Many parts of the retail sector have been and will continue to be hit hard by government measures implemented as a direct result of the Coronavirus pandemic. These include closure of high street stores and shopping centres, restrictions placed on movement of people and workers, and the associated decline in consumer spending and confidence.
It was estimated in April by the Centre for Retail Research that it will take 6 months or more before retailers reach previous levels of sales, but all predictions at this time are subject to change and no one knows precisely what the future holds.
Some predict that smaller shops won’t reopen (the British Independent Retailers Association has estimated that this figure will reach one fifth of smaller retailers) while even the country’s supermarkets, who have benefitted from higher grocery sales, expect losses – Tesco has estimated losses between £650m and £925m due to other cost rises including in payroll, distribution and store expenses.
Those who do survive will be forced to tackle increased taxes, possible stock shortages due to pressures on international supply chains, as well as costs around re-locating manufacturing stations (Primark, 45% of whose stock is made in China, is considering relocating these to south-east Asia, or European countries such as Turkey.).
But all hope is not lost. Retail can not only survive the impact of Covid-19, it can thrive on habitual changes set in motion by the disease. It’s not that people aren’t making purchases; they’re just making them in different ways.
It’s true that economic uncertainty, coupled with increased redundancy and unemployment rates will most likely lead to reduced disposable income and less spent in shops. An Ipsos Mori survey released in May found that post lockdown, 43% of Britons would feel uncomfortable shopping anywhere but the supermarkets. In a survey by Retail Economics asking whether the crisis would permanently change the way they shopped, over a quarter said it would.
But at the same time, online retailers are seeing an upturn. Sainsbury’s reported higher sales from Argos through digital channels during lockdown than in the last quarter of 2019. Electricals retailer Dixons Carphone revealed that online sales had recouped almost two-thirds of the sales lost from its UK stores.
Elsewhere, retailers with delivery only and mixed store and delivery models are having marked success, for example CardFactory’s online sales have grown by 267.5% since the beginning of the UK lockdown on March 23rd. And Reuters reported that Naked Wines has forecast a £200m revenue rise in 2020, while Lloyds Pharmacy is hiring an additional 1,500 staff so that it can continue delivering prescriptions and provide healthcare services.
It’s about adopting a flexible approach, and planning for a future that, while different, is one of exciting innovation.
Covid-19 has in many cases been a catalyst for change in segments of the retail sector. In some cases, innovation has reflected channel and format changes that were evident pre-Covid-19, although some are new.
For example, there are numerous examples of companies who weren’t already benefiting from online or delivery services, now optimising to make sure they do. Morrisons and Fast Food chain Leon are working with Deliveroo to maximise delivery services, while Leon has also converted some of its outlets into mini supermarkets.
John Lewis has launched a website hub dedicated to a variety of ‘virtual services’, with the aim of transferring in-store expertise online, and there is speculation that the closure of its stores due to corona virus has simply fast-tracked the company’s plan to make a shift to services which had been in the pipeline anyway.
For smaller businesses, it’s about getting online fast. The FT reported that since February, eBay UK has signed up double the number of small businesses it would expect, with more than 50,000 additions.
For others, it is about collaboration. Strategic partnerships to maximise business potential are happening across the sector – to enable new services, access technology, or re-purpose existing inventory or capacity. Supermarket chain Morrisons increased is home delivering with Deliveroo, while Costcutter has collaborated with the catering firm Compass to open in hospitals, as well as rapidly creating community pop-up stores.
There will be opportunities for clothes retailers to collaborate too. In the economic downturn, second hand, vintage, or rental retail could rise in popularity. The ability of retailers to incorporate these into their offering could mark their ability to potentially withstand losses elsewhere in the business.
Flexibility is key. The retail groups who are able to re-think where the need is most high in conjunction with sensible and sustainable strategic moves that will serve them over the medium to long-term are the ones who will prosper.
For some this will be online, for others there will be expansion of service offerings, for example, Industrie Clothing, an Australian retailer with online sites in the UK, has created ‘comfort packs’ where shoppers can get a discount when buying bundles; DSW is offering a free two-month subscription to fitness app Aaptiv with any Reebok purchase; Cotton On is pushing cozy sleep sets in a variety of patterns to prepare for Winter season in Australia, while Jigsaw are promoting their virtual boutique.
Whilst broadening product offering will work for some retailers, for example Next’s relatively strong performance so far has been attributed in part to its broad offering, there are cases in which relying on a leaner, pared back production line will be more efficient and more profitable.
What are the key considerations for retailers setting the strategic direction during and post-Covid 19?
Planning for recovery and subsequent growth a post-Covid should avoid knee-jerk reactions and options would benefit from thorough and in-depth commercial assessment. At Whitecap, we believe that strategy development is a combination of data analysis, assumptions and judgements; which should be assessed and then developed with the flexibility to adapt to a changing and unpredictable environment.
Understanding the current and projected financial performance and requirements from sales, marketing and operations is clearly a necessary starting point. An informed view of customer needs, attitudes and the wider market context are other key requirements – knowing which factors are expected to impact business performance and which business moves will mean that either you or your competitors will weather the storm, will all help inform strategic choices and direction.
It’s also about knowing what’s optimal for the business model and the individual company aims and situation – establishing what you can do internally, and what is most sensible to do for the business. This often involves asking key questions, for example:
How can we respond to demand for different areas of provision, and which should we prioritise over what timeframe?
How can we expand / diversify provision to suit specific customer needs?
How should we pivot in a way that can either be reversed, or sustained if and when required?
How can we work with the rise of other retail groups / business models?
And how do we strike the right tone to encourage consumers and not alienate them?
Establishing the direction of your company at such an unpredictable time can be daunting, but if, as an organisation, you stay well-informed, consider tactical and strategic options, respond to what’s needed, and most importantly be flexible to short and medium term changes, there’s no reason why you can’t emerge in a stronger and more future proof position than before.
Established in 2012, Whitecap Consulting is a regional strategy consultancy headquartered in Leeds, with offices in Manchester, Milton Keynes, Birmingham, Bristol and Newcastle. We typically work with boards, executives and investors of predominantly mid-sized organisations with a turnover of c£10m-£300m, helping clients analyse, develop and implement growth strategies. Also, we work with clients across a range of sectors including Financial Services, Technology, FinTech, Outsourcing, Consumer and Retail, Property, Healthcare, Higher Education, Manufacturing and Professional Services, including Corporate Finance and PE.