10 Lessons Retailers Learned from the COVID-19 Pandemic

Woman shopping in a retail store
 

By Tricia McKinnon

Rahm Emanuel, former Mayor of Chicago once said, “you never want a serious crisis to go to waste.” 2020 was a difficult year. There was a lot of devastation. It humbled us, teaching us things we didn’t realize we needed to learn. As we wait in anticipation for the end of the COVID-19 pandemic it’s important to think about everything we have learned so the old saying “if it doesn’t kill you it makes you stronger,” bears fruit. 

Not many could have predicted a pandemic would take such a toll on the retail sector but it did. Stores closed down, socially distant shopping became the norm and more power consolidated in the hands of larger retailers. Many lessons were learned and here are 10 of the most important ones. Hopefully all of these lessons learned will lead to a stronger retail sector.

1.  Brick and mortar retail is remarkably resilient. 2020 was a test. In a year filled with unthinkable threats to offline shopping stores won. In the third quarter of last year 85.7% of retail sales took place not online but in stores in the United States. While I understand the important role shopping in physical stores has within society if you had told me in 2019 that a great plague was coming in 2020 I would have thought consumers would have stayed home. They did not. 

Not all stores were fortunate enough to make it past last year. By December 1st 2020, 11,157 stores closed in the United States. While that is more closures than in 2019 it is quite a bit less than the 20,000+ store closures Coresight Research predicted would take place in 2020. With many retailers barely hanging on expect to see a flurry of store closures in the United States in 2021. The United States has the highest retail square footage per capita in the world by a wide margin. That means at some point consolidation was bound to happen but no one could have predicted last year would be the year to set the downsizing in motion. 

Store closures in 2020 in the United States

2. Consumers actually like picking up their online orders. This behaviour almost doesn’t make sense. Why would you want to order something online and then leave your house to get it? Well it turns out there are many reasons for this. Some consumers don’t like to pay shipping fees even if the fees are relatively nominal amounts. Human beings are also by nature impatient.

Have you ever met someone who likes waiting? Why wait for my order to show up when I don’t have to? Picking up an eCommerce order makes online shopping even more convenient. And then there is the concern that if I am not home when my order arrives someone will steal it. 1.7 million packages are lost or stolen in the United States every single day. A third of Americans have had at least one package stolen. This is a serious concern for many.

When you take into consideration these factors you can understand why online order pickup is a popular shopping feature. In Best Buy’s second quarter last year, 41% of its $5 billion in eCommerce orders were picked up curbside or in store.

3. Amazon is not the only game in town. Amazon is great at eCommerce but so is Target, Walmart, Nike, Home Depot and a whole host of retailers. One of the things many retailers have that Amazon does not have is a broad store network. 75% of the United States population lives within 10 miles of a Target store. With millions of consumers electing to pick up their online orders in person stores are becoming even more important. 

Often when there is a big competitor the immediate reaction is to be a copycat. But the truth is that’s hard to do. Instead a better strategy is to identify what you are really good at and do that. Walmart launched its eCommerce store pickup services nearly a decade ago in 2013. What if Walmart never did that? What if it gave up on stores? In Walmart’s 2020 third quarter its eCommerce sales were up 79%. Rest assured Walmart is glad it bet on itself. 

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4. Outsourcing last mile delivery is expensive. With government mandated shutdowns many restaurants were forced to launch delivery services for the first time. But those services come at a cost, with delivery platforms charging as much as 30% in commissions per order. In an industry with razor thin margins those commissions often leave restauranteurs losing money on every order. 

Perhaps what was most enlightening or troubling was what we learned by reviewing DoorDash’s IPO filing last year. DoorDash, which has the largest food delivery platform in the United States, has yet to make a profit. It was eye opening for many to learn DoorDash lost $533 million in the first nine months of 2019 and $149 million during the same period last year. Many restaurants are also unprofitable but they do not have investors with deep pockets backing them like DoorDash does who is backed by Softbank. This transfer of power to tech platforms that act as aggregators make it easier for businesses to get noticed but perhaps the price is too high. 

5. Move over Facebook TikTok is here. We knew it would happen but we weren’t sure when. We knew the day would come when a killer app would show up and make people forget about how they used to spend their time. As the New York Times writes TikTok has “everything: social commentary, comedy, crafting, memes, challenges, makeup tutorials and, of course, dances. Even those who weren’t totally sold on it couldn’t avoid the videos, which proliferated across platforms like Instagram, YouTube and Twitter.”

TikTok was the most downloaded app worldwide in 2020. There is a lot of excitement around TikTok not just because of the dance challenges but because in China retailers have figured out how to make money off the app which is called Douyin in China. “If you're watching a TikTok video and somebody's got a piece of apparel or an item on it that you really like, what if you could just quickly purchase that item,” says Walmart CEO Doug McMillon. “That's what we're seeing happen in countries around the world. And it's intriguing to us, and we would like to be part of it.” 

6. Never count the retail sector out. When we peered into our crystal balls in April of last year no one was really sure what they would see. While retail sales declined sharply around the world in April within several months they rebounded in many countries around the world. 

Take Canada. Last October (latest month with available data) retail sales grew for the sixth consecutive month after a record sales decline in April. "Retail sales achieved a remarkable recovery [in Canada], having etched out a V-shaped rebound," says BMO economist Priscilla Thiagamoorthy. 

In the United States retail sales were up by 4.1% in November of 2020 compared to the same period in 2019. But the recovery has been uneven with larger retailers fairing much better than small retailers. 

The unemployment rate in the United States is 6.7%, down from 14.7% in April but still higher than the 3.6% rate that occurred in January. Retail has made a comeback but we are not out of the woods yet.

7. Your customers aren’t as loyal as you thought they were. In the pandemic many consumers tried new retailers for the first time. While often this was out of necessity it’s not going to stop these consumers from shopping at new retailers they love. 

Target boasted it gained $5 billion in market share in the first half of 2020. Target is a great retailer a with strong line up of brands. Many of the customers that added $5 billion to Target’s coffers are going to continue to shop there likely at the expensive of smaller retailers. Like most things in life, take grocery delivery, you don’t know how much you’ll like it until you try it. Millions of consumers tried new things last year and realized they liked the changes they made. 

8. The power of selling essentials like groceries. In the pandemic selling groceries is a do or die activity for many. It allowed retailers to stay open during government mandated lockdowns because all of a sudden they were selling an essential good. But as more retailers started selling groceries they may have noticed something interesting. A customer that only shopped with them once per month may now be shopping with them more frequently. 

The value of selling frequently purchased items is not lost on the largest online retailer in the world. In the midst of the pandemic Amazon launched a new brick and mortar grocery chain called Amazon Fresh. Jeff Bezos once said that to become a $200 billion company Amazon needs to figure out food. Walmart is the largest retailer in the world and over 50% of Walmart’s sales are from the grocery aisle.

The lesson is that there are certain goods retailers can sell that increase frequency of visits. Dollar stores are selling more groceries than ever. Doesn’t that seem odd? But it’s working. Dollar General has said when it adds refrigerators in its stores to sell more food, sales increase 10% to 15%. In 2018 sales of groceries at Dollar Tree and Dollar General combined were approximately $24 billion nearly eclipsing Whole Food’s sales of $15 billion.  

9. Consumers are struggling financially. Is this a lesson that needed to be learned? Yes. Sometimes it can be difficult to see what’s right in front of us. Since last May 8 million more Americans are living in poverty. Living in poverty means that a family of four earns less than $26,200. In total there are 55 million Americans living in poverty. This harsh reality is behind a number of retail trends. It is the reason why consumers have no other option than to choose to shop at lower priced retailers like Walmart or Amazon. It is also the reason why mid-priced retailers like JCPenney are struggling. If you are a single mom and you barely have enough money to feed your children you are not shopping for your children’s clothing at Macy’s.

The retailers that recognize this are profiting from it. Before the pandemic even hit, Todd Vasos Dollar General’s CEO said: “the middle-class continues to go away, unfortunately, to the lower end of the economic scale versus the higher end,” “So as this economy continues to chug along and creates more of our core customer, I think there’s going to be more and more opportunities for us to get in and build more stores.” Vasos has also said: “saving now is more chic than ever.” 

10. The rich keep getting richer. 2020 was not the year of the small local retailer. While there are cries to buy local most consumers bought big, that is, they shopped at the largest retailers on the planet. The top four retailers in the United States are Walmart, Amazon, Kroger and Costco. All of these retailers have performed well during the pandemic a testament to their size, strength and growing power. Costco, for example recorded its largest same store sales growth in two decades in its fourth quarter which ended in August of 2020, net sales were up 12.5% in the quarter.

This means that those retailers have even more resources to get well, even bigger. The pandemic was ruthless in showing the great divides that exist in society and the retail sector was no exception.

Tricia McKinnonComment