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This is how the pandemic is re-designing the future of physical retail

By Angela Gonzalez-Rodriguez

7 Feb 2021

Since the global coronavirus pandemic started almost a year ago, physical retail has been under historic levels of pressure. In the United States alone, some 20,000 to 25,000 stores were expected to close in 2020, more than double the number that did so in 2019.

Per the latest State of Global Fashion Index by McKinsey and Business of Fashion. With the pandemic adding to the segment’s woes, many brands have embarked on strategic reviews or have compressed multiyear transformations into just a few months.

Over the last 12 months, Nike announced the acceleration of its digital strategy and the reduction of its physical stores’ workforce. Meanwhile Zara, the driving force behind the world’s largest apparel retail group, said that it plans to cut 1,200 stores over two years and invest 2.7 billion euro in store-based digital.

Garment factory consolidation cementing worldwide

Looking back to February 2020, it can be seen how retail lockdowns started to trigger the crash in sales that resulted in mass garment order cancellations. In a recent report by Forbes, Achim Berg, a Senior Partner at McKinsey & Company and Leader of their global Apparel, Fashion & Luxury Group, highlighted that “We never had consistent store closures in the West except during war.” He described retail in March and April 2020 as “paralysed,” pointing out that the related and sudden avalanche of garment order cancellations by brands and retailers triggered a manufacturing sector disaster in Asia.

“Super Winners (the top 20 brands/retailers by economic profit) were in a position to stick to their values and rules. Others had to safeguard some things first, and some behaved in a way they shouldn’t have. That has taken a toll on the production side. Some 10 percent of factories in Bangladesh are expected to not reopen. Consolidation is already underway,” summed up Berg.

Brick-and-mortar stores offer ‘human touch’ and potential for modern logistics

According to recent research carried out by Ubamarket, over 21 million (50 percent) of British consumers reported that going to the shops or supermarkets in lockdown has been instrumental in combating the isolation and loneliness of the pandemic.

“Strategically, there will be an imperative in 2021 to manage commercial opportunities actively and to be acute in picking winning segments, markets, and channel combinations. With tourism in the doldrums, domestic outlets will become more important than ever. We also expect to see a rise in M&A activity as companies take advantage of low valuations and grab share in fast-growing markets,” conclude at McKinsey.

A recent session at NRF 2021 conference showcased that retailers and analysts believe that bricks-and-mortar would continue to play a vibrant role. Marc Metrick, president and CEO of Saks Fifth Avenue, said his store’s digital business surged during the pandemic. But the luxury retailer’s business started growing even faster when its physical stores reopened for business, albeit at limited hours. “Stores are still very important,” he said. “Stores are a very important part of the overall customer experience. For luxury especially, it’s theater. To touch, to feel, to experience.” “I was pleasantly surprised by the resiliency of our consumers and how it relates to their desire for fashion. People were buying things at the worst times of the pandemic that there was no functional end use for, but they love fashion, they view the luxury as the comfort food of retail. It was their escapism,” he said.

Of similar opinion is Janey Whiteside, chief customer officer at Walmart Inc., who also forecasted that bricks-and-mortar stores would continue to be important. But she noted that there is a robust future in omni-channel services, such as buy online, pick up at store. “We saw the use of services like pickup increase dramatically, particularly as it relates to pickup and delivery of food and other consumable items,” she said. “At the beginning of the pandemic in Q1, we saw a peak of 300 percent growth in those services and four times as many new customers using pickup and delivery services.”

Shorter leases, more experiential

In countries specially affected by new industry dynamics, such as the UK, smaller units formerly occupied by brands including defunct Arcadia Group’s Topshop or Miss Selfridge, have been easier to let or repurpose than large department stores, like Debenhams. Before the pandemic, chain store closures and a declining demand for retail space caused rents to fall and resulted in shorter lease lengths over the past few years. That was the case of department store chain BHS, which collapsed four years ago, leaving less than half of their 160 stores reoccupied, and around 15 percent repurposed or sub-divided. The reminder have been either completely demolished or left vacant, explain from ‘The Conversation’.

“We see brands rethinking store formats and leveraging data and analytics to predict footfall, manage assortments, and built personalized offerings. Flagship stores will be branded as discovery zones and tasked with creating emotional connections with customers,” advance fashion analysts at McKinsey, reminding that “We have already seen Burberry and Nike, as well as digitally native ARIAS New York, invest in hybrid spaces and deploy technologies such as apps and body scans to create more compelling experiences. At the same time, we are likely to see more nuanced assessments of store ROI based on a combination of digital and physical lenses. With companies in China leading the way, brands will engage even more closely with social media to offer shoppers exclusive content and personalized experiences.”