Mon.
Nov 23
2020
Why COVID-19 Won’t Kill Offline Retail

Image: Mike Petrucci via Unsplash

This year has been a tough one for retailers. But while the coronavirus pandemic has brought major long-term changes to the retail sector, it’s not likely to kill offline retail any time soon, but rather trigger its transformation.

There’s a popular perception that brick-and-mortar stores are being killed off during the pandemic as stay-home policies and fears of contacting the pathogen pushed many consumers to shop online. In reality, the state of retail is more complex. And after the world gets back to normal, retail will still rely heavily on in-store purchases even with the rise of online sales. 

The pandemic and lockdown measures triggered a revolution in retail. Online sales have boomed even as most countries saw an economic downturn. And consumer adoption rates are growing as new perks to online shopping, such as free delivery, have begun to appear across many countries.

The impact on offline retailers have been a major one.

A March report from Coresight Research predicted that there will be 15,000 store closures across the United States in 2020, up more than 5,000 from 2019. A different report projected that U.S. retailers could announce between 20,000 and 25,000 store closures this year, with 55- 60% of those situated in malls.

A report by eMarketer has forecasted total retail sales in the U.S. to fall more than 10% in 2020, and to recover to pre-Covid-19 levels only in 2022. Meantime, eMarketer predicts that e-commerce sales will surge 18% this year.

The post-lockdown reality will not be a comfortable one for offline retailers. Pressure from competition with online retailers will drive many to develop a digital presence more quickly than if there hadn’t been a pandemic.

In China, since the outbreak, the surge in online grocery sales has outpaced the overall e-commerce market, rising 35.4% for the year to September compared to 9.7% in all online retail, according to data from the country’s National Bureau of Statistics. It also marks an acceleration from the 28.9% increase in online food sales last year.

Meanwhile, offline retailers in China already faced an uncertain future before the crisis and experienced three consecutive years of revenue decline from 2016-2019. Although offline retail sales, which accounted for more than three-quarters of total retail sales in 9M20, recovered to flat y-o-y growth in September, it is widely anticipated that by December a quarter of the offline market will be gone for the full year.

China hasn’t seen massive store closures, and it is believed that the next year will be much better for offline stores.

But there are many signs that the pandemic won’t be able to kill offline retail, but rather change its nature. There are many signs that the pandemic has accelerated the offline-to-online convergence, leading to a major shift in the way people shop.

Recently, the Chinese e-commerce giant Alibaba launched a new manufacturing division that features robots and other technological advancements. Amazon is also appearing to veer more towards physical stores. This includes bookshops, a new grocery concept and general merchandise stores. Although the vast majority of their sales will remain online, these move aim to expand the companies’ foray into the offline world.

M.Video-Eldorado Group, Russia’s largest consumer electronics retailer, thinks of offline stores as an enhancement of its online strategy. The company traces the customer’s journey from when they browse online to when they come into the store, so sales assistant scan provide better, more personally tailored service. Despite the recent economic downturn, the Group reported a stellar 3Q, making them Russia’s fastest growing listed retailer.

There are, however, multiple studies predicting that the accelerated adoption of e-commerce is set to stall as the world gets back to normal once a COVID-19 vaccine is made widely available in 2021. This creates a rationale for offline players to leverage their physical stores to get a leg up in digital sales.

For example, Lenta, the largest hypermarket chain in Russia, is using its wide regional store network to fulfill growing online demand and ensure fast delivery. And O’key, the country’s first grocery retailer to launch e-commerce operations, believes that having a network of hypermarkets is an important competitive advantage when developing an online business, as it enables companies to streamline their delivery model and reduce logistics-related costs. O’key is developing its own delivery service while increasing its presence in the Russian regions through partnerships with major marketplaces.

It is possible that the new state of retail will offer an optimal customer experience by combining online and offline options that will be different for each consumer, depending on product and audience.

Currently, platforms like Salesfloor offer industry-specific modules to connect sales associates with customers through the web, email, mobile, SMS and social media. Virtual reality companies are also developing scalable 3D VR ecommerce online store experiences for retailers.

And in the end, offline retail has tangible benefits that are not easily reproduced online.

Above all, it allows consumers to touch and engage with a product, as well as try it on on-site. This gives the shopper the instant gratification that remains a big reason for why consumers continue to enjoy the experience of visiting a store.

This ability to physically experience the product is what will make it so hard to eliminate offline retail in the long-term — and will instead spearhead its transformation.

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