Back in 2018, I wrote an article on the state of retail in North America after having spent more 30 years abroad. At the time, I was struck by the common narrative on the state of retail: retail is dying, long live Amazon.
Since the beginning of COVID-19, a similar narrative has spread. There is not a day that goes by when you don’t see or read about shuttered storefronts, retailers laying off employees, and retailers filing for bankruptcy or creditor protection as evidence of the economic impact of the pandemic. And once again, Amazon emerges as the leading player, albeit not quite as dominant.
However, despite real hardships for a number of retailers, looking in more detail at what has and is actually happening shows a more complex story and one where overall retail is healthy, resilient, and innovative.
Retail Remains Healthy, Growing Sector of the Economy
Prior to the pandemic, North American omnichannel retail average annual growth rates were over 4% in both Canada and the US.
2020 was no different. In the US, retail grew 3.4% with an economy that shrank by 3.5%. In Canada, overall retail sales dropped by 1.3% while the economy shrank by 5.4%. However, if we exclude the automotive part of retail (car dealerships, gas stations, etc.), retail sales in US grew by 4.1% and by 4.6% in Canada. Surprisingly healthy statistics by any measure, not those of doom and gloom.
Strong Shifts in What Consumers Buy and How They Shop
Over the last few years, consumers have changed what they buy and how they shop. Prior to COVID-19, consumers were better informed and price sensitive. They were looking for convenience, personalization, and a seamless omni-channel experience. Consumers were at the same time more focused on protecting their privacy and environmentally conscious. The pandemic accelerated these trends and new ones also emerged. Consumers have become more focused on safety, health and well-being, and community with lives revolving strongly around at-home activities.
The K shaped impact of the pandemic meant that some hard-hit households focused on affordability — buying private labels and putting off most non-essential spending. For the other half who maintained their jobs and increased their savings in part due to strong stock and housing prices, they ended up making significant investments on house and garden improvements and hard goods purchases, such as furniture, cars, bicycles, and jewellery.
Unparalleled Innovations in Technologies
At the same time, we have been witnessing unparalleled technological innovations through AI, robotics, and big data, to name a few. These new technologies are allowing customers to experience frictionless retail and enhanced services, while allowing retailers to digitize and implement effective omni-channel operations.
Unprecedented Impact on Retailers
Prior to pandemic, two extremes were emerging among successful retailers: 1) those who focused on convenience and efficiency, such as Amazon, Alibaba, Wal-Mart, and Dollarama; and 2) at the other extreme, experiential-oriented retailers such as Starbucks, lululemon, Nike, Warby Parker, and a number of proximity retailers.
The initial phase of the pandemic strongly favoured the convenience and efficiency-driven extreme, selling principally essential goods. At the same time, it adversely penalized the experience driven retailers who were mostly selling non-essential goods, and therefore saw their stores close during the different lockdowns. Those retailers finding themselves stuck in the middle and with weak balance sheets (high debt and poor cashflow), e.g. J Crew and Neiman Marcus, saw their demise strongly accelerate.
The pandemic also brought about an unprecedented increase in digital commerce, with its share of overall sales close to doubling in most countries and expected to stick post pandemic.
Despite being challenged by the impacts of the pandemic, physical retail proved more resilient than expected. Consumers flocked back to stores when they reopened, highlighting the importance of human interaction and the pleasure of physical shopping. Retailers rationalized their networks and reimagined the role of stores, with some like Walmart, Target, and Lowe’s making their stores the centrepiece of their omni-channel operations. We, therefore, saw a blurring of the lines with a strong increase in delivery from stores for online ordering, click and collect, curbside pick-ups, and new concepts like dark kitchens.
Big Winners and Losers
From the beginning, retailers focusing on convenience and efficiency have been able to take full advantage of the pandemic. As the pandemic progressed, and the -shaped impact became more apparent, retailers focused on at-home activities, health and wellness, home improvements, and big purchases of hard goods — with building material and garden supplies becoming the fastest growing segment in retail.
Other segments of retail suffered dramatically throughout the pandemic. Most newsworthy is the fashion industry, with drops of over 25% in their annual sales. Many proximity retailers were adversely affected, mainly with tight cashflow. And lastly, gas stations have had a horrible last 12 months as petrol prices tumbled and road travel slowed down with restrictions, work-from-home orders, and “staycations”.
Retail – One of the Most Innovative Sectors
These transformative years, including the pandemic, have led retail to become one of the most innovative sectors. In the last three to four years, 20%-30% of the most innovative companies, according to Fast Company’s rankings, are in the retail sector. This isn’t just due to the rise of Amazon, Alibaba, and other digital native players, but also due to more mainstream retailers like Walmart, Nike, lululemon, and tech-focused players such as Shopify and Lightspeed.
Nevertheless, the stories that touch me the most are those of small businesses that have completely pivoted their businesses to stay alive. Last summer, we, at the Bensadoun School of Retail Management (BSRM), held a Retail Innovation Competition to help local SMEs rethink and transform their businesses during and post pandemic. Student teams from all over Canada worked with four live cases. Here are three of those stories:
- Café Barista – a BtoB coffee player that had to aggressively shift their focus to their online BtoC business and eventually launch a line of products in Metro supermarkets.
- Food Chain – The pandemic forced them to practically close their restaurant locations focused on fast food gourmet salads. Instead of focusing on food delivery like many of their peers, they used their partnerships with local food personalities to focus on the wholesale channel with players such as Lufa farms to sell their expertise – small, but significant batches of new gourmet products at relatively affordable prices.
- Can Am Fruits and Vegetables – Prior to the pandemic, they sold principally fruits and vegetables to restaurants and hotels. Within a week of the first lockdown, they launched an online offering of 500 products across all categories (e.g. meats, dairy, hygiene products, etc.). They did this on a shoe string, but focused on big orders of fresh, quality products with no frills packaging and used their existing fleet of trucks to deliver. One could think of a Costco-like online offering. This new line of business took off and exceeded their expectations.
Retail competition will continue to be healthy and fierce. There will be losers, for sure. But those who have worked hard to transform their operations in an omni-channel world, took risks to launch innovative businesses, and have worked hard to pamper new and growing loyal customers are emerging as winners and will have tremendous opportunities in the future. One thought provoking quote comes from McKinsey and Co. “rather than asking what benefits online can offer offline channels, players should ask how their brick-and-mortar presence can support e-commerce sales”.
In all cases, these retailers are continuously transforming their organizations to compete in the new world of omnichannel retail and to right size their organizations with the right talent. On this last point, they are all looking for new talent in areas such as performance marketing, social media, omni-channel operations, and supply chain. These are key areas of focus in all our programs at the Bensadoun School, especially the Master of Management in Retailing that we are launching in August 2021.
As published in Retail Insider, March 2021.