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Retail’s New Reality

May 13, 2020
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Marketing Maestros is providing weekly coverage of how various brands are responding to the novel coronavirus outbreak and relevant resources from the ANA's Marketing Knowledge Center to help your brand do the same.

It comes as no surprise that retailers are struggling as COVID-19 continues to take its toll across the globe. With social distancing and lockdowns still in effect in many key cities, storefronts and shopping malls remain empty and closed as restless shoppers sit at home. Although the future of retail has always been uncertain, the industry has been heavily hit by the global pandemic, and the likelihood that it will bounce back anytime soon is, well, unlikely.

Most recently, American clothing brand J. Crew filed for bankruptcy. According to the New York Times, J.Crew is the “virus’s first big retail casualty,” though it is not alone. “The pandemic has been disastrous for the already weakened retail industry,” and has affected other major retail brands such as J.C. Penny, Sears, and Neiman Marcus, which filed for bankruptcy protection on May 7.

In March alone, sales at clothing stores fell by more than half as consumer spending drastically decreased, and the U.S. Commerce Department announced one of the largest declines in overall retail sales to date. April is likely to show no signs of improvement. Michael Gapen, chief U.S economist at Barclays Plc., told Bloomberg that “April data is likely to be even worse because for a good half of March, things were still open.” The U.S. Census Bureau is expected to release April sales data on May 15.

Retail’s future may very well be one without shopping malls and department stores. According to The Atlantic, “in 2017, and again in 2019, physical-store closures reached an all-time high.” If non-essential apparel retailers and longstanding department stores cannot survive the pandemic, shopping malls are bound to follow in their footsteps. A report from real estate research firm Green Street Advisors predicts that “more than 50 percent of the department stores anchoring America’s malls are going to close permanently by the end of the next year.” Perhaps such predictions aren’t too far off. Stores are scrambling for revenue amid mass closures, and Macy’s has already announced that it lost the majority of its sales despite its digital business.

What are brands to do then?

 

The Rise in E-Commerce

E-commerce is nothing new, and most of millennials in the U.S. today are already digital and mobile shoppers. Forbes reported that, despite the pandemic, “U.S. retailers’ online year-over-year revenue growth is up 68 percent as of mid-April.” COVID-19 has actually accelerated consumers’ transition to online shopping as more and more consumers turn to e-commerce while they stay home. According to Statista, consumers are spending their money on “more nonperishable food-items, cleaning supplies, and home entertainment products,” which is typically done through online marketplaces such as Amazon or Walmart. There has, of course, been a decline in spending in clothing and furniture stores, which makes digital transformation for traditional retail brands more imperative than ever.

CCInsight estimates that pure e-commerce brands will continue to see an uplift in sales and revenue online, and suggests that “retailers who are putting the time and effort now into improving their online shopping experience will see long-term benefits.” In March alone, e-commerce giant Amazon.com had 4.06 billion visitors, globally, and net sales from its online stores “totaled $36.7 billion in the quarter, jumping up 25 percent year-over-year.” As consumers become accustomed to making purchases online and their shopping habits change permanently, retailers need to innovate and get creative.

 

Home Cooking: Sur La Table and Williams-Sonoma

When restaurants shutdown, many consumers turned to a new hobby: cooking and baking. The pandemic seemingly ignited consumers desire to discover new recipes, bake their own bread, and cook meals that take as long as a morning commute. The demand for flour and yeast has surged, so quickly that grocery stores have struggled to restock their shelves.

Sur La Table, a retail company that sells kitchenware products and offers culinary classes in select stores, recognized this shift in consumer behavior. It moved its brick-and-mortar business online when COVID-19 forced it to close its stores, and it adjusted its messaging to better resonate with consumers and their new stay-at-home lifestyle. Sur La Table has invested in the creation of digital lifestyle content — including “step-by-step cooking videos, recipe ideas, and inspiration for meal planning and preparation.” Its initiative “Let’s Cook Together, Apart” is an effort to replace its in-store experiences with an online community. Yet despite ambitious efforts to move Sur La Table’s in-store experiences online, it hasn’t been able to make up for drops in revenue, and on May 1 Bloomberg reported that Sur La Table Inc. “is preparing for a potential bankruptcy filing.”

Competitor Williams-Sonoma, another retail company that sells kitchenware as well as home furnishings, has adopted a slightly different strategy. In response to Coronavirus, it has minimized non-essential expenditures and is emphasizing “direct-to-consumer (D2C) traffic and conversion.” Thanks to prior investment in e-commerce, around 56 percent of the company’s revenue is already generated from digital channels, making the brand better equipped than others to tackle the ongoing crisis and the impact of store closures. Laura Alber, Williams-Sonoma’s chief executive, is optimistic that the brand will get “a lot of market share out of this, because of our strong e-commerce platform and our brands and our cross-brand work, and the relationship we have with our customers.” Williams-Sonoma has greatly invested in digital tools and technology and is currently focused on building customer loyalty. Alber believes that “it’s times like these where a lot of loyalty is built and people remember how you treated them during tough times.”

 

The Online Fitness Boom: Lululemon and Nike

Cooking isn’t the only new hobby that has become top-of-mind during the global pandemic. Nationwide closures of gyms and fitness studios have increased the popularity of the digital fitness industry, which already generated 3.6 billion in revenue in 2019. Between January and March of this year alone, the U.S. saw a 55 percent increase in the sales of fitness equipment. It appears that dumbbells are the new flour. Fortunately for athletic consumers, fitness studios have been quick to adapt, and many offer virtual classes that can be streamed online.

lululemon, an athletic apparel retailer popular among fitness enthusiasts, has a strong brick-and-mortar presence globally and is known for its ambassador studio community, hosting events, and offering in-store classes. COVID-19 led lululemon to rapidly shift toward its virtual channels, with a long-term goal of building an “omni-social community,” where real-life and online events serve its members. lululemon also invested in technology to innovate its digital operations, and the brand plans to use its closed stores as “ship-from-store” locations for e-commerce orders. lululemon’s CEO Calvin McDonald stated that "since closing, our digital business has picked up, but it's obviously not recovering all the volume loss from our store networks being closed, but we have seen our online business accelerate in terms of growth.” lululemon is staying connected with customers by offering free online exercise classes, workout routines, meditation sessions, and yoga training. Its “Community Carries On” hub provides digital content and the opportunity for users to connect with one another. To further support its community, lululemon has even created the “lululemon Ambassador Relief Fund,” a $2 million global grant program to support its ambassador studio owners.

Nike has joined other fitness brands, such as Active by POPSUGAR, Peloton, and CorePower Yoga, in the movement to share free workout content. In March, it dropped its subscription fee for NTC Premium, granting consumers access to workout videos and training programs. It launched “The Living Room Cup,” a digital workout series where users can compete with pro athletes.

Nike has also continued to spread its message to consumers around the world in light of COVID-19. Its recent “Play for the World” campaign, which urges people to play inside, “highlights its brand purpose, as well as its wider aim of inspiring people through the power of sport,” according to Econsultancy. Since May 4, Nike has donated more than $25 million to COVID-19 response and most recently announced that it will donate 30,000 pairs of Air Zoom Pulse footwear to health care workers in key cities.

 

Slowly Reopening and Returning to a New “Normal”

Retail stores are slowly preparing to open but will have to take new measures to ensure customer and employee health and safety. Simon Property Group, the largest shopping mall operator in the U.S., announced on May 5 that it has already reopened 59 of its properties and plans to soon open 18 more. The group told Forbes that it will use traffic measurement technology to manage traffic and limit mall admittance, and it plans to offer “free infrared temperature testing for customers and CDC-approved face masks and packets of hand sanitizer for shoppers to use.” Food court seating will be limited and play areas will remain closed to encourage social distancing.

Macy’s has already reopened some of its stores and is to be followed by Gap, Best Buy, and Nordstrom, which announced that it will reopen stores in a phased approach. Changes to the in-store experience at Nordstrom are outlined in a press release, and include limiting entrance, limiting store hours, providing masks, frequent cleaning of dressing rooms, and exhibiting greater caution when handling returned merchandise. Nordstrom will also add plexiglass dividers at cash registers and will only accept contactless forms of payment, such as credit cards.

Despite best efforts to ensure health and safety, all retailers must prepare to face a new reality. For brands that rely on their stores, reopening will not be enough to return to “normal.” Traditional retailers will have to adapt by becoming more agile and innovative. To address shifts in consumer behavior, brands will have to adopt digital strategies to improve their online presence and to ensure online and offline customer engagement once stores reopen. CCInsight shared that a digital strategy will be essential to survival once the pandemic has passed, because “consumers of all ages and demographics, having been forced into e-commerce whether they were ready or not, will become exceedingly comfortable with — and in some cases prefer — e-commerce.” The future shopper will be more demanding than ever before and will expect superior online experiences as well as opportunities for digital engagement.

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