By George Minakakis
Defining businesses as essential or nonessential was an honest attempt to protect the public from the pandemic. However, it was a decision that has taken market share from large to small businesses deemed nonessential. One such example is the apparel sector; it was already floundering in performance. According to Mckinsey & Company, they expected sector profit to drop by 93% during 2020. Of course, restaurants, malls, travel, cruise lines and airlines, hotels, conventions, and banquet halls, to name a few, all have taken an enormous hit from the pandemic. The question is, how long can they hold out?
E-commerce has never been healthier, at least for most operators. Of course, retailers labeled essential have not been sitting idle either. They are no doubt investing in protecting their market gains. Today essential businesses need innovation to ensure they can keep their newfound market share. The grocery sector is one of those crucial retail benefactors. Loblaw plans to launch an autonomous delivery fleet. Sobeys with Voila home delivery is already on the road. It’s my view that the pandemic sales growth essential businesses have gained will only be as sustainable as their technology and digital capabilities to execute and deliver convenience.
Disruptive innovation will continue to shake up and redefine the retail landscape. It’s a simple strategy, identify outdated business and consumer models with poor service and product offerings, invest in technology, innovate, simplify, and deliver greater convenience, which at a basic level is disruptive innovation.
The vaccine raises hopes for a business resuscitation, but that may be a lot slower than we anticipate. The vaccine rollout targets to have at least 50-70% of the population vaccinated by September 2021. That is if there are no delays. Secondly, polls early in the pandemic and more recently indicated consumers would wait months post-vaccine. A poll I held in November suggests that 16% will wait six months and 31% up to 12 months post vaccine before returning to everyday shopping habits. If that holds, that means recovery may not begin until the first or second quarter of 2022. Either way, the vaccine doesn’t eradicate the virus; it protects us from it; for businesses, that spells pervasive uncertainty around how soon consumers will return.
Also, too much of the plan for a recovery has been on the $90 Billion or more Canadians have saved. Decoupling consumers from their savings may not be that easy, at least not for middle-class consumers, those saving for retirement or homes. The pandemic has also created a sense that we already have enough as we watch the numbers climb. The public is harbouring a wait and see opinion around the vaccine and returning to their past behaviours. They see businesses closing, the job market is being impacted, and continued implementation of technology. In every downturn, there have been irreversible changes that take place. Companies have always looked to technology investments to improve productivity, which generally displaces workers. In the last 12 years, we have had the financial crash, the great recession and global quantitative easing, a trade war, and now a pandemic. A December CBC poll suggests there is apprehension around the vaccine with when the public will take it and whether or not they will line up for it.
Pandemic Was a Catalyst for E-Commerce but Convenience Is a Consumer Driven Catalyst
What retailers need to consider is that “convenience” will continue to dominate consumer choices. However, we need to lessen our reliance on convenience as solely an experience at physical stores. Retailers need to think of convenience relative to what it means to a consumer’s free time and what they choose to do with that free time. Convenience, whether ordering online and having it delivered or curbside pick-up thanks to the pandemic, is here to stay. We need to appreciate that consumers have been moving towards e-commerce much faster since 2007, not just because of lower prices or home delivery, but because their own leisure time is more important to them and technology has made that possible. Convenience must be seen as a service with just as many touch points to deliver a brand experience. This isn’t to suggest that the future of stores is over. Not at all, however, store visits need to be far more exciting. And the retailers of those stores will need to deliver an exceptional experience that’s personalized and customized. Not to forget, everyone needs to move much faster towards building that hybrid model. A sudden rebound to shopping in person is not immediately likely. After all, where would we go? Malls have a lot more closed stores and retailers are looking to shrink their store counts.
China’s Rebound Is not a Physical One
The recovery in China is clouding our perceptions of what a rebound will be like and the future of retail. First, in the west, media is not state controlled; the reporting is as free as the writers are to voice their opinions. Their reports on the pandemic are ever-present 24/7. I lived in China during the financial crash and while the government was reporting increases in retail growth, thousands of people were losing their factory jobs. We don’t know about the accuracy of retail growth in China, consumer behaviour, nor how well the virus is under control. Secondly, if we look closer at Chinese e-commerce, it has been more widely accepted. The pandemic shift wasn’t tricky for merchants; many had already adapted to more hybrid models. China is an excellent example of what the future of retail could be. However, their path through the adoption of technology and consumerism bypassed many technological development hurdles than what we in the west have gone through. For the west to move where China is today with e-commerce, we would have to be willing to give up many of our past consumer behaviours. We’ve done a fair bit already with the pandemic. Retailers in the west who have vision will invest heavily in digital assets, including AI and robotics, within their physical stores. And create a new experience, there is no choice. Our culture will remain with stores for some time, but it will not survive as it is today.
Plan for the Future State of Retail
The pandemic has left consumers with concerns. Unless there is confidence and trust a rebound will be a challenge in all countries.
I would like to see retailers and other business operators planning based on scenarios (if this, then that, approach) especially when in crisis mode. Retailing is in a crisis within a health crisis. Planning needs to consider the state of the emergency monthly and build agility into all plans, as it is the only way to maintain resilience.
What are the scenarios? What I have learned as a board director that the best approach to resilience is to have the courage to forecast the unimaginable, every other plan becomes easy.
2021 – is the year of vaccines, plan for soft volumes, closures, continued social distancing and masks. This is also the year of rebuilding resilience and agility into the business culture. If you don’t have enough internal management capabilities contact an advisor.
2022 – be prepared to launch creative and innovative strategies planned in 2021. It will be a better year provided 2021 goes to plan on vaccines. However, it will not be quite back to 2019 revenue levels. Consumers need to catch up. That will take more time.
2023-2025 – Rethink your brand and the industry. Don’t follow a wait and see approach. That’s what happened to others with e-commerce and social media. It would be best if you reimagined the future. Stores and e-commerce need to come to life. Where we are today will not do. I would be building stores with a technology experience AI and robotics with human service ambassadors.
Based on my experience in recovering from a business crisis, leaders need to plan 2021 and 2022 together; planning for 2021 alone is not a reliable tactic. We may only need 70% to achieve herd immunity. Still, we need pretty close to 100% participation in the economy for a recovery to benefit all businesses to pre-pandemic levels. Therefore, predicting a rebound’s timing with conviction around the vaccine alone is a stretch.
Retailers should continually upgrade and improve their e-commerce platforms and all other digital assets. Digital assets need to be refreshed more frequently than even a store front especially in keeping up with social media as a marketing channel. Also start wrapping your minds around live-streaming. Retailers also need to personalize and customize that e-commerce transaction and experience. The problem is that once your product has left your store or your distribution centre, it is no longer about your brand. The only way to change this, and I have said this to the luxury sector, is to ensure that when your customer receives the package your brand needs to come to life again. Otherwise, that opportunity to sustain a brand relationship diminishes.
What’s potentially the most significant unintended consequence of all? The emergence of the leisure society between 2025-2030, we’ve already had a taste of convenience with the pandemic and it will accelerate as all retailers get better at it. That leisure society will usher in new business opportunities we haven’t yet considered.
George Minakakis is the CEO of Inception Retail Group Inc. The author of The Great Transition The Emergence of Unconventional Leadership.