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The COVID-19 Effect: What Retailers Are Learning From Consumers

August 10, 2020

Despite the headlines about store closures and more online shopping, COVID-19 has rocked both online and offline retailers.

Back in 2019, in the always-on, open and stocked retail environment before COVID-19 “Are We All Facing the Netflix Syndrome?” focused on how convenience and customer experience had become key differentiators for both online and offline shopping. While consumers expected convenience, it was also often a major factor in where people decided to shop: online with one click and free shipping, or the shortest drive away.

Things have changed dramatically. COVID-19 introduced new points of friction in the shopping journey. Consumers are forced to make trade-offs between product availability, replacements, delivery schedules, social-distanced lines and required facemasks. And they changed their expectations of convenience and experience.

What’s different?

Just a year ago, retailers were rapidly closing stores while direct-to-consumer (D2C) companies were opening them. Motivated by the increasing costs to acquire customers through advertising’s walled gardens: Facebook, Google, Amazon, etc., D2C companies expanded beyond digital. And, while D2C businesses were moving offline, traditional retailers were migrating online by increasing their investments in digital commerce and marketing.

How has COVID-19 affected those trends? Dramatically:

1. The transition from offline to online shopping.

As New York University marketing professor Scott Galloway put it, “Consumer movement to online shopping accelerated by a decade in eight weeks.” Before the pandemic, the percent of retail shopping done online in the U.S. was transitioning from offline at a rate of roughly 1% a year, reaching around 18% by 2020. Then, eight weeks after the pandemic hit, it spiked to 28%.

2. Closing brick-and-mortar store.

Axios recently observed that, “Because of the coronavirus and people’s buying habits moving online, retail stores are closing everywhere—often for good.” They pointed to a research report from the investment banking firm UBS that “predicts that 100,000 brick-and-mortar U.S. retail stores will close by 2025, in a trend that started before the pandemic and has accelerated amid coronavirus-related shutdowns.”

Katie Richards from Glossy , the online fashion and luxury magazine, cited not only e-commerce but “mismanaged inventory and a lack of thought around the customer experience“ as reasons brick-and-mortar stores were failing.

Online and offline shopping during a pandemic

Before 2020, many D2C companies recognized that physical stores do much more than just sell and fulfill things.

They:

  • Give consumers the ability to see, touch and “try” physical products
  • Provide a physical presence to increase brand awareness – mainly in high population cities on the two coasts
  • Lower and diversify customer acquisition costs and methods
  • Drive higher order values

While D2C companies were investing in stores as a part of an overall marketing strategy, traditional retailers were transforming their stores, turning them into:

  • Distribution points, such as, buy online pick up in-store (BOPIS)
  • Experience opportunities
  • Stores within stores – as malls close, big box stores have become curators and feature D2C brands in special sections and on endcaps

Now, when comparing D2C brand stores to traditional brick-and-mortar stores, several consequences of these strategies are clear:

  1. The only “experience” shoppers want is convenience and familiarity
  2. High-density big cities were ground zero for the first wave of COVID-19, hurting most D2C brand stores, as well as traditional retailers’ flagship stores
  3. Big box stores (Walmart, Target), grocers (Kroger, Albertsons, Whole Foods) and clubs (Costco, BJs) all became indispensable due to their ability to distribute at a local level and service most household needs during a crisis.

So what are consumers looking for today?

Prior to COVID-19, Deloitte’s vice chairman, Rod Sides, summarized the consulting firm’s 2020 Retail Industry Outlook in the Wall Street Journal.

“American consumers want good prices and quality products. They also want convenience—and this year are more likely to favor the brands that make life easier. With a possible economic downturn and potential fallout from tariff tensions looming, many retailers are facing uncertainty in the year ahead. The good news, however, is that there is some predictability—at least when it comes to what consumers want.”

This turned out to be true, but for an entirely different set of reasons. And, for something to be truly convenient from the consumer’s mindset, it needs to both require little or no effort to purchase and be well suited for a specific need.

What does that mean for retailers?

Learn more in Part 2: The COVID-19 Effect: Building Familiarity & Trust Helps Retailers Win