Consumer Behaviour in the Post-Pandemic Retail Landscape

Four changes in the way we shop that might outlast COVID-19

As the world rallies to contain the spread of COVID-19 among populations, consumers continue to adapt to the new normal, characterized by stringent physical distancing and self-quarantining measures. In such a context, few aspects of consumer behaviour will be left unchanged over the long term. Understanding and preparing for these changes will be critical for a retail industry that was already well attuned to rapid and evolving transformation. Here are four shifts that we can expect to see.

1. Changed consumer spending allocation

The retail sector is witnessing a drastic shift in spending allocation as the pandemic unfolds. Driven primarily by rising unemployment and the slashing of work hours, consumers are decreasing their discretionary spending and are, instead, allocating more income to necessities.

In Canada, nearly 2 million jobs were lost over March and April 2020, which far exceeds the last one-month unemployment surge of 125,000 job losses in January 2009. Moreover, of those who were still employed during the week of March 16, 2.1 million worked less than half of their normal hours. The U.S. shows a similar dramatic rise in unemployment with 20.5 million jobs lost in April 2020.

Given the widespread reduction in income levels and stay-at-home restrictions, many consumers have elected to decrease their discretionary spending and allocate more money to staple products, such as household necessities and groceries. For instance, Accenture’s COVID-19 Consumer Pulse survey found that 34% of consumers are purchasing more personal hygiene items, 21% are buying more canned food, and 17% are purchasing more fresh food. On the other hand, 13-29% of consumers have reduced spending across multiple discretionary categories, including fashion, beauty, and consumer electronics. Similarly, McKinsey reported that the sectors showing the sharpest expected spending declines were restaurants, apparel, footwear, jewellery, and travel.

COVID-19 outbreaks around the world have also induced a wave of “panic buying” in supermarkets as consumers prepare for prolonged quarantine periods, prompting many to stockpile household necessities and non-perishable food. This trend may yield lasting impacts, whereby shoppers opt to make less frequent visits to the supermarket and purchase larger quantities in each trip, thus permanently lowering foot traffic and raising purchase volume per customer.

2. Increased popularity of local initiatives

The COVID-19 pandemic has prompted consumers to be more conscious about buying locally sourced products, while also favouring local and national brands. This shift, which may endure well beyond the pandemic, is driven by the desire to provide a fillip to the local economy and to reduce the risk associated with long supply chains. Accenture’s report found that 51% of consumers are buying more locally sourced products, and 85% of these customers are likely to continue their support-local purchasing habits post-pandemic.

In Quebec, Le Panier Bleu, a “support local” initiative in collaboration with the provincial government, aims to foster locally sourced products. Similarly, in the U.S., the Support Local platform allows users to search for local retailers and purchase gift cards from their favourite businesses.

Perhaps most noteworthy, large corporations have already leveraged this movement by offering “support local” features on their platforms. For instance, Shopify recently launched its new consumer app, Shop, which contains a sorting feature that allows consumers to browse businesses through location filters.

3. Increase in digital adoption and the rise of e-commerce

The acceleration of digital adoption is perhaps the most consequential consumer behaviour shift resulting from the pandemic. Fuelled by fears of contracting the virus through in-person interactions, people around the world are opting for retail formats that bypass in-person contact. Accordingly, e-commerce channels, such as online shopping and delivery services, have experienced an unprecedented surge in demand in recent months.

Accenture’s report, which was conducted across 15 countries, found that 1 in 5 shoppers who placed their grocery order online did so for the first time. The online grocery delivery service Instacart reported a tenfold growth in its subscribers, while Alibaba’s Hema reported a 220% increase in online orders during the Chinese New Year.

In predicting the stickiness of the pandemic-driven shift to online retail, two outcomes are plausible: either consumers will grow dissatisfied with e-commerce retail, resulting in reduced demand for online purchases post-pandemic, or they will become increasingly satisfied with e-commerce shopping, leading to a permanent shift to online retail.

For those who are new to online shopping and delivery services, these platforms may seem dubious and difficult to navigate, especially for the less tech-savvy. The widespread out-of-stock levels online and the limited delivery time slots have also left some disgruntled. For instance, struggling to meet the increase in demand, Ocado, a British online supermarket, could serve only 250,000 of its 800,000 customers, thus alienating 550,000 shoppers.

Such frustrations with online shopping, combined with the prolonged absence of much-needed social interactions, may push consumers away from online retail once lockdowns are lifted.

On the other hand, online shopping and delivery services bring unparalleled convenience and flexibility, which enables consumers to purchase and receive items from the comfort of their homes. Shoppers may thus be more likely to stick to e-commerce retail formats post-pandemic.

McKinsey surveyed retailers in several sectors—apparel, department stores, beauty, and specialty— and found that many expect their e-commerce traffic to remain strong post-pandemic. Retailers anticipate a 6-13% increase in e-commerce penetration compared to pre-COVID-19 levels. Accenture predicts the proportion of online groceries to increase from 32% to 37%.

Only time will tell which of the two possibilities will prevail in the long-term retail landscape.

4. Potential deceleration of the sharing economy

Another consequence of the pandemic is a possible slowing of the sharing economy. For example, Airbnb had to pay $250 million to landlords for canceled reservations due to the pandemic and is forecasting 2020 revenue to be less than half of that earned in 2019.

We expect a similar adverse impact on other types of sharing services as customers become more wary of sharing spaces and products with strangers. So, while UberEats might still be successful as a delivery service, the future of Uber is more uncertain. The ride-hailing company is already eliminating 14% of its workforce and anticipates more cuts in the future.

Other shared services like rental fashion (e.g. Rent the Runway) may also face severe losses in demand, at least in the short term.

The ripple effect of COVID-19 is affecting several sectors, including retail. As countries adopt new mindsets, policies, and programs to manage the impact of the virus, consumers are changing the way they shop accordingly. It remains to be seen whether these changes will crystallize once the dust settles, only time will tell.


Maxime CohenMaxime Cohen

Associate Professor of Retail Management and Operations Management; Co-Director, McGill Retail Innovation Lab

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Saibal RaySaibal Ray

James McGill Professor, Operations Management; Academic Director, Bensadoun School of Retail Management

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Selena Zhu Selena Zhu

Research Fellow, Operational Strategy, McGill Retail Innovation Lab; Desautels IM Fellow

 


Article written by: Selena Zhu, Maxime C. Cohen, Saibal Ray
Illustration by: Roberto Cigna

 

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