Covid-19 and Retail Survival: The Online-Offline Imperative
Covid-19 has upended the way consumers buy products. But the pandemic is hardly the only factor accelerating the shift from in-person to online purchasing. This trend has, in fact, intensified over the last decade. With more than 9,000 store closures last year in a strong economy, physical retailers for some time have been trying to figure out how they can thrive (and in some cases survive) in an increasingly digital marketplace.
It’s therefore imperative that retailers (of all sizes) embrace a hybrid business model, where online and offline assets are more integrated. Covid-19 has only made this more apparent.
Covid-19 consumer behavior
Although there’s clear Covid-19 fatigue and a desire to “return to normal,” which is partially why the virus is still raging, consumer habits clearly shifted during the lockdown period. The store used to be the primary focus of shopping; now, the primary focus is the internet. The physical store experience — at least for the foreseeable future — has become secondary. The majority of consumers still won’t go into most physical businesses other than grocery stores.
In this environment, the role of the store shifts to a fulfillment or pickup center for online orders (BOPIS, curbside). What’s more, most consumers are interested in efficiency: they are trying to get the product and get out, as opposed to shopping for entertainment. Stores are also a faster way to get products compared to e-commerce. Consumers increasingly want to see real-time inventory information, rather than calling multiple businesses or taking speculative trips to different stores to find items on their list.
To find store hours and product information, consumers are relying heavily on search (read: Google). But most searches are product-based and not branded retailer queries. This is another reason that real-time inventory is important: for ranking and visibility.
Long-term structural changes
Consumers are now much more agnostic about whether they get products online or off, with some caveats. Believe it or not, the pandemic created millions of new online buyers, but many of those buyers shop at the online destinations of familiar retailers. A significant percentage of those people choose to buy online but pick up in store. Amazon remains the dominant digital retailer, but its share of online purchases has fallen as Target, Walmart, and others have stepped up e-commerce and leveraged their offline stores for faster product “delivery.”
Driven by these accelerating trends, retail as an industry is changing forever. High-profile retail bankruptcies will be compounded by the closure of many US shopping malls. Surviving retailers will be compelled to reduce their physical store footprints and focus more on e-commerce, though stores remain a key asset. And because of the financial instability of many retailers, brands sold primarily through stores will need to develop a DTC business — in fact, every brand must become a DTC brand.
E-commerce as a percentage of total US retail revenue will grow to 15% or more this year and to 20% or more by the 2021 holidays. That said, retailers with stores will still have an advantage over pure-play e-commerce sellers, provided they can better integrate their online and offline operations.
Digital is the brand
Consumers like stores as a general matter, and stores are a faster way to get products in most cases. It’s also much less painful to return products to a store. Indeed, stores give consumers confidence to buy online (“I can always take it back”).
The BOPIS model, which is neither pure e-commerce nor traditional in-store shopping, will become increasingly common. When the pandemic finally ends, people will return to in-store shopping. But those shoppers will look for convenience and the ability to “toggle” between digital and physical stores. Convenience and a generally consistent customer experience online and off will be key to success. For example, retailers that tell customers they can’t return an online purchase to a store will lose. (Loyalty programs have a critical role to play as well.)
Those retailers that can accomplish all this — execution is very challenging, especially for many small retailers — will survive and make it to the other side. But succeeding in a post-Covid world starts with an online presence and the digital customer experience. No longer is online simply an extension of a retailer’s physical offerings. Digital has become the primary consumer touchpoint. In many ways, now, it is the brand.
Greg Sterling is VP of market insights at Uberall.
