Covid can be a reset moment for the retail sector

Traditional retail has been one of the sectors hardest hit by the Covid-19 pandemic. For many the shuttering of shops for months on end signalled the peak of a perfect storm that had raged for many years in the high street. According to retail expert and author Mark Pilkington, Covid represents a reset moment for the sector, however, with the possibility of a wave of innovation to create a brighter more sustainable future.

“Traditional retailers defined themselves by their physical stores and their metrics of sales per square foot and were loath to change. Covid was a wake-up call, especially with some who had little or no online presence and were doing no business at all. There’s a huge shift now towards investing in multi-channel,” he tells The Irish Times.

Pilkington’s new book Retail Recovery starts by cataloguing the problems of the big brand retailers who built glorified warehouses with minimal levels of customer service. He cites their reliance on manufacturers to advertise and draw in largely passive consumers to take products off the shelves. High barriers to entry discouraged disrupters and supported this oligopoly.

The past 30 years has seen this turned on its head. Online has revolutionised retailing. By 2017 Amazon alone had captured 43 per cent of US online sales whereas the top six retailers – including Walmart, Best Buys and Macy’s who had dominated retailing in the 1990s – had only managed to gain 12 per cent between them.

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Young consumers have become relatively impoverished in recent decades and therefore more inclined to seek better value online. As Pilkington notes, the spread of peer-to-peer reviews, social media and blogger influencers has provided an objective way for consumers to evaluate new products and spread the good news when something genuinely innovative comes along.

One of the key advantages bigger online players have is the scale of their virtual stockrooms. Sites like Amazon can offer almost anything consumers desire while their customer data-management systems, algorithms and superior logistics have turned them into retail superpowers.

Transactional level

The key to the revival of the high street is to accept that it will never win against online on a pure transactional level and it needs to deliver richer, more experiential formats to win consumers hearts and wallets and this is among the key takeaways from Pilkington’s book.

Pilkington, whose rich and varied CV in the retail and consumer brand sectors includes overseeing the launch of the Wonderbra as a former CEO of Gossard, forecasts a wave of innovation hitting the high street based on the moves of some interesting pioneers.

Take the example of CVS Health, a leading US pharmacy chain, which has understood the need to create an affordable end-to-end solution to customer healthcare needs, as opposed to simply dispensing drugs. Its HealthHUB service includes blood test, diabetes-monitoring immunisation and help with issues such as weigh loss and sleep apnoea. Customers are looked after by health concierges who take the time to learn about the needs of customers and in many cases their families.

The group has made room for the service, which takes up about 20 per cent of floor space, by reducing stocks of commodity items such as snacks which are now sold through iPads connected to the CVS website and shipped direct to customer homes.

The HealthHUB has proved popular with customers, with a 15 per cent increase in visits associated with chronic conditions and also profitable for the group, which is rolling it out to 1,500 outlets by the end of 2021.

A recurring theme of Pilkington’s book is the need for retailers to be seen as brands, moreover brands that connect and resonate with consumers. Some of the more successful are those that create enthusiastic communities.

Consider athleisure clothing outlet Lululemon, one of the first to create a female-centric brand. The brand has a strong online and offline community with activities such as free yoga sessions.

Enthusiasts

Then there’s Lomography, an Austrian camera brand specialising in old-fashioned film-based photography. While most of its sales are online, it also has stores where enthusiasts are encouraged to try out camera equipment and spend time discussing photography with knowledgeable staff and fellow enthusiasts.

These innovators stand in sharp contrast to a high street that became boring in recent decades, dominated by a small range of tired and complacent big brands, Pilkington acknowledges.

The success of the reset will involve such smaller innovative offerings but that will require an alignment of stakeholders including government, local councils and landlords.

“It needs to be as easy to open a physical store as it is to launch a Shopify website,” he says, and the tax and cost advantages online retailers have also need to be addressed.

Pilkington says he is a lot more optimistic about this happening than he was pre-pandemic. The UK government, for example, set aside rates, while landlords recognised the reality of needing to offer rent forbearance, indicating a recognition that normal rules no longer apply and new approaches are necessary.

One solution that might help landlords is to adopt a retail as a service (RaaS) approach. Rather than seeking elusive anchor tenants on long-term leases, landlords could instead sub-divide their spaces into smaller, more flexible units, a variation on the “pop-up” format.

A traditional large retailer might have spent six months on outfitting a store that it would operate on a very long-term lease. Some innovative brands now want to rent a store for as little as a few months so the infrastructure is one that needs to be flexible with digital displays and backdrops that can be changed quickly and easily, he explains.

Landlords

Specialists are emerging that can help landlords realise this RaaS objective, including in some cases a built-in cohort of sales assistants that can be retraining within a few days to service the new brand client.

One of the trailblazers in this area is Neighbourhood Goods, which leases space and subdivides it into smaller modular units. Leases range from two to 12 months, with brands paying a fixed fee per month. In return the company provides all the staff and a central checkout mechanism, online and offline.

Pilkington acknowledges that there will be fewer jobs in retailing in the future but on an more up-beat note he says that the positions remaining will be a lot more interesting. There will be less store stackers and more actors, stylists and community organisers.

“The retail job can go back to what it used to be – a high status, expert role which people want to do for life and raise a family on,” he concludes.

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SOME KEY INNOVATIVE TRENDS DRIVING RETAIL

Showrooming – Sonus, the high end direct to consumer audio brand, is an example of the trend towards inventory light stores. Customer can use listening booths in its stores to appreciate the brand's rich sounds in comfort while ample use is made of technology to show other products not physically stocked in the store.

Automation at work – Amazon Go, the new convenience format from the internet giant, is a leading example. Its "Just Walk Out" app allows customers to scan-in when they enter stores and take whatever they want without paying, while the app produces a receipt and charges their credit card. This slashes labour costs while increasing customer convenience.

Phigital – when physical goes digital: Retailers are using technology to makes stores more like websites. Smartphone detectors can now pick up the unique Wi-Fi/bluetooth search pings sent out by customers' phones and can track the movement of users from the moment they approach a store. They can identify how many customers are leaving quickly without engaging (the bounce rate), see hot spots where customers dwell, check interactions with staff and measure sales conversion rates.

Edutainment – Stores can be used to showcase the history, unique features or excitement of a brand. Examples include Rosé Mansion, a New York-based wine-tasting experience that combines a wine bar, amusement centre and educational museum in one package. Online mattress brand Casper, meanwhile, has created a store concept called "The Dreamery" where customers can book micro-sleep sessions to sample their offering in curtained nap nooks.

Retail Recovery - how creative retailers are winning in their post-apocalyptic world by Mark Pilkington is published by Bloomsbury and is available now price £20.