Is retail begining to recover from the pandemic? How has the industry shifted? What can brands do to prepare for the beginning of retail’s recovery?

Are We Seeing the First Signs of Retail’s Recovery?

We are a year on from the start of the global Coronavirus (COVID-19) pandemic, and the world is still firmly in the grips of the crisis. But with vaccinations being rolled out globally things are certainly improving, and the end may well be in sight.

For retail, the outlook is similar. While more than 30 major retailers filed for bankruptcy last year (almost double that of 2019), the first green shoots are starting to appear. Most major brands have successfully pivoted to stay afloat during the crisis, and across both the US and Europe the rebound of the brick-and-mortar store seems imminent.

But what will post-pandemic retailing look like? How has the industry shifted in both the long and short term, and what can brands do to prepare for and capitalise on the beginning of retail’s recovery?

Early Signs of Retail’s Recovery from the USA and Europe

While nothing is for certain, most signs point towards this current period being the latter/final stage of the pandemic, particularly for Europe and the USA. With vaccinations beginning to roll-out at scale and many European countries beginning to ease restrictions and lockdowns, many experts are hopeful regarding the outlook for retail over the next few months.

Europe’s recovery: a mixed bag

Across Europe, the outlook is mixed. According to analysis from Business of Fashion and McKinsey & Co, whilst demand for struggling categories like fashion is predicted to increase, the ongoing effect of lockdowns is cause for concern. So, whilst recovery is expected, it will likely be to a lesser extent than other markets.

However, we have seen some encouraging signs despite lockdowns, as the BRC-KPMG retail sales monitor found that in February UK sales increased by 1% year-on-year. As stores are allowed to open back up the numbers will continue to improve, H&M said sales in the March 1st to March 13th period were up 10 per cent in local currencies as many countries, including single-biggest market Germany, began allowing some stores to reopen.

US recovery: encouraging signs for fashion and brick-and-mortar stores

For the United States, the signs are fairly positive, with retail sales in 2021 expected to perform significantly better than in 2020, according to McKinsey and BoF. Additionally, recent findings from Coresight Research’s US Consumer Tracker found that, for fashion retail, the proportion of consumers that are purchasing clothing and footwear in-store was higher than those buying online for the first time since the pandemic – a major milestone for the sector’s recovery.

The report found several reasons for the US apparel industry to be optimistic, as 13% of respondents reported buying more clothing and footwear than pre-crisis, the highest level surveyed so far this year. Meanwhile, the apparel category witnessed the largest decline, of almost 6%, in consumers that are buying less than pre-crisis. Sales in apparel and other ‘discretionary’ categories were the worst affected by the pandemic, so these early signs of recovery are encouraging.

Graph depicting US in-store purchases v online sales

How have brands have shifted in the last year?

It’s been well reported how the global pandemic has affected shopping habits and caused a major increase in eCommerce penetration. According to data from IBM’s U.S. Retail Index (2020), the pandemic accelerated the growth of digital shopping by roughly five years.

This paradigm shift is reflected in the strategies of major retailers since the pandemic. With online becoming, at least temporarily, the primary shopping channel many retailers leant into and reinforced their eCommerce operations. But for the majority of retailers with significant physical store footprints, this was not enough, and the most successful brands developed their omnichannel offerings to better leverage their stores in the new digital-first world:

 

Buy Online, Pick Up in Store (BOPIS) is here to stay

Many retailers were investing in omnichannel services like BOPIS/Click and Collect well before the pandemic, but since then it has become something of a must-have and may remain so well beyond the pandemic. Retailers that had invested in Omnichannel before last year have reaped the benefits, as BOPIS saw YoY growth of 130% in June 2020. These retailers include US powerhouse Target who saw their curbside delivery service grow 500% year-on-year.

 

Stores as fulfilment centres

Similarly, brands with the infrastructure and agility to do so have been investing and leaning into in-store fulfilment throughout the pandemic. The advantages of this are considerable as it allows retailers to leverage their stores to service online customers. Target again made massive gains from this last year, reporting fulfilling 90% of their online orders directly from their stores, cutting fulfilment costs by 90% and contributing to a 100% increase in online sales compared to 2019.

 

Major fashion retailers are betting on Direct to Consumer (DTC)

Another major strategic shift that we have seen accelerated by the pandemic is the direct-to-consumer model. Although this model is nothing new, the fact that major global fashion retailers like Nike, adidas and Levi’s are evolving their strategy to become DTC-first is hugely significant. At the height of the pandemic, adidas saw their eCommerce sales increase by 93% but don’t think of this as a temporary shift – adidas recently announced that they’re aiming for DTC to account for 50% of their sales by 2025.

Long-term strategies taking shape?

So, what can we learn from these changes? Are these simply temporary shifts to navigate unprecedented times, or are they indicative of long-term industry change? The answer seems somewhere in the middle. Although the huge increase in digital sales that were seen at the height of the pandemic is already starting to fall away, the consensus is that a proportion of this change will be ‘sticky’ and digital sales will permanently remain higher than pre-pandemic levels.

As for brands exploring new models like DTC and Omnichannel, there is no doubt that these strategies will continue and remain relevant well beyond the pandemic. The demand and benefits of such models were there pre-COVID, and these changes have simply been accelerated.

The fact that many of these examples of omnichannel success come from the US is no accident. With the states having had fewer full lockdowns than their European counterparts, the success of these strategies could make a valuable lesson for European retailers looking to navigate the coming year – as consumer sentiment remains unstable and may well be signs of a more long-term shift in retail globally.

Preparing for Retail’s recovery: Short-term priorities

Taking Stock: Inventory Control will be Vital for Reopening Stores

As stores come out of lockdown across Europe, taking control of inventory will be a top priority. The first step will be taking stock and ensuring brands know exactly what they have in their inventories. For some stores, inventory management may have broken down due to lockdowns, particularly if stores have been used to fulfil online orders but do not have the IT infrastructure to keep effectively manage this.

Beyond this, the question of older or out-of-season products will present a challenge. Stores will already be dealing with bloated inventories due to lower sales and shutdowns, so maintaining optimal inventory levels and potentially selling marked-down products to make room for new stock will be a priority.

 

Continue to leverage online

Retailers should have invested in their digital channels at the start of the pandemic (and ideally before this). Even with stores opening back up, the increase in digital sales will remain high initially, and some will be sticky post-pandemic – just how much remains to be seen.

Retailers who continue to invest and develop in their digital and omnichannel offerings will profit post-pandemic. We have seen plenty of evidence supporting this from both the US and Chinese markets, so European retailers should follow suit and continue to offer flexible options to customers, many of whom may remain sceptical about returning to stores for some months to come.

 

Mastering fulfilment

With this consumer uncertainty and ongoing eCommerce penetration – making sure retailers deliver on fulfilment remains a priority. We can again look to target as an example, their same-day delivery sales went up 218% this quarter, showing the opportunity is there for retailers who can go the extra mile with their fulfilment, and even dare to compete with the eCommerce powerhouse of Amazon.

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