Three ways in which retailers can prepare for the road ahead

‘People used to go to the mall for fun? That’s weird.’

This was from my daughter, one night while we watched Stranger Things together. Season 3 is set in the 1980s, the age of consumerism and big hair. Back then, my friends would beg to go to the mall because that’s where everyone was – drinking Orange Julius smoothies, trying on clothes and giggling about boys. I don’t know what was weirder for her, the idea that people liked to go shopping or the Mind Flayer chasing kids through racks of sweatshirts in Gap.

We all know that the way consumers shop has changed radically over the past few decades. Malls are empty, and old-guard flagships such as Toys R Us and Boston Store closed their doors during the ‘retail apocalypse’ of 2018. In fact, it turns out that America built too many malls. Between 1970 and 2015, the number of malls grew twice as fast as the population, according to Cowen and Company research. Malls operate on the strength of their anchor stores, such as Macy’s or Bloomingdales. So when these anchors fail, fewer shoppers visit the smaller shops. On top of that, many shops have a ‘co-tenancy’ clause that gives them the right to break the lease if the anchor leaves. So the collapse of the anchor brand can close down an entire mall in short order.

Retail has long been trying to settle into a new normal – with a broad range of direct-to-consumer, subscription service, digital and reseller marketplaces, as well as bricks-and-mortar shops – but the industry as a whole has been in decline since 2017. And now the unexpected has occurred: the COVID-19 outbreak has shops shutting across the country, temporarily and all at once.

Retail has long been trying to settle into a new normal – but the industry as a whole has been in decline since 2017.

In January, retailers flocked to the Jacob K. Javits Center in New York for the National Retail Federation’s Big Show, looking ahead to trends for 2020. By late March, the Javits Center had been transformed into a makeshift hospital. Retailers found their operations similarly transformed. Almost overnight, Gap went from making sweatshirts to manufacturing desperately needed personal protective equipment for healthcare workers. Nike, Eddie Bauer and Zara announced similar initiatives in March. Even high-end designers, including Gucci, Yves Saint Laurent, Prada and Balenciaga, are exchanging runway couture for medical garments. This is something we’ve never seen before.

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An uncertain time for retail

The road ahead is going to be tough for many retailers. Some will flourish, but this pandemic will prove devastating to others.

‘Many retailers are struggling in this challenging market. So the outbreak is adding fuel to the fire – retailer closures are on track to be double what they were last year, which was a record year,’ Deborah Weinswig, CEO and founder of Coresight Research told CNBC in 2020.

I spoke to Sucharita Kodali, VP and Principal Analyst at Forrester Research, who said, ‘Most retailers will suffer –the weak ones won’t survive this. I think that this is the worst thing they have ever experienced in history. It’s unprecedented.’

When businesses are shut down indefinitely and demand dries up, it’s catastrophic for retailers. But she offers this as hope: ‘The good news is that the problems are entirely self-inflicted at the moment. There is pent-up demand that will hopefully be unleashed when all the restrictions are lifted.’

People will always want and need to shop, but the way in which we’re shopping is changing. Especially right now, as many states order non-essential businesses to close for social-distancing reasons. Here Kodali weighed in on how retailers can adapt to this strange new world.

‘Most retailers will suffer – the weak ones won’t survive this. I think that this is the worst thing they have ever experienced in history. It’s unprecedented.’ – Sucharita Kodali

1. Start preparing for the ‘new normal’

With the response to COVID-19 changing almost by the minute, retailers need to be flexible. We may be looking at months of shop closures because of the pandemic, with a breather in between another round of nationwide lockdown. Retailers need to be able to reach and serve customers across a wide variety of channels, as well as employ a strategy that doesn’t rely entirely on physical shops. The supply chain must also flex to meet new demands.

Once lockdown is lifted, people will want to shop again. ‘That’s essentially what we are seeing in China,’ says Kodali. She sees the bigger challenge as intermittent social distancing. ‘We may have to live perpetually in a state of being in irregular lockdown.’ Retailers will need to adjust when this happens. ‘Brands are still operating as if it were 1990 – they need to wake up and act as if it were 2020.’

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2. Increase focus on selling directly to the consumer

As consumer expectations continue to climb, retailers have to rethink how they build brand loyalty. An increasing number of legacy brands, including Nike, Disney and Apple, are combining traditional sales with their own direct-to-consumer channels. This strategy gives them better control over their supply chain and inventory. It also lets them expand their brand message via social media, self-branded shops and e-commerce websites.

Kodali says brands need to learn that selling directly to consumers is key to their ability to survive, along with the ability to flex their supply chains when required. ‘I don’t know why so many brands have been so resistant to it for so long,’ says Kodali. ‘We’ve been way too dependent on China for too long. If there’s one good thing that has come out of the last four years, it is this realisation.’

Kodali says brands need to learn that selling directly to consumers is key to their ability to survive, along with the ability to flex their supply chains when needed.

3. Be nimble and don’t give up on bricks and mortar

As competition heats up and uncertainty remains an ever-present wildcard, one thing’s certain: customer loyalty is a revenue driver. According to the Zendesk customer experience trends report 2020, 74% of customers report feeling loyal to a particular brand, and 52% say that they go out of their way to buy from their favourite brands. When customers are loyal, they tell their friends and family (and sometimes their whole social network) about your products and services. But loyalty is a fickle thing – trust can be broken in an instant, and once it’s gone, it’s very difficult to rebuild. Broken trust also gives your competitors an opening to snatch your customers.

A company’s brand is more than advertising or colour swatches – it’s what they do, not just what they say they do. People are paying attention to how retailers treat employees during times of crisis. Patagonia, an outdoor clothing and gear maker, has closed all their shops, warehouse and web operations to help stop the spread of COVID-19. And all employees will receive their usual pay during the closures. Levi Strauss paid its employees until the end of March despite shutting down its shops. Amazon is hiring for more than 100,000 new roles, increasing wages and has established a relief fund for employees suffering financial hardship. All of this goodwill goes a long way towards building loyalty and making shoppers feel good about spending their money with a brand. So if there was ever a time to live your brand values, it’s now.

So if there was ever a time to live your brand values, it’s now.

Even with our new digital native generation, there will always be a place for physical retail shops. It’s often assumed that customers only want to engage with brands online, but that’s not the case, says Kodali. Gen Z does a lot of shopping for the sake of experiences, like taking yoga classes at Lululemon or going for a bike ride at REI. ‘Gen Z is less online than you would think,’ says Kodali. ‘They are definitely more likely to purchase online, but they’re also enthusiastic about shopping in the high street.’ Younger shoppers are also eager to try new things when it comes to retail, such as visiting pop-up shops or browsing shop-in-shops.

Bricks-and-mortar shops will never go away – people love to shop, and they like to touch and feel the things that they’re buying. But as the world changes, brands need to set themselves up to be nimble and change with the world to stay alive.