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9 September 2020

6 trends that are shaping the retail sector

Today, disruption has impacted almost every aspect of business as a new relationship between companies and customers has taken center stage.

The retail industry has been undergoing a radical shift over the past few years. Driven by reshaped customer expectations, the availability of data and the rise of new tools and technology, new business models or market dynamics have emerged. Just take automated stores, virtual showrooms or D2C (Direct to Consumer) models, for example, such as Dollar Shave Club (men’s beauty-care), Barkbox (pet utilities) or Casper (mattresses).

The go-2-market has also been impacted, as the customer experience needs to be increasingly personalized: Consumers today are hooked on the real-time, customized world of digital landscape, while retailers have to reach them in new and exciting ways. On top of that, customers are demanding more sustainable businesses (shopping local, healthy food, cultural diversity)… raising new challenges for marketers in the retail industry.

Enters corona… For some retailers it means filing for bankruptcy, for others it means coping with the growth by fixing internal processes,… for all it means showing resilience, creativity and courage to reinvent the way they work and adapt to this new reality. Corona has clearly accelerated some shifts in consumer behavior that retail marketers should take into account. We share 6 trends to get you started!

6 trends that are shaping the retail sector

1. Preference for strong omnichannel offerings

As consumers are now limited in their ability to interact physically with companies, they are looking for new ways to shop which deliver the same value to them. Whereas in the past they might have seen a product in a magazine or in the window display and gone in to try it and buy it in-store, it is now more difficult and time-consuming to do so. Consumers are thus less exposed to the traditional channels and, as such, shift to alternative channels to engage with retailers.

The ability to offer your product or service through more than one channel has thus become paramount. Consumers are looking for a convenient, reliable and fast alternative to their traditional shopping, giving them the same fluid experience. As such, multiple entry and exit points should be present across the marketing funnel.

Further, they should be diversified across the important digital channels of the sector; customers must be able to browse or buy through their channel of choice. Lastly, all channels should function as a homogeneous network so as to maintain a consistent brand image and provide a single and frictionless customer experience. Successful retailers have been meeting consumers’ needs in two main ways: by implementing new technology and forming new partnerships.

Until now, live interaction with consumers was mainly limited to the physical (fashion shows, product launches, conventions, etc.). Now that physical movement is restrained, companies should invest in digital tools which enable them to connect and engage directly with consumers.

An example of such a tool is the advent of live commerce or shop-streaming. This tool enables the retailer to stream content about its product or service and offers the user the possibility of purchasing directly from the livestream. Shanghai Fashion Week, for example, successfully used live-commerce for its 2020 edition in partnership with Alibaba’s Taobao e-commerce platform. Another example of such new technology is the virtual storefront platform Streetify. This cross-side platform allows users to explore the virtual high-street and enter any store that catches their eye. On the other hand, retailers partnering with Streetify can engage with customers and provide them with an extra sales channel. 

Streetify

2. Shift to online channels

COVID-19 has been accelerating the “contactless” society due to governmental regulations limiting consumers’ mobility. This has two main consequences for consumers. Firstly, they are increasingly resorting to online channels to meet their needs. Secondly, consumers who, previously, were unaware of the benefits of online retail can now discover its ease of use, convenience and reliability. As such, the traditional brick and mortar model is evaporating faster than ever.

Both big and small retailers have been investing heavily in their online presence. Inditex, the textile giant has pledged to invest $1 billion a year through to 2022. While many small businesses have been suffering from a low investment in online channels, a number have built online platforms – for example, through platforms such as Shopify or a more DIY approach on Facebook and Instagram. The difficult situations for small businesses also highlighted the importance of social commerce, where consumers set greater store by shopping locally and responsibly.

This means that retailers must put the emphasis on selling online and make their business more sustainable in the future. Bigger retailers have also been investing in Impulse commerce platforms, where, by providing a service to the consumer, they also allow him/her to purchase relevant products tying in with the service the retailer provides. Lidl, for example, offers a recipe platform on which users can directly add the ingredients to their basket.

A shift to a primarily online marketplace also comes with its own challenges. The first challenge is to educate consumers on how to use those online channels. Many consumers are not used to shopping online and providing support for those consumers is primordial. Through the use of chatbots and FAQs, retailers can help answer all common questions consumers might have, while providing a fully personalized experience.

Another challenge is building trust with consumers. Buying online is seen as riskier than brick and mortar purchases for many consumers. Giving them the right information at all stages of the customer journey is therefore crucial. If Uber Eats did not track its deliverymen on the app, would you trust your food is on its way? By being transparent with their sales process, retailers reduce the perception of risk and begin to gain the consumers’ trust, which is essential to customer satisfaction and loyalty. 

3. Loyalty shock

COVID-19 also affected consumers’ purchasing behavior in three main ways. Firstly, the crisis has negatively impacted consumers’ income, thus reducing their purchasing power. Secondly, the crisis has prompted many consumers to re-think the way they purchase. Whether for ethical or environmental reasons, consumers have been taking a step back from the current societal landscape to re-consider how tomorrow should look like. As such, consumers have been moving away from certain sectors and retailers. Lastly, we observe a renewed feeling of solidarity with a rise in local and national consumption.

For those reasons, the outbreak resulted in lower customer lifetime value and a higher churn rate in certain retail sectors. Consumers are looking for a convenient, reliable and fast alternative to their traditional shopping that gives them the same fluid experience.

In order to mitigate those effects, retailers must focus on customer loyalty by engaging directly and more personally with customer needs. Linking to our previous point, more online traffic leads to more data being generated by users. This data should be leveraged to provide more personalized and value-creating shopping experiences. Delhaize for example added a “recommended for you” section to their website.

Another way to secure retention is to opt for a subscription-based business model. Whilst most traditional players experienced losses due to COVID-19, the subscription industry has stood resilient to the pandemic. The COVID-19 Subscription Impact Report states that 53.3% of subscription-based companies have not seen an impact on their acquisition rates whilst 22.5% of companies are seeing their subscription growth rate accelerate.

In fact, traditional players are now looking for ways to adapt their offering to a subscription format. HP has been experiencing decreasing sales and profits for its printers and ink lines. This was exacerbated by the coronavirus with the company losing money with up to 25% of its customers. In order to secure client retention, HP switched to a subscription model for its printers/ink operations. This brought down the cost of printing a page by 70% for customers whilst securing a loyal client base. Walmart is also set to launch its subscription service Walmart+ in which customers get free delivery for purchases over $35 as well as discounts.

Retailers should also invest in their loyalty programs to secure retention and increase customer lifetime value. Whilst larger retailers have been offering loyalty programs for a long time, they usually depend on physical objects such as e-cards or stamped leaflets. Those programs should be re-vamped to reflect the reality of the marketplace. Smaller retailers can also invest in such programs thanks to add-ons to their e-commerce platforms like WooRewards for Wordpress.

4. Price sensitivity

It is no secret that the outbreak has had an overall negative effect on consumer income. The economy as a whole was affected by a wave of technical unemployment and job losses. The effects of these measures vary across countries and sectors, but we observe a global shift in consumer decision-making. Firstly, consumers are more price conscious. As their income falls, they are wearier of the price of items they purchase. Secondly, consumers expect price transparency when it comes to purchasing higher quality goods. They like to know what justifies a certain price point. As such, retailers should either focus on advertising low prices focusing on the price sensitivity or educate their consumers on how their products are made and what added value being a client brings to society.

By exploiting price sensitivity, retailers can use “post crisis” offers to convince their customers to shop at their stores. The department store De Bijenkort was offering up to 30% sales on articles as a response to the crisis. Whilst consumers are more price-aware, they still uphold certain values such as sustainability, overconsumption or local commerce. These values are correlated to certain generations with baby boomers and generation X being less impacted by them. On the other hand, generations Y and Z attach an almost vital importance to these values. It is thus important that retailers rethink their promotional approach by focusing on price without ignoring those important societal values.

Other retailers choose to focus on price transparency. This is the case for Polette. The French eyewear brand sells lenses and glasses at a very low price. Thanks to an innovating business model (factory to consumer), they are able to keep prices low whilst reducing their carbon footprint. By being transparent with the consumer on pricing and the manufacturing process, they differentiate themselves from their competition and create a trustworthy brand image. Other retailers choose to focus on the societal added value the company offers. Boll & Branch, for instance, emphasize the fair trade and organic sourcing of their beddings and mattresses. This enables the customer to make an informed choice at a certain price point.

5. Shift to healthier lifestyle

COVID-19 is also having a deep impact on consumers’ lifestyle. We are observing an increase in physical and mental health awareness, especially with the gen Z and millennials. They are embracing a slower pace of life in which they focus on wellbeing; sleeping more, eating better, meditating, exercising and personal development. As this trend has deep positive impacts on consumers’ life, we have reasons to believe it is here to stay.

Netflix discussing mental health on Instagram
From home workout programs to healthy recipes, retailers have been capitalizing on this trend by supplying knowledge and inspiration to the consumer.

Netflix recently partnered up with Instagram to discuss mental health in live-stream formats. The show is aired on Netflix’s Instagram account and is presented by various actors famous on the streaming platform. Another initiative by Decathlon had them live-streaming home-workout sessions multiple times a week during the lockdown. Similarly, Albert Heijn has been leveraging dietician influencers on Instagram to educate consumers on healthy products available in-store. These initiatives allow opportunities to cross and up-sell while delivering value to the consumer in a more transparent way.

6. Focus on corporate social responsibility

The fallout from the pandemic has put the spotlight on many inequalities and societal injustices. Whether talking about the environment, the local economy or homelessness, COVID-19 has allowed consumers to take a step back from their busy lives and focus on deeper societal issues. A newfound sense of solidarity and social protectionism is becoming a central concern for consumers. They expect firms and companies to take responsibility and positively impact society.

Retailers thus need to connect with their customers on deeper societal issues and in a more humane way. Whilst in the past you might have struggled to find the CSR section on a retailer’s website, it now is becoming an important selling point. A Cone Communications study on CSR from 2017 found that 87% of respondents said they would purchase a product because the company advocated for an issue they cared about. It is thus important for retailers to communicate how their customers are "shopping for change”.Lidl surprises
eFarmz, the Belgian bio e-supermarket showcases three of its producers each month on their homepage. In doing so they advocate for the use of local products enabling customers to connect with the brand. Other retailers have been using micro and pico influencers to connect with their customers and humanize the brand. Lidl even printed out tweets written by clients in their local branches, putting customers in the spotlight.

These 6 trends will shape the retail sector the remainder of 2020. Want to accelerate your own online offer? Download our E-commerce Canvas to set out or optimize your strategy:

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