusion

With the expected improvements in businesses’ digital infrastructure and the greater importance of online customer engagement, the new shopping experience would entail more online decision-making at home. While it would be extremely naive to say retail will be obsolete, businesses need to be cognizant in the limitations of retail operations as the markets gradually open back up. Consequently, large retailers may consider allocating resources to other operational aspects such as their systems backend and last mile deliveries to servers to ensure digital resilience and timely product receipts, respectively.

7. A Glimpse Into The Future

Moving forward, shoppers should expect longer waiting times for products and services that require physical interaction. In the same vein, business processes that could leverage technology (payments, bookings, browsing) will eventually be a new norm, shifting our routines online. Also, be prepared to bring along sanitizers and personal protection equipment such as masks or face shields or risk being denied entry into establishments. This pandemic has truly humbled shoppers and businesses alike, with the clear message that everyone is socially responsible for our retail experiences.

Evans M (May 2020) How COVID-19 will change the retail in the future. Retrieved from: https://www.forbes.com/sites/michelleevans1/2020/05/19/7-predictions-for-how-covid-19-will-change-retail-in-the-future/

Koh T (April 2020) 7 Silver Linings in Covid-19 Dark Cloud. Retrieved from : https://www.straitstimes.com/opinion/7-silver-linings-in-covid-19-dark-cloud

Navarro. K (April 2020) Tech to the rescue Tips for SMEs in the time of Covid-19. Retrieved from :https://www.imda.gov.sg/news-and-events/impact-news/2020/04/Tech-to-the-rescue-Tips-for-SMEs-in-the-time-of-COVID-19

Statista (June 2020) Daily footfall change in retail locations in the United Kingdom (UK) during the Coronavirus outbreak from March to June 2020. Retrieved from: https://www-statista-com.libproxy.smu.edu.sg/statistics/1107518/daily-footfall-change-in-the-uk-during-coronavirus/

Statista (May 2020) Year-on-year growth in weekly online orders in retail industry during the Coronavirus pandemic in selected countries in Europe in 2020. Retrieved from: https://www-statista-com.libproxy.smu.edu.sg/statistics/1109296/online-retail-y-o-y-order-trends-during-coronavirus-in-europe/

Soma Biwas (Sep 2019) Forever 21, Teen-focused retailer, files for bankruptcy. Retrieved from: https://www.wsj.com/articles/forever-21-teen-focused-retailer-files-for-bankruptcy-11569811923

Saphna Maheshwari (Oct 2019) One Family Built Forever 21, and Fueled it Collapse. Retrieved from: https://www.nytimes.com/2019/10/23/business/forever-21-bankruptcy-chang-family.html

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