A Renewed Retail WorldPosted on
If any of us were asked on 31st December, what 2020 would look like as always our answers were filled with new beginnings, optimism and positivity. Come January we’re positive, joining gyms, getting healthy as we promised ourselves. Towards the end of January, from China’s largest manufacturing hub — Wuhan a virus was creeping in. No one saw it coming, but today has become the only thing we talk about.
COVID-19 a SARS derivative has plagued the world. All of us have read enough articles about how the coronavirus is infecting the world. There are enough experts for you to follow in getting updates on the coronavirus.
As someone who went through the 2008 financial crisis, and like you is going through this pandemic — I am at the early days of starting a new company. I wanted to share my thoughts on the similarities between those two crises and what we can expect as consumers and producers of the new normal world.
While this crisis is very different from 2008, there are a few similarities. Economy recession, trust deficit and joblessness at all time highs. But unlike banks, this time retail, restaurants, real estate and commerce are the biggest losers.
Discounts will be a default.
Well, it’s not Black Friday, summer is not here yet, but we all have seen the 60–70% sales being offered by all brands. It feels like every website, every brand regardless of size is offering deep discounts. Founders of brands made marketing pleas for lowered prices, assuming that more consumers will switch to virtual shopping i.e. e-commerce.
Retail platforms have seen a whooping 6 percent global traffic increase between January and March 2020. Overall, retail websites generated 14.34 billion visits in March 2020, up from 12.81 billion global visits in January 2020. Source: Statista
This deep discounting model made business sense at the start of March 2020, just before and around the lockdowns, and shelter-in-place was announced. But now, more than 6 weeks into the lockdown, for retailers the value in offering discounts has significantly changed. It will be beyond just abandoned carts, new email sign ups or seasonal trends. Retailers will be driven by warehouses holding on to piles of inventory, increased customer returns, cancelled orders with factories, retailers will now have discounts as the new default.
Fear is the new friction.
Unemployment is at its all time high of 20%, with more than 4.4 million Americans filed for unemployment benefits. A Forbes Article mentioned that nearly 700,000 retail workers are out of jobs. Which means fear is the fundamental focus.
One aspect of the fear is the human element — how long will this lockdown be in place, how many more lives will be lost, when will the vaccine hit the market — to name a few. The other aspect of the fear is the financial side of it — for businesses. The fear that was top of mind just with management, has now passed on to employees translated to everyone — the end consumers.
A substantial mindset shift unknowingly that has taken place — Conserve versus waste. Survive versus thrive. Retain versus acquire.
Retailers and brands will have to think about not user experience, or great customer service, but rather being more vulnerable and transparent to deal with the fear mindset for their consumers.
Billions will be the new bottleneck.
We all have witnessed the explosion of DTC brands. As per this 2018 McKinsey article, more than 4,000 of them have received $9.8 billion of venture funding over the past ten years — $7.2 billion of it in the past four years alone. Publicly listed retailers have had their market valuations cut in half overnight.
These new brands combined with legacy brands were spending millions every month on marketing, and ads leading to increased acquisition costs. If the brands weren’t spending on ads, they were spending on brick and mortar stores. All of them were injecting billions of dollars to acquire the new customers which then became a drug that shareholders felt ‘the high’ in the gross revenue numbers that quickly ‘wore away’ as they started taking a closer look at the bottom line.
The coronavirus exposed and expedited these costs that were once dormant and ignored. Increased all hands, board meetings where billions are discussed. At some, bankruptcies will be one of the many options that legacy retailers and high CAC injected brands will consider. Acquisition talks and consolidations will begin. While a lot of this hasn’t started mainly because larger companies are still trying to reserve cash, we will see a flood of these take place in the coming 12 months or so.
In the next wave, we will see more resistance or at least more prudence from investors in dumping piles of cash. Billions that were once freely available will now be one of the biggest hurdles for brands to deal with.
The future will first eliminate, second consolidate and finally emerge stronger.
Post the 2008 financial crisis, we saw a rise in the number of banks shutting down. 465 to be exact from 2008–2012. I believe that we will see that trend play out with retailers. A significant drop in earnings, revenue and inventory will encourage more consolidation — in the form of like-minded brands to join forces or complimentary brands come together to form a large conglomerate. And many will just die.
Retail Dive is maintaining a running list of retail bankruptcies — just in 3 months the number stands at 17 and counting. Source: Retail Dive
Just like with every crisis emerges an opportunity. We all are witnesses or participants for the Zoom, Google Hangout and Houseparty growth. Newer entrants will emerge in areas and ways that are always hard to predict. But if anything is certain is that retail will consolidate and then give birth to a stronger world of commerce — more compassionate and definitely more conscious.