Hello 2021, Farewell Year of Chaos
The year of chaos is finally ending. However, instead of doomscrolling, here’s a look at tectonic shifts and lessons learned that will continue to transform retail in 2021.
We can’t help but think of 2020 as a year of pandemics, lockdowns, social distancing and facemasks. For too many it was a year of lost opportunities and deep personal sadness.
However, it was also a year that threw out the rulebook and, as an essential industry, retail responded. Here’s a look at the year’s retail revolutions in the making.
Warp Speed Consumer Response
The one common element driving tech and business roll outs in 2020 was the necessity to respond to consumer needs at warp speed. Just as shoppers had to invent ways to social distance (Zoom gatherings, quarantinis and walktails), retailers had to shift high volumes of their business to buy-online-pickup-in-store (BOPIS), click-and-collect, and curbside pickup.
According to a study by Accenture, 65% of 116 retailers polled in the survey offered BOPIS, click and collect, or curbside pickup. This represents an increase of 52% over the number from last year. So, in 2020, dozens of retailers launched risky chainwide projects that directly touched customers and did it on short notice. In addition, the study found 57% of retailers now offer contactless pickup, an option they had never offered before.
The pandemic forced many retailers to pivot on a dime and launch major projects without thorough business plans. In the process, they learned how to be nimble, fail fast, fail forward, and serve a customer base that counted on them to operate smoothly in a crisis.
Other pandemic-inspired trends that were launched at warp speed include: partnering with third-party delivery services (Instacart, Shipt, Postmates, etc.), mainstreaming same-day delivery (Dick’s Sporting Goods, Best Buy, Nordstrom, Build-a-Bear, Chico’s, Petco, etc.), and launching resale, rental and subscription models (thredUp, Poshmark, IKEA, Rent the Runway, Walmart+, lululemon).
Supply Chain Reboot
Running out of Lysol and toilet paper was not unexpected in the early days of the pandemic. However, long after panic shopping subsided, retailers experienced product outages for several months.
Clearly, the pandemic was a stress test and it forced retailers to evaluate weak spots in their supply chains and find solutions to solve them. The problem areas included: blind spots in data, over reliance on long-distance sourcing, over reliance on single sources for products, and siloed omni-commerce systems.
Regarding the latter problem, many retailers discovered they could not easily inter-operate between sales channels (stores, marketplaces and e-commerce), internal departments (merchandising, marketing and supply chain), and external partners (third-party suppliers, distributors, manufacturers, wholesalers and transportation companies).
Recommended steps emerged from these supply chain re-evaluations:
- Embrace cloud technology and digital transformation to enable applications and dashboards to inter-operate and eliminate silos between sales channels, internal departments, external partners, and databases.
- Leverage cloud technology to create real-time dashboards to track commerce-ready inventory at a granular level – in DCs, warehouses, stores, cities, geographic regions and zip codes.
- Once digital systems and real-time dashboards are in place, enable decisions to be made with artificial intelligence to optimize operations for speed, cost, and continuous adjustment to demand.
- Shorten supply chains between hubs and spokes (in some cases through microfulfillment centers) and also between hubs and manufacturers/suppliers. By localizing links in the supply chain retailers can reduce and/or simplify the many hand offs that occur between ships, planes, trains, trucks, third-party vendors and more.
Omni-Commerce Is King
In a year where store traffic is down more than 50% and lockdowns force store closures, one predictable result was a massive surge in e-commerce. The data is staggering – global e-commerce sales are projected to hit $4 trillion in 2020, U.S. e-commerce sales grew 45% in Q2 and 37% in Q3.
However, simply posting a website and shipping products to customers is not enough during a pandemic. Omni-commerce needs to be embedded deeply into retail processes and enabling technology. It has to be fueled by robust analytics, fast-fulfillment (including same-day delivery), personalized marketing, and the agility to respond quickly to shifts in demand.
Retailers who were prepared for the online onslaught in 2020 dramatically grew their digital revenue. A few examples include: Best Buy (242%), Target (195%), Ulta (200%), Dick’s Sporting goods (194%), lululemon (157%), Lowes (135%), Kroger (127%), and Home Depot (100%).
Perhaps even more importantly, new store designs or modifications need to adapt to the growing list of omni-commerce capabilities. These include click-and-collect and curbside pickup areas (including contactless pickup) in both the store and in dedicated areas in the parking lot, drive-through service areas, and connected associates who are alerted when shopper cars approach designated spots for their orders.
Also, store associates need to be connected to online capabilities (through mobile devices and wearables) to verify pickups, authorize payment, verify orders, check order status, take new orders, and more.
Essential Is the Gangster Move
“Essential” shopping emerged as the most important business driver this year. It was the force behind sales spikes in grocery, home cooking and other basics. It was also the driver for lifestyle choices shoppers made to cope with pandemic lockdowns, such purchasing record levels of sporting goods, home improvement items, toys, games, crafts and outdoors gear.
While apparel, accessories, furniture (year-to-date down 15%) and department stores have suffered, “essential” retailers have thrived. Prior to the pandemic, collective retail wisdom asserted that low prices and convenience rule consumer preferences and hence retail success. But this is too simplistic.
Consider Dollar General. It was founded in 1939 selling cheap gift and home items. In 2003 it began carrying milk, lunch meat and some perishable food, i.e. essential items. It grew to become a behemoth with 16,000 stores and sales that will surpass $30 billion in 2020.
If Dollar General had stuck to its original cheap-and-convenient formula it would not have become the behemoth it is today. And of course, when the pandemic lockdown occurred, it was perfectly positioned to serve shoppers who needed essentials.
The path to becoming an essential retailer includes:
- Begin by adding food. Drug stores jumped on this bandwagon years ago, but for inexplicable reasons many department stores, mass merchants and big box stores did not.
- Add non-food staples such as home cleaning products, bathroom and kitchen products, and alcohol. Are you listening JC Penney, Sears and Macy’s?
- Focus on health and wellness. Many of these products have high profit margins and are in categories that are ideal for getting private-label treatment to secure exclusivity.
Finally, apply “essential” to employees. Store associates have become heroes to shoppers because they help them get essential items during a crisis. Retailers need to live up to the high standard set by their front-line associates, which means they need to provide meaningful training, extended medical benefits, and pandemic bonuses.
Smart Money Is Flowing into Retail
Despite the pandemic, there is a massive amount of financial investment occurring in the red-hot retail sector, which is clearly one of the biggest stories of 2020. Here is a rundown:
- Petco filed with the SEC for an IPO in 2021 for an estimated value of $6 billion, which is up from its acquisition price of $4.6 billion in 2016.
- BevMo! was purchased for $350 million by delivery startup GoPuff , a Softbank-backed startup valued at $3.9 billion that operates 200 micro-fulfillment centers.
- Used clothing retailers ThredUp and Poshmark both filed for IPOs in 2021 with the SEC.
- Germany-based online retailer Mytheresa filed for an IPO in the U.S. that will value the company between $1 billion and $1.5 billion, which is up from $253 million when Neiman Marcus purchased it in 2014.
- Luxury boutique platform Farfetch received a $1.1 billion investment from Alibaba and Swiss luxury brand Richemont.
- Mobile-first e-commerce app Wish filed for an IPO in mid-December and its stock valuation leveled off at $14 billion.
- Instacart plans an IPO in 2021. Today, Instacart is valued at $17.7 billion. By the time of its IPO in the months ahead the sky’s the limit.
So, farewell to 2020, a year of chaos and heartbreak. Here’s wishing for a better year in 2021 – in retail and our personal lives!