Four reasons to believe in the recovery and transformation of the retail industry

During the lockdown, the only shops open were those considered “essential”. Others could rely on their digital and logistical organisation to keep running. “Essential” and “service-based” were synonyms of “resilient” in the face of the health crisis. But what about the consumption crisis we are experiencing? What qualities are required to build a more robust model?

From the consumers’ perspective, there are four ways in which retail can recover while adapting to the new challenges.

1) Consumers want to take back control of their choices 

There are two hypotheses behind the slump in consumption post lockdown, the first being that consumption slowed simply because the shops were closed, and that everything will go back to normal soon enough. The second is that the lockdown has sealed the fate of a consumerist era and all its attendant advertising and sophisticated persuasion techniques.

Clearly, we are leaning towards the second hypothesis. During the lockdown and in the weeks that followed, the revenues of retail chains were very variable depending on the market, with local food shops, bookshops, toy shops, gardening and DIY stores, as well as services linked to personal grooming and well-being faring better than most.

On the other hand, the textile industry’s decline accelerated. Is this to be deplored, or should we see it as an inevitable repercussion of the suffocating strategies of retail chains?   An offer spread too thin, not enough segmentation, too many risky imports coming from Asian countries, too many shops, etc.

A realignment of retail by consumption sector is not a new idea. On the contrary, in terms of market spending, the principle of communicating vessels is still a reality: some markets reach saturation while others emerge. What is new is that now the consumer is in charge. The drastic decline in purchasing power, which stems from the post-Covid economic crisis, will surely emphasise this phenomenon and contribute to a necessary stabilisation of the market.

2) Consumers' growing societal and environmental expectations are opening new doors

 

We already know that, increasingly, consumers want local products that are of higher quality, healthier, pollute less and consume less energy;  they want products that are pertinent not obsolescent.

These qualities come at a price that can only lead to an increase in production costs. Therefore, the rate at which the market will evolve will depend on consumers’ willingness to obtain less for the same price, to buy second-hand products, and to spend more on leisure, dining, well-being and personal grooming. All these industries meet the abovementioned criteria, while still remaining vulnerable to further health crises.

Eventually, the businesses and services that commit to this evolution should get the most out of it. In part due to the nature of their activity, but perhaps more significant will be the retailers’ voluntarist strategies.

3) The retail industry wil reinvent itself by becoming more service based

We know that consumers would like to see retail take a more customer-focused / service-based approach, and the health crisis showed us to what extent this could also be vital for shop owners. Indeed, it is an axis for development and a criterion of robustness and resilience. We addressed this in great detail in our previous article: The digital realm: yesterday’s threat, today’s saviour.

This service does generate additional costs in terms of digitalisation, logistics and welcoming the public in store. The retailers’ aim is to ensure their investments are sound, even if this means offloading some of that cost on the consumer by raising their prices.  It’s a tall order: free deliveries and the management of returned items, for example, add significant operating costs.

The aim is not to imitate Amazon, neither is it to add extra costs for the same service and believe that a miracle will happen. Disruptive innovation inevitably leads to changes in business models and a new distribution of operating costs.

We do not doubt that the retail industry will find the right model, particularly if, as we suspect will be the case, consumers become more aware of the value of the goods they are purchasing and begin to favour quality over quantity, and especially if it means reaching new customers further afield. 

4) Previously abandoned or neglected territories could soon represent new opportunities 

 
For many of us, the health crisis has rendered more appealing the idea of living, if not in the countryside, then at least closer to nature. It has accelerated the development of teleworking and put suburbia back on the map as an ideal place, where you can get more real estate for your money and still be close enough to your office to make part-time teleworking a viable option.

Only time will tell us to what extent these phenomena will spread, but it is important to note that they align with the necessity to return to local, sustainable and smaller-scale farming, to reduce commuting in motorised vehicles, to breathe life back into town centres, to offer affordable housing, etc.

Without suggesting that a mass urban exodus is imminent, it isn’t too much of a stretch to imagine that medium-sized cities and rural areas – at least those that are well governed– could see a demographic and economic upturn. A nationwide development of these areas, which are currently neglected, could represent a significant share of the market in the near future. In the suburbs of large cities, the focus needs to be on modernising existing shopping centres, investing in the town centres and renewing the local offer.

Are these scenarios realistic? This does not depend solely on shop owners.

You’d be wise to question this somewhat optimistic outlook, not least because, in view of the severity of the current crisis, retailers’ intentions alone will not prompt this recovery. Obviously, retailers are part of a large-scale ecosystem which is determined – among other things – by production, imports, and various regulations, all of which have an impact on the economy and territories.

Therefore, our intention here is not to make any predictions, but to highlight a possible route for investors, lessors and local players in particular, all of whom play a key role in creating the necessary conditions for these different evolutions, which will take place gradually, starting at a local level, then city after city, shopping centre after shopping centre, before becoming widespread.

The first step is to believe in a possible future. The second is to encourage it by supporting the kind of initiatives that will take us in the right direction.