PENT-UP DEMAND AND NEW SHOPPING BEHAVIORS WILL SHAPE THE REBOUND
Rebounding consumer confidence and purchasing power will be macro drivers of the retail recovery. However, consumers will spend more cautiously and selectively due to continued economic uncertainty and a less-secure employment market.
Global consumers appear eager to return to brick-and-mortar retail for services and products that are not available online like beauty services, health & wellness and dining. Discount retailers in the Americas and EMEA should benefit from an increase in consumer bargain shopping during the recession. Although value retailers are not as prevalent in APAC, outlet centers in major domestic tourism markets should benefit. Consumers will also benefit from inventory clearance sales by many retailers this year.
FEWER BUT HIGHER-SPENDING TRIPS
Shopping behavior will shift away from pre-pandemic experiential retail and leisurely cross-shopping to much more intentional shopping trips. Consumers will shop less frequently but spend more per visit, resulting in higher conversion opportunities for retailers as evidenced by an increase in average receipts of between 10% and 15% in Italy and Spain since reopening, according to CBRE Research.
Ongoing caution around personal safety and social distancing in the COVID-19 era will lead to consumers favoring open-air shopping centers and retail parks over enclosed malls. Consumers also will favor locally based retailers until they are comfortable with traveling longer distances.
SOCIAL DISTANCING BOOSTS THE DIGITAL ECONOMY
As the COVID-19 pandemic caused the shutdown of nonessential retailing worldwide, digitally enabled brands ranging from fitness to apparel with the ability to maintain customer connection through content engagement and generate sales via e-commerce were the most resilient.
Adaptation to the digital world for many retailers was born out of necessity to increase sales, expand customer reach, provide on-demand delivery services and create brand awareness beyond using traditional flagship locations. But in a post-pandemic world, these shifts in strategy will become permanent. In a recent CBRE survey of retailers in APAC, approximately 80% of respondents plan to increase their use of and investment in e-commerce and delivery apps.
Creative strategies that involve e-commerce, live streaming and virtual reality will keep product offerings in front of consumers no matter where or how they shop. Balmain was the first fashion house to use mobile video provider TikTok to feature its collections. Retailers like Burberry, Valentino and Marc Jacobs are also using gaming apps that feature their products to attract consumers.
Retailers are increasingly using data science, artificial intelligence and multiple delivery options to meet the increased consumer demand for convenient, contactless fulfillment of online purchases. Delivery and click-and-collect options are prevalent worldwide, while curbside pick-up at physical retail locations without the need to leave your car is widespread in the U.S. Curbside pick-up has been a lifeline for U.S. brick-and-mortar retailers during COVID-19 and is part of the phased reopening of retailers nationwide. Because of its popularity, many retailers likely will make it a permanent offering.
FIGURE 11: APAC RETAILERS’ EXPECTED COVID-19-RELATED SHIFTS IN BUSINESS STRATEGY
Note: Data as of May 21, 2020, N = 179.
Source: CBRE Research, May 2020.
PHYSICAL RETAIL’S EVOLVING ROLE IN E-COMMERCE GROWTH AND SUPPLY CHAIN MANAGEMENT
Growth in online sales has accelerated rapidly due to nonessential store closures and consumer isolation, such as Mainland China, Singapore, Australia, the U.S. and the U.K. However, the migration toward e-commerce during COVID-19 has not been enough to offset the overall drop in retail sales worldwide, thus reinforcing the role of physical stores.
The surge in online spending stabilized after panic-buying subsided and consumers gradually returned to brick-and-mortar retail upon easing of shutdowns in certain regions. However, the COVID-19-related spike in e-commerce sales will have a lasting impact on the way retailers operate in the future.
Several retailers faced supply chain challenges during the shutdown and converted closed physical stores to regional fulfillment centers to meet the increase in online-order demand. Across the U.S., retailers like Bed, Bath & Beyond and Whole Foods used some stores solely to fulfill online orders. Lululemon successfully mobilized its stores throughout the U.S. and Europe to fulfill e-commerce orders using smart labels that track inventory.
As retailers strive to expand their omnichannel platforms and increase profitability, they will better integrate online and offline operations to expand their overall retail presence. Physical stores can be leveraged for both seamless brand experience and purchase fulfillment. Many retailers will reevaluate, consolidate and restructure their portfolios to optimize their physical locations while maximizing consumer reach. This will result in fewer store locations for several brands, but greater reinvestment in strategic repositioning and more innovative store formats.
FIGURE 12: EMEA ONLINE SALES % OF TOTAL RETAIL SALES
Source: Forrester, Euromonitor, CBRE Research, June 2020.