COVID-19 has deeply impacted the retail sector in Australia. The enforcement of lockdowns, store closures, “click and collect” and other physical distancing measures have elevated ‘digital’ to new heights across the customer journey.
When the crisis started in early 2020, the expectation was that COVID-19 would have a devastating impact on consumer confidence across Australia with fears that health, employment security and personal finances would undermine households’ propensity to spend. Instead, the various Federal and State government incentives - JobKeeper, rent relief, loan repayment deferrals to name a few - have protected retailers and helped to avoid significant insolvencies and bankruptcies.
Consumers have embraced new ways to purchase goods and services with a significant increase in the penetration of online sales. According to the 2021 ‘Inside Australian Online Shopping eCommerce Industry Report’ issued by Australia Post, the online share of retail spend was 16.3 per cent in 2020 reflecting 57 per cent growth year-on-year. (Australia Post - Inside Australian Online Shopping - eCommerce Industry Report 2021 (auspost.com.au)).
Shifting consumer trends and behaviours include:
- Increase in e-commerce transactions: restrictions have accelerated online sales and consumers are spending more time browsing, researching and purchasing online.
- Shift to the suburbs: the multiple lockdowns implemented across Australian capital cities and work from home orders have negatively impacted CBD retailers, and in particular department stores. With more people working from home during the pandemic there has been something of a retail inversion with more people shopping locally to support local producers, cafes and restaurants impacted by the crisis.
- Change in purchases mix: consumers spending more time at home is resulting in a change of purchase needs with a shift towards furniture and home furnishings, home cooking/groceries and gardening.
Rethinking retail
COVID-19 has been a catalyst for structural change and retailers will need to adapt to the new environment, rethinking their strategic and operational priorities.
As the retail industry undergoes this period of transformation, businesses need to continue to adopt a more detailed and data-driven approach to profitability. This shift towards online has exerted the greatest pressure on store-dependent operating models, requiring businesses to align with more digital-centric customer journeys.
Retail strategies developed to adapt to this situation will vary widely, subject to multiple factors such as category, customer demographics and the maturity of online propositions.
Success in a digital-first environment
It is likely shoppers will not fully revert to pre-COVID-19 behaviours. To succeed in a digital-first retail environment, retailers should consider the following:
- Direct to consumer. With the rise of digital, brands now have more opportunities to sell directly to consumers without having to rely on traditional stores or other middlemen. Brands with direct access to consumers have been able to develop, foster and interact with customers and tailor their value proposition. Social platforms such as Instagram and Facebook have also made it easier for brands to convert browsing on social feeds into sales by integrating checkout functionality on their social networks.
- Consider strategic alliances and partnerships. For retailers struggling to improve their profitability and shifting to online sales, identifying strategic alliances with retailers that have a strong online presence and will provide access to their digital platform can provide mutual benefits such as an increase in website traffic, cost reductions and additional services offerings.
- Supply chain. Supply chain optimisation has become important with a higher proportion of sales generated online. New solutions are being developed as retailers further understand the shift to online sales, including use of data and technology to improve demand forecasting and inventory management and partnering with third party and final mile delivery specialist companies. The rise in e-commerce transactions also inherently increases the pressure of online returns, with a direct impact on profit margins. Retailers will need to consider successful reverse logistics processes to maintain consumer satisfaction.
- Adapting the purpose of stores. Striking the balance between physical and online presence is becoming more and more important for retailers. The purpose of stores could be reconsidered through hyper-personalised marketing, with consultation services adapted to the customer for brand-bonding purposes. Retailers must also recognise the value of stores as social spaces, and leveraging of pop-up stores might satisfy the need of social interaction between consumers.
Whilst Australian retailers continue to navigate through an uncertain economic environment, COVID-19 has accelerated many consumer trends. All retailers have the opportunity - and the challenge - of leveraging permanent shifts in consumer behaviour, re-inventing their organisational model and filling the gaps in the market as these new opportunities arise.
Tailored solutions
For more information or assistance with your retail business please contact our retail advisory team.