Consumers’ reliance on e-Commerce as a result of social distancing and stay-at-home orders will permanently impact the commerce landscape, according to Sean Whitehouse, Managing Director of Kurt Salmon, a part of Accenture Strategy. In an interview with Retail TouchPoints, Whitehouse explained that the mandated shifts in working practices, personal lifestyles and purchasing priorities are likely to “deepen and broaden the adoption of technology-enabled commerce permanently.”
Retail executives will need to shift their priorities and budgets accordingly. In this Q&A, Whitehouse outlines how, focusing on:
- Why trust, relevance and convenience are critical moving forward;
- Examples of brands that are capitalizing on digital to engage and serve customers;
- How the emphasis on localized delivery will help solidify digital-to-physical experiences; and
- Five key questions retail executives should ask to assess and bolster their digital strategies.
RTP: Although essential retailers like grocers and pharmacies are still open, consumers only have e-Commerce to do “recreational shopping.” What categories are they gravitating to?
Sean Whitehouse: While we are seeing some categories do well during this time, it is not making up for the overall massive declines in the broader market. However, we are seeing people purchasing items based on three needs:
- To protect;
- To connect; and
- To entertain.
In addition to medical supplies and food, consumers have also been spending on board games, puzzles and video games.
There’s also been a rise in what has been dubbed the “comfort economy.” Retailers and brands are reaching out to consumers in the context of self-care. Loungewear is big in this category, and retailers that didn’t rely on this segment before are now promoting it. In some cases, they’re accelerating production on new ranges. According to Glossy, leisurewear brand Lively has shifted its supply chain to focus on lounge and comfort clothing at a time when it would normally be focusing on swimwear for summer.
Before the outbreak, there was already a shift toward healthier categories, so it isn’t surprising that health and wellness products have also been growing in recent weeks. Even as COVID-19 continues or diminishes, consumers are expected to continue to look after their health and wellbeing. On the other end of the spectrum, we have also seen comfort foods doing well, again indicative of the time we are living through.
RTP: Are consumers’ expectations of the online shopping experience evolving at all during this time?
Whitehouse: More than ever, commerce experiences need to demonstrate customer value across three dimensions:
- Convenience; and
Quickly establishing trust with new customers, and extending brand affinity that has been earned with existing customers, will be critical. Now is the time to establish trust, by making every effort to fulfill commitments and offer clear, personalized and timely communication when issues arise. (Wegmans is an example, with its live one-on-one chat while trying to fulfill orders.)
In many cases, households are trying new, innovative services for the first time: drop-off and pickup services, fresh produce purchasing and farm-to-table assortments, for example, will become standard commerce expectations into the future. Relevance also becomes particularly critical during times of volatility: personalizing how you engage with customers will pay dividends into the future. For example, the effects of deeply understanding your customers’ historical preferences, physical limitations (i.e., rural vs. urban) and being able to assist with suitable replacement items or replenishment options will be magnified during this period of scarcity and uncertainty. Advanced search capabilities with features like dynamic assortment creation allow users to define their own product experience.
RTP: Are there any examples of brands rising to the occasion, creating compelling experiences for their target customers?
Whitehouse: One great is example is John Lewis in the UK. The retailer introduced new virtual services, including one-to-one video appointments with staff members, to meet the needs of its customers under the COVID-19 lockdown. The one-to-one virtual appointments are free to access and allow customers to speak to expert personal stylists for wardrobe advice, as well as access to Q&As with the experts via Instagram. John Lewis is also introducing free virtual nursery decoration appointments and virtual home design.
Another example is Ted Baker, which launched #StayHomeWithTed — a campaign and product collection focused on loungewear (as well as homeware and personal grooming). The retailer has also ramped up content creation for this initiative, generating interest on social media through activities such as virtual quizzes and home workouts.
RTP: How will retailers need to shift or evolve their strategies in order to maximize new digital opportunities?
Whitehouse: The digital commerce acceleration will force companies to revisit and even reimagine their strategies in the interest of capturing new marketplace opportunities, and indeed a fair share of new digital customer segments.
With the disruption to supply chains, the rules for merchandise and inventory have fundamentally shifted. Historical data on what sells online versus offline is out the window. Companies now have a lot of inventory that they are sitting on in retail outlets, and they need to figure out how to get it online or into the right places for when stores do reopen. Retailers have also had to look at taking a series of steps to unlock additional capacity for curbside and localized delivery in the weeks and months ahead. We have seen a re-emergence of age-old delivery systems like the “milkman,” with companies like Picnic in the Netherlands that are operating regular routes vs on-demand delivery.
New markets and ecosystems are opening. Local delivery startups are gaining momentum. For example, iOS downloads of Instacart more than doubled in early March, and the company is seeing 10X sales growth as a result of a combination of increased demand from both existing and new customers. In addition, some businesses are unlocking their transportation capabilities for others to use. Companies are also rebalancing their merchandising to new customers and adopting new mindsets to ensure relevance.
As the COVID-19 crisis wanes, consumers will reset relationships with retailers. Those that have gone above and beyond will be rewarded with increased loyalty and mindshare. We expect that the shifts in preferences and buying behaviors are not temporary, and retailers may need to regain customers’ confidence and re-establish their role in this hugely disrupted marketplace.
RTP: How do you believe implementation of these options will accelerate (or slow) in importance as stores open and social distancing measures change?
Whitehouse: In observing how a couple of other markets have approached reopening non-essential retail, we are likely to see guidelines to continue to limit the number of people physically in the store. Demand for contactless commerce will likely remain high even as consumers go back to stores — ordering online or via mobile for going to the store, continuing to use curbside pickup and buy online, pick up in-store (minus the in-person contact).
Digital fulfilment capabilities should continue to be integrated across the store network, with dark stores leveraged to facilitate curbside pickup and same- or next-day delivery. Retailers need to think how advanced analytics and AI can help them optimize resource allocation across these facilities. They also need strategic partnerships in place with third parties and other retailers to satisfy shifts in demand.
RTP: What key challenges lie ahead for retailers?
Whitehouse: All these developments present a double-edged sword for retailers: there is an opportunity here to grow the business through digital commerce, but this also brings with it a higher operating cost structure, which can impact margin.
Consider pharmacists, grocers and discount stores that consumers typically visit in person. Before the outbreak, these brands may have been developing their own digital shopping platforms, but none could have predicted demand for them to grow so quickly.
If these retailers can grasp digital commerce, they have a significant opportunity. But making the leap is not simple. Many generate the bulk of their revenues through their physical stores, so they need to revise their operating model. Furthermore, launching a new service requires a higher operating cost structure, while anticipating future demand is extremely difficult when the course of the crisis remains unknown.
RTP: How can retail executives best prepare to adapt?
Whitehouse: Retailers can take immediate steps to ensure their businesses are getting ready for the shift to digital commerce. In our view, this means taking a close look at five core capabilities — marketing, digital ecosystem, product line, supply chain network and stores — and assessing each for its strengths and areas for improvement.
We recommend five questions that brands might ask themselves as they assess their capabilities:
- How strong is our digital commerce marketing strategy?
- Are our digital touch points configured to support increased volume?
- Is our product range “liquid”?
- Does our supply chain support our targets for digital service and increased profitability?
- Are our stores prepared to play a new role in order fulfillment?
Answering these questions will be a stepping stone to redefining the company vision for digital and reviewing the operating model; developing a digital marketing strategy and capabilities; understanding how to integrate digital in consumer touch points to drive customer lifetime value; and developing “Risk Prediction” analytics to better anticipate future disruptions.