Retail Stores in the New Normal

Retail Stores in the New Normal

(6 minute read)

The pandemic-driven lockdown has had a devastating impact on brick-and-mortar non-essential retail stores. With the world returning to some form of normalcy but with not much resemblance to the pre-pandemic normal, what is in store for stores? This blog looks at some strategies and recommendations for retail stores to revamp store operations.

The pandemic has not only impacted stores but has also effected dramatic shifts in consumer behaviour. Declining incomes, contracted economy, job losses, and decreasing consumer confidence have impacted on retail spend in the short-term while the long-term behavioural changes are seen in the accelerated shift to e-commerce and online shopping. Uptake of e-commerce is expected to cut across demographic segments with increasing numbers of Gen Zers and baby boomers expected to start shopping online.

These trends will affect the retailers’ P&L. Online channels, typically lower margin for retailers, could hurt profitability as they continue to be squeezed while in-store sales plummets and more brick-and-mortar retail stores close. Analysis from McKinsey suggests that if online penetration increases by 10 percentage points and gross margins fall by one percentage point because of added pressures on pricing and margins, retailers can expect store profitability to decline by up to 5 percentage points. A hit of this magnitude on store profitability will push a lot of brick-and-mortar outlets into losses and eventual closure.

To survive and move into the post-pandemic world, a few key strategic imperatives are recommended:

Accelerate In-Store Omnichannel Integration

            Unless stores offer consumers, a compelling value proposition which induces them to visit stores, consumers are likely to continue to shop online. To entice customers back, retailers need to drastically alter store formats and the in-store customer experience through omni channel integration. Four suggestions here:

1. Redefining the role of the store and making it the centre for an ‘experience’, exclusive to store (dedicated merchandising, product launches) that customers won’t get elsewhere.
2. Offering omnichannel fulfilment basics ranging from express deliveries, contactless collection, click and collect options.
3. Building omnichannel staff who can interact and engage with customers through all stages of their journey from pre-purchase product discovery to post-purchase brand engagement and advocacy, in-store omnichannel staff can be incentivised to increase sales.
4. Personalisation of in-store touchpoints through better data capture of customer preferences will help staff in richer, more fruitful customer omnichannel engagement.

Reimagining Store Operations

            Cost structures underpinning brick-and-mortar retail operations will have to be streamlined. Similarly workforce need to be trained and prepared for the post-pandemic normal and recovery. Some suggestions:

1. Resetting store cost structure: Retail stores may need to increase productivity by at least 20-30% in order to compensate for the shift away from physical stores. This requires retailers to rebalance and simplify store operations and focus more on omni-channel activities: This can be done by:
   1. Shifting complexity upstream: streamlining merchandising, distribution and sourcing methods, move them away from stores to a central distribution, rationalise stock replenishment frequency.
   2. Digitise and automate non-value added work: repetitive, non-value added work can be digitised and automated, freeing up the workforce for value added activities. More use of self-service, mobile apps would be options to consider.
   3. Improving omnichannel touchpoints: training dedicated staff for omnichannel work, improving data accessibility at touchpoint so staff can better serve customers across omnichannel journeys, improve fulfilment options, inventory management.
   4. Increasing contactless self-service options: demand for self-service options will continue to increase and stores will have to meet that demand.
2. Preparing workforce for the new normal: Talent and workforce management may be one of the toughest challenges that retailers face. They will need to work on (a) retaining pre-pandemic talent to preserve skills potentially impacted by layoffs and furlough; (b) improving training and onboarding; (c) revisioning workforce composition across skill sets; and (d) increasing workforce flexibility to adapt to changing circumstances.

Optimising store network based on omnichannel performance

Post-pandemic retailers must make network decisions based on an omnichannel perspective of long-term store performance. Traditional ‘four-wall’ economics have adverse implications for store costs and returns. While store margins may outweigh e-commerce, there are still ways to apply omnichannel marketing to improve store performance to compensate for shift to e-commerce and for increasing online margins. Retailers can also experiment with store formats in order to introduce variety in their store portfolios.

Retailing will continue to see dramatic changes as the world returns to post-pandemic normalcy. It is critical for retailers to adapt to changed circumstances in order to survive.