Is covid changing retail?

I believe the view of retail shouldn’t be that the pandemic changed everything.  It should be that the transformation of retail was accelerated in large part because of the pandemic.

The change agents have existed for a while in the form of online selling.  The behavior change, like any, takes a little more time. But because of the pandemic, that change happened very quickly.  I believe, therefore, that there will be a return to bricks and mortar when the pandemic lifts, but upon return, the playing field will have changed depending on the amount of time the pandemic and the fears associated with the coronavirus last.

To understand the significance of the change over time you have to discuss the basic tenets of retail:  

It starts with consumers who essentially “want what they want, when they want it, and at the lowest possible price.” This is the demand statement that all retail operates under.  We have to satisfy that consumer desire but unpack that statement as follows: All retail balances three essential factors that come from that demand statement.  Depending on many factors, consumers balance between price, selection, and service which are the three parts of the demand statement.  In the past, Price was shown in all research to be the most important factor (think Walmart), Selection - expressed as “they have what I want” (think Target and the sense they gave us that they had unique product) - is a close second, and service was third. Of course, depending on the particular purchase, this balance is figured out uniquely— If the holiday is tomorrow and they have what you want, you might pay more for quick service. Or, if the store doesn’t have the selection at your price point you might chose something else. 

Now here is the tectonic shift on all 3 demand factors due to online selling. The shift increases as you go down the demand points.

1.     Price is now quickly comparable.  Walmart and other stores promote and live on this benefit which still remains the most important, but now it’s no longer perception of low price we are dealing with.  Its actual price.  Remember, consumers 20 years ago went to about 2 ? different brick-and-mortar stores for the same item based on research.  You can of course now search, find and order quicker than shopping like that.  So, the importance of price remains, but price perception, which made some stores a clear winner compared to others, is decreasing in importance

2.     Selection—remember “I want what I want” is now available through search and other online activity so there is tremendous downward pressure on store size and a push which started pre pandemic for ‘omni channel’ retail strategies.  This change is even more dramatic than price, because it impacts leasing constraints, store space allocation and many creative activities such as giving other store brands shared space as well as smaller store formats (The Midwest grocer/retailer supercenter Meijer has implemented a local market strategy, for example)  

3.     Service is totally flipped on its head.  Twenty years ago, we could deal with low service, brick-and-mortar environments if there was a deal to be had on an item I wanted.  And many still do—it’s a strong proposition to succeed in 1 and 2. However, service which wasn’t a key factor, is now a critical one in the consumer demand balance.  If I can get a large package delivered in two days I might not care as much about the other two points.  Of course, in the past you could excel at 1 and 2 but today, in the end, what’s most impressive are stores that excel at all three like Amazon.

Brands remain important and frankly have gotten more important given that the amount of choices has increased so much. What’s top of mind will begin your search and while you can search a number of places you will first go to those you remember. And how you remember across the three demand points is also important. Google search of course is critical since it will lead the customer somewhere