Having come through the tremendous disruptions caused by the
Covid pandemic, retailers need to dispel the notion that business will return
to normal – whatever that may be, since almost nothing about retail following
the 2008 recession could be considered normal.
Many of the changes in shopper behavior wrought by the
pandemic are likely to persist, like online shopping and a continuing concern
for physical, emotional and financial wellbeing reflected in the products
people buy, ways they shop and prices they pay.
And while retailers were encouraged by the unexpectedly
strong growth in retail sales in 2020 – 6.7% increase that broke the previous
record of 6.3% set in 2004 – the gains were not evenly distributed. In “to the
victor go the spoils” fashion, retailers classed as essential during the
shutdown experienced a rapid rise in sales, while those categorized as
non-essential suffered.
All retailers, but most especially the non-essentials, are
anxiously awaiting shoppers’ return to in-store shopping.
Taking the pulse of consumer sentiment in March, Nielsen
found a large majority of consumers – 61% classed as “Ready to Go” – are eager
to resume their day-to-day lives. Those still in “Wait and See” mode dropped to
only 9% from a high of 29% at this time last year. And the middling “Proceed
with Caution” folks stand at 21%.
Already over 70% of the 1,000+ consumers surveyed by Nielsen
report their town is starting to emerge from the crisis and as a result, some
three in ten consumers expect to do more in-store shopping in the months ahead.
Retail’s final hurdle: Wide-spread vaccinations
At the present moment, retailers’ future hangs on the
vaccine, but a fair number of people have not or may not ever take the plunge
and get vaccinated. In a global survey among 15,000 consumers conducted by IBM
Institute for Business Value in February, only about 20% of consumers report
being partially or fully vaccinated.
In the U.S., vaccine hesitancy threatens the herd-immunity
goals of 60% to 70% that most epidemiologists advise, though Dr. Anthony Fauci
suggested 85% is needed.
The IBM study found nearly 30% of U.S. consumers said they
won’t get the vaccine and another 25% are uncertain. And it noted that the U.S.
is below the global average in confidence in the safety and effectiveness of
the vaccine.
Given so many U.S. citizen’s caution about the vaccine, the
report states, “Rather than a guarantee of safety, they see the shot as a new
risk to navigate.”
Nonetheless, consumers want to see vaccination rates in
excess of 70% to feel comfortable returning to their pre-Covid lifestyles.
Given the uncertainties surrounding the vaccine’s acceptance and rollout, the
study projects it won’t be until 2022 that people will regain a sense of
normalcy.
“Amidst the uncertainties, consumers are rethinking the way
they want to work, socialize, travel and shop,” the report states and adds,
“Businesses should stay agile with working to deliver on changed consumer
demands.”
Rather than hoping for a ‘return to normal’ or planning for
the ‘next normal,’ retailers need to focus on the ‘now normal’ because the
situation is and will remain fluid well into 2022. Day-to-day, week-to-week and
month-to-month changes, along with regional differences, will continue to
confound business planning.
“We’re already seeing a resurgence in shopping with the
vaccine being shoppers’ safety shield,” says Karl Haller, IBM’s Consumer Center
of Competency leader. “Everyone’s optimistic for the balance of spring season,
especially in the non-essential category. But there are caveats to that
optimism,” he warns.
Balance has shifted and will continue to shift
While retailers have long talked about omnichannel shopping,
Haller advises retailers to think of a new hybrid retail model that combines
in-store and digital shopping and that aligns inventory, pricing and purchase
information seamlessly.
“There is a new baseline between store shopping, digital
shopping and hybrid shopping combining elements of both,” he says. “And that
baseline has a lot more digital in it than it had pre-Covid. We are going to
see that new baseline continue going forward.”
One change predicted in the IBM survey as in-store traffic
increases is a reduced call for curbside pickup and buy-online-pickup-in-store
services.
Traffic on the rise
Overall, some 73% of consumers that typically visited
shopping malls and centers before the pandemic will return to those stores once
vaccinated, according to the IBM survey.
Already signs are that mall traffic is picking up. Placer.ai
which tracks data from more than 50 U.S. malls, finds foot traffic has been
trending up month-over-moth since November, with the exception of February,
when weather drove visits down. But from February 22 through March 15, traffic
has been increasing nearly 20% each week.
However, mall traffic still lags behind pre-pandemic 2019,
though the gap is narrowing with March 2021 traffic down just 24%, the lowest
since the pandemic began.
Shuffling the retail deck
In-person shopping will boost many non-essential retailers
hit hard during 2020, with the IBM study anticipating retailers will see much
greater demand in toys, games and hobbies purchases, up 121%, and a 76%
increase in apparel, footwear and accessories purchases due to increased
in-store shopping. Home-related spending is also likely to continue strong this
year.
On the other hand, retail sales are going to shift out of
grocery as more restaurants open up and consumers feel comfortable dining at
their tables.
Haller notes that in 2019, grocery retail and food services
were roughly the same size, about $765 billion. But those sales shifted in
2020, with grocery and beverage stores increasing 12% during the pandemic year
and food services dropping 20%.
“We could see the grocery segment going negative this year,
as spending shifts back into restaurants,” Haller cautions. “A
back-of-the-envelope calculation is that every dollar that flows into
restaurants is probably 60 cents out of grocery.”
He also foresees that discretionary spending which went into
the retail sector during 2020, particularly among the affluent top 30% of
shoppers, will revert back to services categories like travel and
entertainment. So, for example, he sees retail sales of big-ticket durables are
likely to shift back into services.
But on a positive note, as people get out of their homes and
start traveling and doing more things, it will drive demand for retail
purchases associated with those services, like a new outfit for the theater or
clothes, accessories and luggage for travel.
“Services spending has a carry-on retail effect, not
necessarily for a big-ticket item, but for spending on things that go with the
event you are doing,” he explains.
Don’t expect a full-on retail surge, but a ‘surge-let’
Based upon the unexpectedly strong retail results in 2020,
Haller and I are less skeptical that retail could hit the high marks predicted
by the National Retail Federation for 2021 between 6.5% to 8.2% growth
forecast. The 2020 stimulus checks, followed by the second round this year, are
likely to do what they were intended to do: stimulate consumer spending.
That said, he sees a “selective resurgence,” with continued
bifurcation between what IBM calls the splurgers versus the strugglers.
“The strugglers have been buffeted with the stimulus checks,
but the real implications and impact on that group won’t be felt for a few
months,” he advises.
As for the splurgers, which skew toward the top 30% of
income earners, he sees strong pent-up demand that should favor retailers,
though services spending will siphon off a growing share of their spending as
they start leaving home.
“Maybe it’s not going to be the Roaring 21s,” he quips, “But
we will see a retail bump. It will be less a splurge than a ‘spurge-let,’ then
it will settle down into what normal looks like.”
In conclusion, the vaccine has injected a spirit of hope and
optimism in the consumer market that was missing throughout 2020, which gives
hope to retailers too.
“The vaccination is creating a change in mindset. Since
March 2020, people were clouded with fear. That is starting to lift. Of course,
there is still concern about the variance in the population that are not yet
ready to get vaccinated. But from the data, we see the consumer is more
confident and optimistic than they’ve been for a long time.”
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