The 3 R’s of Retail Recovery: Reorient, Recalibrate, and Reposition
In many ways, the current pandemic crisis has created an environment of unprecedented stress in the retail landscape. Retailers have experienced previously unseen market forces resulting in months of closures and shifts in consumer behaviors. However, while this epidemic has exposed vulnerability in the retail industry, it has also uncovered opportunities.
Significant Opportunities, Larger Trends
The coming months represent a remarkable opportunity for retailers to rethink their business strategy. As the demand for real estate has decreased, landlords are more motivated than ever to work with tenants to renegotiate contracts. Retailers, therefore, should move quickly to take advantage by leveraging agile tools and insightful data to assess and make critical decisions about individual store locations.
None of us know what the retail landscape will look like in the coming months and years, but we can take cues from the developing landscape and data trends that will shape the post-pandemic marketplace. This includes a transition from the traditional pull strategy of attracting customers to the store to a push strategy encompassing delivery and other forms of outbound fulfillment. While many are hoping for a V-shaped recovery — i.e., a big drop-off followed by a steep return — most experts believe it will look more like a swoosh, with a slower ramp to recovery as most consumers are reluctant to resume normal activities anytime soon.
Macro trends such as these demonstrate the need for agile planning and a phased and comprehensive updated business strategy moving forward. While the new normal represents opportunities, it will also remain competitive and challenging. Therefore, for a successful relaunch, decision makers need to consider the three R’s of retail recovery: reorient, recalibrate, and reposition.
Most retailers have opened their doors to the public, and are finding the retail landscape has fluctuated dramatically. To survive in this new normal, retailers need to be forward-thinking by reorienting around new consumer behaviors and trends that have emerged during the pandemic, many of which are here to stay. Strategies and tactics must also take into consideration the unique situation in each locality, as cases in many states have begun to rise again. Not all geographies have the same recovery time line and, as a result, consumer behavior will likely differ. Therefore, retailers won't be able to use a programmatic approach and should instead implement a path forward tailored at a market level. Success will be predicated on access to real-time data across all channels.
Moreover, companies need to utilize benchmarks like unemployment data, mobile usage and traffic rates to determine how to staff and inventory specific locations. Trends that were present pre-COVID-19 are unlikely to reverse. For example, with a slow swoosh-like recovery, stores that were in decline and on the shortlist for closure before the pandemic aren't going to see turnarounds. Best practices dictate that these locations shouldn't reopen. On the other hand, depending on capital availability, retailers with new outlets and store redesign plans in place should take this opportunity to expedite them.
Customers are acting in a way that retailers have never seen before. The ground has shifted, and this change is likely to have residual effects long after the pandemic recedes. As demonstrated in the reorient phase, retailers must have actionable data to reassess how new buying behavior could impact their business.
Here in the U.S., we've seen considerable surges in spending at grocery and convenience stores, but a steep decline in department and beauty stores. In particular, grocers are witnessing unprecedented growth, peaking at 79 percent in March 2020 from the previous year. While recent experience has shown a small rebound for department stores, consumers are still spending significantly less. Per a McKinsey & Company survey tracking global purchasing patterns, 60 percent of consumers’ shopping behaviors have shifted, with many of the respondents favoring value and convenience over price. The U.S. is following that trend, with 75 percent of consumers indicating that they're planning on altering shopping habits, and 40 percent noting that they plan to be more mindful about where they spend their money.
These changes show that classic retail assumptions are no longer true. For example, sales forecasting models built on last year’s data will not be predictive in a forward-looking post-COVID world. While traditional models may serve as a good benchmark, the previous relationship between an individual unit’s competitors and customers is likely no longer accurate.
In the wake of an unprecedented “black swan” event such as this pandemic, there's no way to truly know what will happen. Therefore, now more than ever, it's critical to employ models powered by machine learning which rapidly recalibrate based on changes in underlying factors. Using machine learning techniques, large and new volumes of information can be processed on a frequent basis and patterns can be discerned that are beyond the capabilities of human analyses. The other advantage is that the calibration of machine learning-fueled models takes a fraction of the time of a trained analyst as compared to more manual processes. This speed will be essential in the post-COVID world as retailers scramble to adjust to whatever is the new normal.
Another important element of the recalibrate stage is that omnichannel retailing is more important than ever. Retailers that have maintained a strong presence selling both through brick-and-mortar and online are much more insulated against the current environment because they have established multiple ways to serve their customers.
As retailers fine-tune their approach and integrate machine learning into their processes to recalibrate, they can begin to turn an eye toward the final phase: reposition. While the recalibration phase places the spotlight on omnichannel solutions and illustrates their ever-increasing importance, repositioning is all about implementing a new store location strategy that accounts for the shifts in consumer buying patterns in order to maximize omnichannel revenue and profitability.
Omnichannel serves as a tether to consumers who are unable to visit brick-and-mortar stores and remains complementary by pulling in future customers. Moreover, omnichannel can change more swiftly with shifting demographics and give brand-loyal customers the option to choose the shopping experience they want instead of being forced into one channel or another.
As outlets continue to reopen, retailers should rethink how store layouts can grow sales and augment the omnichannel experience. Companies should also consider initiatives around digital fulfillment via in-store pickup and outside drive up. Most importantly, retailers must assess locations based on maximizing omnichannel vs. focusing solely on locating stores that concentrate on in-store shopping. An omnichannel brick-and-mortar market strategy can look much different than a traditional location strategy in both the number of stores and their positioning within the market. One needs to look no further than Target and Panera Bread as the benchmark for the execution of an omnichannel brick-and-mortar strategy. Real estate strategy is a long game, and near-term changes are limited based on existing leases and terms, but plans need to be put into place now to fulfill multiyear strategies.
In the end, successful execution of the three R’s of retail recovery in this new paradigm will require that phase decisions are informed by data-driven insights from agile tools and strategies, many of which weren't part of any prior retail playbooks. Innovations like machine learning are only the beginning. The unprecedented set of events surrounding this pandemic have compelled us to become nimbler and remain dynamic in extraordinary ways in order to both rebound in the near term and succeed long into the future. Retailers should leverage strategic data and technologies to answer this call. For as much as the pandemic has exposed vulnerabilities, it has also unearthed previously unseen opportunities.
Pranav Tyagi is the CEO of Tango, a leader in store location management (SLM).