How Coronavirus is Impacting the Retail Industry: The Good, the Bad, and the Ugly

In January, I wrote an article profiling the changes in consumer expectations and purchasing behaviour that characterized the 2010s for the retail industry. I concluded the article with the following statement: “Over the next decade, consumer expectations are sure to evolve; whether the remaining traditional retailers survive the evolution will be the biggest test of the 2020s for the retail industry.” At that time, not many people predicted that consumer behaviour would rapidly change within two months, nor did they predict that retailers would be facing the biggest test since the Great Depression: COVID-19. Besides the obvious financial implications of international retail shutdowns and reduced consumer spending on non-essentials, COVID-19 is also changing consumer behaviours and the retail landscape in unprecedented ways.

The old adage goes that it takes thirty days to break a habit, a statement that applies to consumer behaviour as well.  For over a month, consumers have been forced to break their habits of in-store grocery runs, morning Starbucks, and working out at their local gym. While some consumers can’t wait to get back into their old routines, retail analysts predict that many of the purchasing habits formed during quarantine will stick even after quarantine restrictions are lifted. One change that is likely to stick is a decrease in brand loyalty; shortages of favourite foods and products have forced consumers to move beyond their preferred brands in search of anything that adequately satisfies their needs. In other words, people who only bought Charmin Ultra Soft quickly learned that in a pandemic, any type of toilet paper does the job. 

Digital shopping is the second (and most important) habit that consumers have developed in quarantine. While digital shopping has increased in popularity exponentially within the last decade, brick-and-mortar retail still accounts for most of the total retail sales in the United States. In the era of COVID-19, however, digital shopping is often the only option available for consumers, forcing shoppers and retailers who were reluctant to adopt digital shopping to do so. For example, grocery stores and consumers have been forced to embrace online delivery and curbside pickup, as reflected in a 210% increase in online grocery fulfillment during March 2020 compared to the same period last year.

The third habit that consumers are likely to keep post-COVID: in-homing. In-homing is the shift from performing activities outside the home to inside your home, and companies like Peloton and Keurig have benefitted from the in-homing phenomenon. Notably, the increased consumer sales of expensive home exercise equipment (e.g., Peloton bikes) certainly suggests that some in-homing habits are here to stay post-quarantine. In addition to in-house coffee and workouts, in-homing encompasses the widespread shift for non-essential knowledge workers to work from home instead of the office. Some employers are expected to continue work-from-home policies indefinitely, leading workforce consumers to demand different goods and services: affordable ergonomic chairs and secure videoconferencing services are a few that instantly come to mind. 

Potentially permanent changes in consumer behaviour are likely to negatively impact retailers in the future, but many retailers are already feeling the heat. Retail behemoth Neiman Marcus is facing imminent bankruptcy, with department store incumbents Macy’s and J.C. Penney not far behind. The situation is even worse for small businesses, many of which elected to close permanently rather than drawing out their financial hardships over quarantine. One thing is certain: the “retail apocalypse” trend of consolidation in the retail industry has only been heightened by COVID-19. Post-quarantine, consumers can expect fewer independent shopping options, and may even see former standalone giants become absorbed by retailers who are able to weather the storm.

Despite the bleak picture painted for retailers, industry business leaders can work to adapt to changing consumer preferences and to the realities of a post-coronavirus economy. Retailers should proactively embrace emerging consumer preferences for contactless payment, digital shopping, and more accessible pricing. Companies should also be mindful of the erosion in brand loyalty that occurred during coronavirus, and strategically market to “switchers” who possess little brand loyalty. By targeting switchers, retailers can mitigate the loss in spending from loyal consumers impacted by the coming recession. Above all, businesses across all industries should focus on optimizing their short-term viability while planning long-term for a protracted recession and a continued battle against coronavirus. These measures won’t guarantee survival for retailers, but they’ll at least increase businesses’ chances of coming out on the other side of COVID.

Coronavirus will beat down the already-bruised retail industry, but there are positives that will come out of this pandemic. For one, consumers will value brands with a social purpose; coronavirus has taught us to care more for essential workers’ rights, as well as forcibly dampening our voracious appetites for environmentally- and socially-unconscious shopping. Post-coronavirus, retailers would do well to consider reformulating their social and environmental missions, as well as focusing more than ever on building positive relationships with employees and customers. Coronavirus will certainly change the retail industry, but in at least some ways, I hope it changes retail for the better.