You don’t have to look far to see the fundamental shifts taking place within the retail industry, or indeed across consumer facing industries more broadly. The deluge of business casualties, the swathe of players undergoing restructuring, the continued volatility of retails sales, the mounting job losses and the accompanying ‘doom and gloom’ news headlines all point to one thing: fundamental change. Business survival continues to pivot around the ability to adapt to the new climate successfully – a task that is undoubtedly much easier said than done.
Change itself is nothing new to retailers of course, but COVID-19 has certainly acted as an accelerant. For decades, shifts in consumer behaviour have placed pressure on business and operational models, technological advancements have led to innovation, and all the while new disruptive entrants have arrived, while legacy players – especially those unwilling to change – have been lost. But what is different about the current situation, and wherein lies the path to recovery?
The COVID-19 pandemic has super-charged the pace of change we’ve witnessed for several years now. After all, the mere thought of a nationwide lockdown for all non-essential retailers would have been unthinkable at the start of this year – and yet we find ourselves emerging from exactly that. The fallout has been beyond severe, with several months of hibernation for some businesses, but that pain hasn’t necessarily been felt equally.
Essential retailers, as well as those with a strong online offering or those with products and services aimed at enhancing our more ‘restrictive’ day-to-day lives, have managed to keep their heads above water. Meanwhile, non-essential retailers like those specialising in fashion – and especially those operating only from stores – have continued to suffer. But beyond looking at what has sold and what hasn’t, we must recognise that the consumer emerging from lockdown is a far cry from the one that went into it.
KPMG’s recent consumer research stressed just how crucial agility and reinvention has been, and will continue to be, in the coming months. Consumers have been forced to become more digitally savvy in a world with little physical or analogue offering. They’re feeling more financially constrained with job security a key concern for many. And greater emphasis continues to be placed on a consumer’s trust in a brand, with little time nor money for any misjudgement where purchases are concerned.
All the while, retailers have had to flex their muscles, roll up their sleeves and keep up with the pace of change. No longer is it enough for them to simply buy and sell products. The pandemic has placed a spotlight on areas such as online fulfilment, home delivery, data and analytics, machine learning and process automation, to name just a few. These aspects have gone from being ‘nice to have’ to being instrumental if trading is to continue. So what exactly does that mean for the future?
Looking ahead there are likely to be seven types of businesses that will succeed in this ‘new reality’, and before delving into these, we have questioned if the definition of ‘retail’ will remain. We need to instead start thinking of ‘consumer commerce businesses’ – a broader set of organisations than just historical retailers, like technology and logistics companies that are selling products and services to the consumer.
The future of ‘consumer commerce’ businesses will be dominated by: international platform ecosystems; multinational retailers evolving into platform businesses themselves; domestic heroes (large scale domestic retailers that will seek buying alliances or partnership to succeed); value-based retailers; brands that focus on a direct-to-consumer model; and category specialists (those that have the clout to stand and trade alone). Finally there will also be space for independents to regain some traction, especially if they know how to differentiate themselves from their mainstream competitors. For those that don’t or can’t fit into these classifications, the future will be tough to say the least.
When it comes to logistics, the pandemic has clearly shown that opportunity is plentiful – provided supply can meet growing demand. Since the pandemic, even more consumers are comfortable logging-on to shop, and I’d even go as far as to say that half of all purchases (variations across categories aside) will likely be made online by 2025. While naturally redefining how we use our high streets – a longstanding debate – that holds great promise for those specialising in logistics, warehousing and fulfilment. And as we start to see the business and operational models shift to those just outlined, opportunity is likely to increase even further.
The fallout of this pandemic has been a shock for every consumer, retailer and country – and it’s clear we’re far from out the woods. Having said that – and putting the tragedy of this health crisis aside – we must recognise that COVID-19 may have acted as a much-needed catalyst, helping get the UK’s consumer industries back into a more robust position. Just like any crisis, there is opportunity for those that can turn the problem into a solution.