It goes without saying that the past 17 months or so have disrupted things, just about everything, in fact, across the entire world. For retailers in Canada, impacts of the COVID-19 global pandemic have, in some cases, turned the business upside down, resulting in chaos and confusion within numerous departments of the operation. Disturbances to the in-store experience and supply chains, as well as shifts in consumer behaviour and the ways product is transferred, have changed the parameters for retailers, yielding significantly altered cost and revenue structures by which the business is run. And, although many of the alterations are expected to be sustained, resulting in long-term impact and influence to which the industry will need to adjust, many are suggesting that it presents a more immediate challenge for retailers. In fact, according to Peter Woolford, industry observer and President of Clairmark Consulting Ltd., the changed parameters, combined with a distinct lack of normalcy over the past year-and-a-half, are making it next to impossible for merchants to comfortably predict what might happen next.
“A friend of mine, Jim Dion, once said that ‘retail isn’t brain surgery, it’s twice as hard,’” he says. “And, in the case of retailers operating today, that statement is exactly right. It’s going to be very difficult for them to sort out the signals that are coming from the marketplace. They’re going to have to look very carefully at what their customers have been doing over the last long while in order to get at least a glimpse of what to expect going forward. In fact, this may be a time when retailers have got to return to their old-fashioned gut decision-making. The data may not tell them as much as they had in the past, driving a need to make decisions based on that understanding and ‘feel’ that good merchants have for their customer and business.”
Factors and considerations
He goes on to explain that the recent Statistics Canada index for retail services, widely considered a proxy for margins within the industry, indicates that margins have remained strong throughout the pandemic. It’s a curious result that’s been generated in spite of the fact that retailers have generally been challenged with respect to sales, have been forced in many cases to shift channels of distribution and have also had to contend with all sorts of extra costs to the business. As a result, he suggests, the signals that are coming from the data and from their own store and company-specific sources are extremely difficult to properly read and accurately interpret.
“As retailers look at their back-to-school and holiday seasons, they’re going to be looking back at previous orders, months and years,” he says. “And, as they do, they’ll need to obviously adjust for periods when their store operations were closed and account for surges that occurred when those stores were allowed to be open. They’ll need to reflect that, in many cases, the number of stores that they have now as well as their GLA footprint may be less than they were pre-COVID. And, they’ll also be required to pay attention to signals they’ve seen over the course of the past few months as sales have surged and then dropped in response to the pandemic. Based on all of this, they’ll need to make their own personal call as to where everything is going to be in the Fall. Of course, all of this prognosticating will be contingent on the severity of a fourth wave of the virus and whether or not there will be any further lockdowns associated with it.”
What to expect?
Of course, the most dramatic shift that retailers will need to take into consideration and make adjustments for is the dramatic shift that occurred in consumer spending, accelerating a pre-existing trend from purchases made in-store to the online digital channels. Each retailer will be required to take a thoughtful look at their own experiences of late in order to make some inspired judgements with respect to the way their consumers will behave heading into the future. It’s easy, says Woolford, to assume that the shift toward online activity and spending will continue. However, he adds that it may not be the case and that at least a modicum of caution needs to be present in each analysis and decision that retailers make going forward. One area, however, that he believes the industry can be confident about is customer spending as we approach the final quarter of the year.
“Back to school was a bust for most retailers last year because nobody went back to school,” he acknowledges. “So, all of that buying that would have happened in late July, August and September simply didn’t occur or was really constrained. There were concerns about income among Canadians. And, many parents and their children were at home. There were a whole series of factors that had a big impact on customer behaviour last September that will not be present this year. And so, you’ve got the reduction in spending constraints, as well as a lot of pent-up demand to buy new clothes for work, outfits and footwear for the kids for school and new school supplies as well. Looking ahead to the holiday season, a lot of people are preparing to celebrate. They couldn’t do a great deal of celebrating last year. And it seems that the sentiment is that they’re going to make up for it this year, which will almost certainly result in strong holiday sales for the industry.”
Pragmatic and strategic approach
Despite the performance of retailers over these key shopping periods, however, it will be difficult to properly determine failure and success because of the uncertainty of our times. And, for those fool enough to compare and benchmark based on 2019 or 2020 sales data, Woolford believes they could be leading themselves astray from the realities of our current landscape, proclaiming false increases and growth rates. It’s a sentiment shared by retail consultant and expert, Ed Strapagiel, who believes that the approach taken by retailers heading into the next number of months, as we slowly approach a post-pandemic world, will need to be pragmatic and strategic in order to succeed.
“Things are going to continue to change and evolve over the next little while,” says Strapagiel. “They’ll eventually settle into something of a new normal. So, retailers can’t assume that the pre-pandemic environment and circumstances will return. Nor can they assume that the numbers they’ve been experiencing, or will experience, are going to continue for any amount of time going forward. What they’re going to need to do is incorporate strategies that are flexible, allowing them to react properly without over-committing to something simply because of a couple months of really strong sales.”
More uncertainty ahead
Strapagiel points to the potentially blatant error that retailers could make in comparing current sales with those of 2020, suggesting that it just shouldn’t be done. Instead, it’s the strategic and cautious approach to the numbers that he says will allow them to properly gauge the tenor of the times as we collectively move toward a new normal. It will allow for the flexibility that he says will be critical, enabling retailers to deal with any adverse conditions that may arise in the near-term, of which he says there may likely be many, impacting nearly all areas of the business.
“Because there has been such a shock to the system, right across the board, retailers and other businesses can expect to experience a good deal more uncertainty and turmoil, at least for the time being,” he says. “Take the current vulnerability of the supply chain as a great example. The economy and businesses run most efficiently when the level of both supply and demand stays about steady. If there’s even the slightest swing in either direction, it causes a big problem and opens up the potential of getting caught on the short end. Retailers aren’t going to be able to accurately, with any certainty, predict what’s going to happen with the supply chain going forward. And, they can likely expect more disruptions of a similar nature impacting other areas of their operations as well. It’s why it’s going to be critical over the next number of months for retailers to do what they need to do to ensure that they aren’t exposed in the event that more turbulence occurs.”
As tenuous as anyone’s understanding of the current and future market is, however, Woolford points to the fact that overall sales for the industry have stayed relatively in line with pre-pandemic numbers. Therefore, he suggests that if a retailer is showing a pattern of growth that’s similar to what they had prior to the outbreak of COVID, they can be fairly confident that they’re doing just as well as most everyone else within the industry, adding that some hard questions might need to be asked if they aren’t. And, as is often the case, with or without pandemic-induced uncertainty, the share of market is going to be one of the best indicators of growth over the next while, with a twist.
“If a retailer is taking share from their competitors, it means that they’re doing something better, smarter and faster than the rest,” Woolford asserts. “The difficulty with that in these circumstances, of course, is that COVID has taken out a fair amount of selling capacity. There are a lot of stores that have been closed. Retailers of all sizes have disappeared from the scene. And that means that there’s market share up for grabs. So, if your share hasn’t increased, you should be concerned, because there’s some loose share to be gained.”
Providing an experience
Woolford also stresses the impact that a rejuvenated service sector could have on retail sales. He explains that as economies become healthier, the very long-term shift from goods to services will continue, with COVID accelerating the trend significantly. It’s reminiscent of what’s already happening in the United States where consumers have been starved of experiences and are showing it in their spending. And, the same kind of behaviour is expected in Canada as our economies continue to open up. In fact, Woolford expects services to take some share from retail as a whole in the short-term, and possibly over the longer term as well, potentially leading to what he says will be a rise in real experiential retail.
“Experiential retail is one of the clever things that retailers have developed in response to the consumers’ desire for service. People have always visited physical stores, not just to buy things, but to experience retail as well. It’s fun. It’s interesting. It’s social. And the best retailers have realized that if they want to compete in a service-hungry market, if they want to bring customers into their establishments, they really need to dial up the experiences that they offer. In fact, the development of these types of engaging and interactive experiences may go a long way toward shaping what retail looks like in a post-pandemic world and consumer expectations going forward.”
Source: Retail Insider