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Eric Hazan, Senior Partner at McKinsey & Company and EMEA Leader for Marketing & Sales Practice, looks at retail’s Covid-19 predicament and recovery strategy.
The Covid-19 pandemic has impacted both lives and livelihoods. For retail business, it has ushered in a new reality for consumers and retailers. This generation-shaping event has heralded an ecommerce boom – thrusting digital into the spotlight and administering a dramatic shock to brand loyalty. The global pandemic has shaken up businesses and consumer behaviour on a massive scale – from how, what and where they buy.
The impact on UK retailers has been stark as concern for the economy goes hand-in-glove with uncertainty about the duration of the situation. In April, UK retail sales dropped 22.7 per cent according to the Office of National Statistics, and while at the end of May they rebounded to 13.1 per cent year on year, there is still some way to go to return to pre-Covid-19 levels, never mind make up for lost revenue. Our most recent UK Consumer Sentiment survey of 1,002 adults (conducted June 2, 2020) also revealed consumers’ intent to spend in the coming weeks is lower across every category except groceries and home entertainment. Concerns continue to grow in households too about how long they will be impacted by the pandemic, with 69 per cent believing their finances will be impacted for more than two months.
One stunning effect of the crisis has been the shock to brand loyalties as consumers exercise choice over the retailers and brands with whom they shop. Seventeen per cent of consumers have switched brands in response to economic pressures and changing priorities. Consumer rationale for this shift can range from brand trust, availability of stock and website queues, to switching to discount stores, or just looking for best value options. Of consumers who have switched, 53 per cent intend to stick with their new brands. With this shift opening up new fronts in the competition for customers, this is an opportune moment for retailers to capture new customers and establish loyalty for the future.
One of the most far-reaching effects of the pandemic has been what we call the Great Digital Migration. Digital penetration during Covid-19, for instance, jumped by 11 points. To put this in perspective, five years’ worth of digitisation has happened in eight weeks.
As retailers navigate the new reality, it will be important to have a through-cycle mentality. McKinsey research has shown that in past recessions, companies that invested in and delivered superior customer experience during the downturn emerged far stronger than their peers once the economy rebounded, producing shareholder returns that are three times larger than average. Those that invested in e-commerce and omnichannel experiences are seeing that right now.
To emerge stronger, there are a number of potential priorities retailers can address to rewire their business for speed and agility to quickly capture revenue and accelerate growth:
This is the ability of a retailer to not only navigate the situation it finds itself in now, but also what will happen in the near and longer term. Currently many organisations are laser-focused on managing the here and now, given the extraordinary circumstances. But ideally, retailers should consider allocating about a third of their resources on planning the recovery, and beyond that, the “next normal”. In times of uncertainty, it is crucial to examine multiple longer-term scenarios and plan extensively for contingencies.
Consumer eyes have been opened to different ways of shopping. Contactless payments, virtual and pre-booked appointments, kerbside collections and increasing comfort with e-commerce and “home alternatives” are here to stay. New shopper concerns including hygiene, queueing, convenience, and densely populated shopping centres, mean there is an opportunity to reimagine the customer experience, processes and categories, and even target markets. Retailers could consider taking these shifts into account before making the leap and rewriting their playbooks.
The situation is constantly evolving. Retailers need to be able interpret the demand signals and insights available in their data. There will likely be huge demographic and local variances. There will likely also be changes in consumer reaction to the marketing messages and offers of the past, both positive and negative. Insights could help resegment markets, target and reach customers, plan media campaigns, optimise operations and inform longer-term investment decisions.
Successful organisations have agile in their DNA – but historically these have worked better as face-to-face groups, and now virtual agility is an unavoidable reality. Technology has an important role here, for example in building a single source of insight based on data, that can be accessed by any team member, any time, from anywhere. Collaboration, whether with team members, partners, or customers is also key, with virtual war rooms needed to rapidly manage critical situations.
Consider looking at where money can do its most effective work. Are there inefficiencies that can be removed and funds redeployed? Can a process be digitised, freeing up valuable hours for higher value tasks? Analytics has a huge role to play here – for example, helping find the most impactful and relevant marketing channels and campaigns for a segment or category. Such reallocation supported by advanced analytics can mean a 10 to 30 per cent saving for reinvestment elsewhere.
The future is going to be increasingly digitally enabled. That means retailers need to adapt and adjust with the changing times. This could be a chance to jump on what has been a seismic shift in consumer behaviour and the move to more online shopping.
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