The following is an excerpt from REPL’s The Future of Retail in a Post-Pandemic World news & insights post.
The Covid-19 pandemic has polarised retail. While supermarkets and major online retailers have never had it so good, many other businesses face crippling closures and an uncertain future. With enormous social change comes big shifts in consumer habits. Which got me thinking, what should your retail business be doing now, to ensure you’re ready to deal with life beyond the pandemic?
RIGHT HERE, RIGHT NOW
Retailers are experiencing one of the most rapid and biggest shake-ups in terms of consumer buying and spending habits. With the majority of bricks and mortar retail stores closed, shoppers have turned to online retailers and supermarkets for items – like craft materials and stationery – that were previously bought elsewhere.
Research by Waitrose shows that grocery basket content has changed too. The average Waitrose trolley contains 49% more items than before the pandemic. And the makeup has changed too with shoppers planning more exotic meals, making cocktails and baking. Resulting in an increased demand for spirits, flour and higher search volumes for Japanese and Thai cuisine.
Of course, Waitrose is just one segment of the supermarket sector, however, larger basket value is a trend reflected across all grocers. As is the rapid reversal of the long-term drift toward more regular, smaller shops with consumers now favouring the once-a-week ‘big shop’ to reduce social contact.
MID- TO LONG-TERM CHANGES
How long these shifts last will depend on the duration of social distancing. Recent habits, like trips to farm shops or food deliveries from smaller, local providers, are also likely to continue. And with social distancing likely here until Easter 2021, I think it’s probable that the weekly shop will continue into mid-2021 at least. Which means it will be a couple of years until we’re back to where we were in terms of people going shopping little and often.
The other major change I think we could see is a return to department stores. Before the pandemic, people were abandoning these large, indoor shops in droves due to a lack of investment in bricks and mortar stores, poor product ranges and an absence of excitement, experience and entertainment.
When non-essential retailers can open their doors again, I believe we’ll see more footfall in these large department stores because, with so much space, it’s easier for people to social distance. Smaller shops will have to restrict the number in store at any one time to keep employees and customers safe. Which means more compact retailers will need to find the sweet spot between health and safety, floor space and stock levels.
NEW TIMES, NEW OPERATING MODELS
Whether your company is flying high or currently on hold, all these changes will have a big impact on your business model. It’s time to re-examine your operations and conduct a range of what-if analyses to determine how to work most effectively.
Most retailers will need more employees. Even my local Boots has someone standing at the door, letting people in – a role that wasn’t needed before. And we know that stores are also needing to factor in more cleaning too.
But this isn’t going to be a case of more employees being balanced by more consumer spending. As staffing increases, retailers won’t be trading at the same levels because they can’t let the same number of people into the store. Add this to what’s predicted to be the deepest recession on record and it’s certain that trading outside of the food sector will be down.
With margins already under a lot of pressure, the only thing that can give is price. I predict that the days of rock-bottom high street prices will be over as the economy and metrics that drive it will fundamentally change.
SCENARIO PLANNING TOOLS ARE ESSENTIAL TO SURVIVAL
As more people continue with the internet shopping they were forced to start and have found to be easy, commodity items will continue to be driven online. We’re also seeing a focus on ‘shop local’ for Christmas 2020 with local councils setting up ecommerce websites to enable people to buy from nearby shops without a web presence. This presents another challenge to larger retailers who must now battle on two fronts – online giants and local retailers.
Those retailers that have gained customers during the pandemic will have to work out how to keep them. And those that have lost customers will need to work out how to get them back.
To counteract all this change, shops that were developing more experiential in-store offerings will find this becomes even more important to their survival. But trying to do that with social distancing will be a challenge.
Which is why it’s essential that retailers use planning software to run different scenarios to establish their new employee needs, costs, service levels and price points in the current world.
By examining operating models in detail, retailers will be able to understand the feasibility of their present operation and whether they can get enough customers through the door to make the business economically viable, especially at low price points. There will inevitably be some high street casualties. But without planning, there will be even more.
EVEN THE MACHINES DIDN’T SEE THIS ONE COMING
We often talk about the brilliance of Artificial Intelligence (AI) and Machine Learning (ML) tools at REPL. But even the best systems couldn’t have predicted Covid-19. That’s because AI and ML were being honed by developers to focus on long-term forecasting aimed at identifying the predictable. Which of course, Covid-19 is not.
I’m pleased to say that at REPL we’d bucked the trend by developing a mode that enables our systems to respond quickly to the short-term variations we’re seeing at both ends of the Covid-19 pandemic. This has underpinned the scenario planning we’ve been doing with some of our customers enabling us to react very quickly to rapid changes in consumer habits and quickly predicting swings with accuracy.
This doesn’t mean our AI will be able to predict major events like a pandemic in future. But it can learn deeply from the current situation and train new models to better predict and respond to this second spike, our return to the new normal or even another pandemic.
We’ve also found that we can use data from some of our global clients’ Chinese stores to predict what will happen in their UK, US and European shops as we emerge from various states of lockdown. Combining this level of data, AI and ML have helped our global retail clients predict demand and start to plan stock and supply chain requirements as well as employee levels across their entire operation.
With significant changes to the economic viability of the retail landscape, your business needs to examine your operating model to establish how you’re going to survive and thrive. We’ve got the technology to help you rapidly execute the detailed analysis that will empower you to make fast, effective decisions.
