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GUEST COMMENT Counting the cost to transform for the future

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GUEST COMMENT Counting the cost to transform for the future

Stuart Higgins, Partner at management consultancy, BearingPoint
Stuart Higgins, Partner at management consultancy, BearingPoint

Since the Covid-19 outbreak, new consumer behaviours have developed across all spans of life, from how we work, to how we shop and entertain ourselves. The Covid-19 lockdowns have delivered a sea change in customer buying behaviour, with many more customers now choosing to shop online rather than risk venturing into a retail store. Online sales are now expected to grow from initial predictions of 11% to 19% in 2020, reaching £78.9bn, this is up from £66.3bn in 20191. Indeed, many non-essential retail stores simply shut up shop during the height of lockdown and, in this case, the ability for those retailers to continue to trade online has been a lifesaver.

 

However, the shift in channels from store to online brings with it challenges on profitability. Online fulfilment is typically more expensive than store fulfilment, meaning that every customer who simply switches channel erodes retailer profits. Some retailers have been able to make efficiencies to positively impact online costs and revenues. For example, Argos and H&M have utilised their stores for the last mile in order to capitalise on their overhead costs. However, this level of supply chain complexity has not been a viable option for some retailers.

 

The pandemic has also changed customer buying behaviours in other ways as well:

 

Sustainability

The crisis has accelerated the already ‘hot’ trend towards caring about the environment and consumers are now asking for sustainability and a strong stance on CSR from their retail brands. Sustainability is likely to become the next retail disruptor, with 30% of consumers saying they will stop buying from their preferred brand if they lose trust in this critical area.

 

Combined with the increased volume of home deliveries, retailers have a significant opportunity for innovation within the last mile. Mitigating solutions to last mile costs can also create a positive environmental impact, such as; alternative delivery vehicles (e.g. electric bikes, electric delivery vans and river boats) and collaborative logistics amongst several retailers to increase vehicle road utilisation whilst reducing the number of vehicles on the road.

 

Non-Profit Customer Relationships

Demonstrating solidarity with the national consensus and exhibiting caring credentials have been shown to create a significant halo effect for retail brands, with significant resulting opportunities to increase Net Promotor Scores (NPS). A study to determine the impact of Covid-19 store safety on NPS by ISC-CX revealed that the visibility of Covid-19 preventative measures in stores, strongly affects the level of brand advocacy. Stores with safety measures that are ‘just right’ vs ‘insufficient’ results in NPS scores of +76 vs -40.

 

Reduced, or non-existent, face-to-face interactions have also impacted the retailer’s ability to build customer relationships. Empathetic marketing and store safety measures showing they care for their customers and employees, as well as a smooth online fulfilment offer, have given stores an opportunity to maintain a positive relationship. Dixons Carphone have gone a step further and introduced a new “ShopLive” service to connect in-store employees with the online shopper via videochat to create a virtual face-to-face relationship.

 

Localisation

Given the demand for more sustainability, consumers are trying to buy more local products and will migrate towards retailers that enable them to do that. There is positive evidence to suggest that this crisis will build communities and the fostering of community and localism continues to gain momentum. According to research from market analysts Kantar, 69% globally say they are supporting local shops and 52% are paying increased attention to product origins. Kantar notes, that these inclinations seem to be more about economic support of neighbours and staying safe by shopping close to home, rather than a reflection of nationalist sentiment.3

 

New Business Models and Services

New business models and services are emerging, both in response to the crisis, but also to make shopping missions easier for consumers. Subscription box retailers have enjoyed a steady growth, but the Covid-19 lockdown has resulted in a sudden spike, with many consumers looking to home-delivery meal-kit services such as Gousto and HelloFresh to help them with the increase in home cooking and to limit store contacts.

 

Influence from the entertainment industry such as the likes of Netflix and Spotify, have led the way for subscription services in retail. At a time when personal expenditure is being managed, subscription boxes can also help customers with budgeting for regular purchases.

 

The pandemic has created a retail profit challenge, but it has also created an opportunity for differentiation in the marketplace.

 

The Chinese symbol for crisis sums this up well. It consists of 2 ideographs, one meaning Danger, the other Opportunity. There is opportunity in every crisis, and it can be easier to make changes during times of upheaval. Businesses have achieved extraordinary things during lockdown and now is the time for retailers to seize the moment and transform for the future.

Author:

 

Stuart Higgins, Partner at management consultancy, BearingPoint

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