COVID-19: Preparing to reboot the retail sector

27 April, 2020

COVID-19 has changed everything for the retail industry. Retailers can only estimate when they will reopen, and how shoppers will return. Based on the changes required to accommodate social distancing requirements and weaker economic projections, it is expected that the balance of 2020 will look very different than before the crisis began.

To succeed, the sector needs to embrace this disruption and account for the changing landscape it trades in. The retailers and brands who emerge stronger will be those who plan for different economic scenarios and adapt to the shifting consumer and competitive perspective.

A photograph of the outside facade of Dunnes Stores headquarters in Dublin city centre.

Retail after coronavirus

The arrival of COVID-19 has plunged the Irish retail and wider consumer sector into what was, until now, an unthinkable situation. Except for grocery, convenience, pharmacies and off-licences, the sector has shuttered, with no clear sight of how and when normality will return.

There is growing acceptance that when normality does return, it will be a new normal. It is expected that the industry will need to understand, interpret and adapt to new emerging consumer behaviours. This will likely include the need for continued social distancing. Trust will play an important role for consumers in their choice of retailers and shopping destinations. Online retail has become a real and credible alternative to physical stores since the start of the crisis. This consumer choice is likely to continue growing as both retailers and brands build their online capacity and capability.

The uncertainty about what the rest of 2020 will look like is the key challenge facing the sector. The predictable playbook has been torn up and the industry now faces unchartered waters. European countries including Austria, Italy and Denmark are reopening their economies, albeit in a slow and controlled manner. Over time, a sense of the new normal will start to appear. This will provide some signposts about how the Irish consumer is going to behave, as we see social distancing influence their behaviours.

The new normal will emerge as the Irish consumer emerges from the current period of isolation. We will want to shop again, but in a very different way than before we entered this unprecedented situation. It is expected that the industry will need to understand, interpret and adapt to new emerging consumer behaviour.

Those retailers and consumer goods companies that invest time to understand this complex customer sentiment and plan accordingly will survive and succeed in the difficult months ahead. Whilst the road ahead is not clear, some assumptions need to be built into retailers' recovery roadmap:

  • Social distancing needs to be factored into store operations to provide a seamless as possible customer experience
  • New online shopping habits will not be forgotten quickly. This new trend will continue to grow throughout 2020
  • Value will become a key driver of customer loyalty as financially constrained shoppers adapt
  • The store offer and operations needs to adapt to servicing the changing consumer and their new shopping habits
  • Supply chain risk will continue with the potential for ongoing delays and stock availability challenges remaining prevalent in the months ahead

A return to normal shopping is unlikely in the short term, but shoppers will need and want to engage with retailers, albeit in different ways. This period before consumers start to travel again is a key time for retailers to plan for different possible scenarios with these considerations in mind.

The five key actions to take now

Plan for customer-centric safe shopping

As shoppers return, they will want to feel safe when in store. Trust, hygiene and social distancing will become key factors in store choice, especially if those measures remain in place for a prolonged period of time. Consumers will start to build this delay into their shopping trips which may become less frequent as they seek to minimise time in public places.

Retailers need to focus on product availability as customers seek out easy and safe shopping opportunities. Store layouts may need to change to allow for extra customer space. This will create operational issues such as replenishment models, but the key is creating a safe environment for both customers and employees.

The Grocery industry is well advanced in this regard but those retailers who remain closed have extra time to make necessary plans.

Build for greater online capacity

Online revenues have experienced significant growth since the outbreak of COVID-19. Retailers have had to build their online capabilities as well as increasing capacity to service growing demand. The retail sector has been managing increased online volumes with many having to close for a period of time to allow for the creation of safe employee working conditions.

While consumers may be slow to return to stores in the same way as before the crisis, retailers need to plan for volume growth across the rest of 2020. With Christmas trading a little over six months away, it is worthwhile considering the potential online volume growth that may carry forward from this crisis.

This online growth will drive operational challenges. These include range assortment, warehousing and distribution which all need to be planned for now. With poor trading across March and April, Christmas 2020 will be even more critical for retailers looking to rebuild their financial position.

Understand and plan for the financially constrained shopper

With job losses across the retail and services sector, consumers will face a period of restricted spending. This will change the way they shop. With tighter budgets and the potential impact of social distancing, consumers are likely to seek better value from their weekly grocery shop.

Those retailers who have been closed in recent weeks may be sitting on seasonal stock which needs to be quickly cleared once their doors reopen. This creates an opportunity to move stock through albeit at lower margins but nonetheless generating much needed cash.

Reassure consumers as they emerge from lockdown

Memories from the recent lockdown will linger with consumers likely to be cautious about their shopping. Consumers will want to shop where they feel safest, and trust will play a key role in their decisions. Social distancing will be a factor, but consumers are also likely to engage with products in a different way. Product packaging and traceability are likely to form a bigger role in the buying decision as shoppers look for safe product choices. Interaction with store colleagues is likely to be different as social distancing changes the way we engage with store colleagues; this is evident from the way in which the Grocery sector has adapted their customer service operations such as Checkouts.

However, retailers still need to create a safe shopping environment without compromising customer experience. Retailers will need to examine how they offer services like fresh food counters, checkouts, changing rooms and beauty treatments to ensure they create a compelling reason for consumers to shop in their stores.

One opportunity is offering Click & Collect. If well planned, this service can provide customers with a safer shopping experience while at the same time driving much needed footfall into stores.

Plan for ongoing supply chain disruption

The Grocery sector has had to adapt quickly due to strong demand growth over recent weeks. Food producers have started to review ranges and limit production to the most popular items as necessary to meet demand growth. Any potential future demand spikes will likely require ongoing range and production reviews.

However, products with longer supply chains will see delays set in, with restricted commodity availability and longer transport times across European borders. For those retailers with stock sourced from further afield, delays are a potential threat especially from countries in total lockdown.

Managing seasonal stock needs to be assessed. Clearing spring-summer is the current challenge, with the arrival of autumn-winter ranges looming fast.

With inbound supply chains subject to risk as the industry heads for the busiest half of the year, full scenario planning is critical for retailers.

Contact us

John Dillon

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6415

Amy Ball

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 5836

Ger O'Mahoney

Partner, PwC Ireland (Republic of)

Tel: +353 21 425 4003

Owen McFeely

Director, PwC Ireland (Republic of)

Tel: 353 1 792 8162

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