The Retailer’s Post-Pandemic Playbook

What strategies can retailers adopt to navigate the post-pandemic landscape?

Even if the spread of COVID-19 shows signs of slowing down and retail stores begin to reopen, the economic recovery from the shutdown will be long and convincing people to visit brick-and-mortar stores will be a challenge.

A recent McKinsey webinar forecasts that U.S. retail revenues for 2020 will be down between 30% and 50% year-over-year relative to 2019. Given the far-reaching effects of COVID-19, it is essential for retailers to revamp their practices to successfully navigate the post-pandemic era. Here are two retail strategies that will be useful moving forward.

Short-term precautionary measures and store network plans

As brick-and-mortar stores start reopening around the world, retailers must enforce short-term precautionary measures to ensure consumer and employee safety. McKinsey surveyed retailers in several sectors—apparel, department stores, beauty, and specialty—and found that they intend to adopt a range of protective measures.

Among the respondents, 90% will increase store cleanings; 54% will impose safe distancing between customers; 49% will limit the number of customers in-store; 34% will require employees to wear protective gear such as gloves and masks; and 24% will enforce temperature checks for employees. Additional measures that retailers may implement include one-way traffic aisles in supermarkets, a minimum distance requirement between customers in checkout lanes, mandatory hand sanitizer and masks dispatched at the store entrance, and thorough cleaning of shopping carts after each use.

Specific to the apparel and beauty sectors, fitting room capacity and availability of makeup tester products are expected to be limited. For instance, Macy’s will prohibit customers from touching beauty testers, such as mascara and lipstick, and instead will require its employees to test makeup on “face charts” using disposable applicators.

In addition to devising and implementing virus prevention measures, retailers may also execute short-term store operating-model changes. Such operational changes primarily entail a temporary reduction in both store hours and the number of employees per shift.

McKinsey-surveyed retailers that plan on lowering staffing levels expect to reopen stores with 22% fewer associates on average and to retrain employees for an average of eight hours per employee. Many retailers will also need to reassess and modify their long-term store network plans. For instance, 32% of McKinsey-surveyed retailers are contemplating closing underperforming stores permanently, while 34% are considering pausing new store openings. Such decisions need to be done strategically while considering demand and supply.

Revamped retail formats: omnichannel retail

If consumers remain hesitant about shopping at brick-and-mortar stores in the foreseeable future, they may further opt for digital retail formats that bypass in-person contact. Brands must increasingly incorporate e-commerce channels into their broader strategy, thereby strengthening their omnichannel retail approach. The predominant objective of retailers in tackling the post-pandemic landscape should revolve around the integration of online and offline channels, thus blurring the divide between digital and physical retail.

Three promising omnichannel strategies that have gained prominence during the pandemic include: buy online, pick up in-store; permanent dark stores; and touchless retail.

Buy online, pick up in-store

The COVID-19 pandemic will yield long-lasting, permanent impacts on consumer behaviour, driven by fears of further outbreaks. As consumers continue to opt for digital retail formats, brands must adapt to this new reality by improving the integration of online and offline channels. During the pandemic, buy online pick up in-store (BOPIS) and even curbside BOPIS—in which store associates bring customers’ orders to their car trunk—emerged as a successful retail format that enabled consumers to purchase their desired products without spending time in stores.

According to Rakuten Intelligence, from March 12 to March 15, the number of BOPIS orders increased by 82.8% compared to the same period last year. In designing a successful BOPIS format, Salesforce recommends the following: disclose inventory availability on the website, staff employees adequately on pick-and-pack tasks, provide several pickup options at online checkout, and use apps and geofencing to coordinate efficient pickups.

Permanent dark stores

Some retail locations that were revamped to fulfill BOPIS and delivery orders during the pandemic may never reopen as brick-and-mortar stores. These stores may instead be converted to permanent dark stores—closed to foot traffic and repurposed to fulfill pickup and delivery orders. As consumers and retailers alike are faced with a new “normal,” one characterized by continual physical-distancing protocols, these permanent dark stores will allow brick-and-mortar retailers to reconfigure the function of their physical storefronts to shorten delivery times while increasing customer convenience and safety.

During the pandemic, several retailers—primarily grocery, clothing, and home goods brands—converted some of their physical locations into temporary dark stores including Whole Foods, Kroger, and Bed Bath & Beyond.

The restaurant industry, in particular, has embraced the concept of dark kitchens (or ghost kitchens) that accept only delivery and takeout orders in response to the government shutdown of dine-in areas to prevent the spread of the virus.

While the future of the traditional sit-down restaurant industry remains uncertain, CloudKitchens, a startup founded by Travis Kalanick, offers a promising and sustainable business model in the post-pandemic world. CloudKitchens rents commercial space and repurposes it for use by shared kitchens for delivery-only restaurants.

Overall, temporary stores that have been converted into fulfillment centres may become a permanent post-pandemic strategy, especially if soaring e-commerce growth and heightened consumer expectations continue to strain retailers’ fulfillment networks.

Touchless retail

Consumers are becoming more mindful of the surfaces they touch in public spaces and are more likely to opt for contactless payment solutions instead of using cash or credit cards. Mobile wallets such as Google Pay and Apple Pay, “tap-and-go” credit cards, payment-enabled mobile apps offered by companies like Starbucks and Walmart, and even facial recognition payment systems currently being developed by companies such as Alibaba and SnapPay will be crucial in facilitating contactless payment transactions. In fact, according to an American Express survey, 58% of consumers who have previously used touchless payment are more likely to use it now than ever before. Retailers must, therefore, reconfigure their POS systems to offer contactless payment options once stores reopen.

Another interesting touchless retail element that brands should consider incorporating into their post-pandemic strategy is contactless returns. Nordstrom, for instance, installed contactless return kiosks in its new NYC flagship store, even before the COVID-19 pandemic hit. These kiosks allow customers to simply scan the product QR code before placing the item in the return bin, all without interacting with store associates.

Technological advancements and artificial intelligence (AI) can configure new retail formats and elevate shopping experiences. Within the current industry landscape, frictionless retail represents the first generation of AI-enabled shopping formats. Frictionless retail—a concept best exemplified by the Amazon Go store, which operates under a cashier-less grab-and-go format and thereby eliminates checkout lines, aims to create seamless shopping experiences.

The next generation of AI-enabled retail, which has not been fully rolled-out, is based on the concept of touchless shopping: Customers are able to complete their purchasing journeys without touching a single object in-store through the use of autonomous shopping carts, robots, and the like.

As new technologies become increasingly pervasive in the retail industry, we await welcoming the next AI-enabled touchless shopping experience, which is bound to disrupt the post-pandemic retail world anew.


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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