Retailers operating in a new reality


May 26, 2020 | By RetailME Bureau

Retailers, world-over, are operating in a new reality, states research firm Euromonitor International (EMI).

Unlike many industries where the shock might be felt universally, some retailers are seeing unprecedented demand, while others are looking for lifelines.

Grocery retailers were thrust into overdrive as they supply food. Online grocery retailers saw their systems buckle as consumers stocked up on food, tissue and hygiene and cleaning supplies. Third-party online delivery services became essential services overnight, putting the labour practices of the gig economy in the spotlight.

However, for the non-essential businesses, it is quite another story. Apparel and footwear specialist retailers are among the hardest hit. In the US, there was a 50% year-over-year drop in sales in March, according to the Commerce Department. Furniture, electronics and sporting goods all fell by double digits. In fact, the US posted its biggest month-on-month decline since records began in 1992.

Based on trends observed in China, retailers operating in countries impacted by COVID-19 are likely to see a major drop in consumer demand, driven in large part by the near erosion of discretionary spending. Retailers supporting categories such as packaged food, home care and hygiene will see demand soar. In addition, given the heavy shift to e-commerce during the height of the outbreak, retailers with a stronger digital presence prior to the outbreak are likely to fare better as consumers shift online.

Both essential and non-essential retailers are grappling with a new normal, forcing them to rethink their operations. The uncertainty of COVID-19’s impact on the economy a month or even a year from now has prompted retailers to withdraw their earnings outlooks for the quarter or entire year. Retailers like Nordstrom, Ulta, Best Buy, lululemon, Nike and Target have made such announcements.

On the other hand, essential businesses – including grocery retailers, warehouse clubs and discounters – are experiencing an unprecedented surge. US discounter Dollar Tree reported a noticeable pick up in store traffic and sales of essential products. Costco saw a noticeable uptick in traffic at the end of February. Walmart recorded a 74% rise in its online sales in the US, while overall Q1 comp sales grew 10%. Target reported that sales from stores and digital channels were up more than 20% in March compared with the same period a year earlier. Panic buying also led to a 30% boost in sales for UK supermarket Tesco. JD.com saw online grocery sales more than triple year-on-year during a 10-day period between late January and early February.

There are big unknowns with regard to how long the outbreaks may last and the potential pace of recovery. This will also differ by market, based on the severity of the outbreak and government response. What is apparent is big consumer shifts are already under way. Even as economies open up, social distancing may become a way of life until there is a vaccine for COVID-19.

As uncertainties remain, EMI believes that the “strong will get stronger” and shares some observations towards initial changes in the way retail will operate – including diversification of supply chain, acceleration of e-commerce, reimagined store pick-up, boost of contactless payments, increased interest in robotics and on-demand worker benefits.

 

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