The retail industry is widely accepted as one of the leading economic indicators. industry. When the economy is growing, consumers flock to stores. On the other hand, when a recession is imminent, consumers and their wallets generally stay put and are more conservative.
Lately, the retail sector was shaken by the COVID-19 pandemic. This situation has forced retailers worldwide to adapt to a slew of new consumer demands while juggling a precarious supply chain. While the pandemic has shed light on the resilience of the retail industry, there are still looming risks for the next decade.
In this article, we take a look at the key risks that may be faced by retail businesses in 2021 but also through the next decade.
1. The lingering impact of COVID-19
The coronavirus has been a significant part of our lives for the last couple of years. It is safe to state that the world has changed. The overall consumer behavior has radically shifted, with people becoming cautious about how they are spending their money. As lockdowns became the new normal, consumers and retailers started going ‘digital’. This has increased e-commerce’s share of global retail to 17% in 2020, up from 14% in 2019.
With the adoption of e-commerce on the rise, brick and mortar retail businesses face increased risks of having to shut down. Indeed, Statista predicts ecommerce revenue to reach $563.4 million by 2025, up from $431.6 in 2020. This could potentially create an over-reliance on digital communication between the seller and the buyer. While going digital is not exclusively reserved for bigger brands, small retail businesses may not necessarily have the knowledge or funds to take the step. This is especially alarming since paid ads are getting increasingly expensive and may not be within every business’ reach.
Key takeaway: Consumer behavior has changed and retailers will need to adapt to the new normal if they don’t want to lag.
2. Cyber threats
As consumers shift towards e-commerce, this space has also drawn the attention of cybercriminals. According to Forbes, almost all cybersecurity reports released in the past years mentioned the retail industry as a prime target. The ever-increasing number of online transactions increases the vulnerability of digital retail businesses. More data processed gives way to more possibilities of data breaches.
For instance, back in 2013, hackers stole data from over 40 million debit and credit cards from retail giant Target. This has led to over $18.5 million in settlements, along with huge damage to its consumers’ trust. Similarly, Home Depot also faced a large-scale data breach in 2014, leading to over 56 million payment information being stolen. Cybersecurity should be a top priority for any retail business looking to get onto the e-commerce wagon.
Key takeaway: Right from the start, your online retail presence should be secure and protect your brand, your company, and your client from cyber threats. Otherwise, it can cause strong financial and reputation damage.
3. Product boycotts
In recent years, the rise of social media has given unprecedented power to activist movements around the globe. For retail businesses, this generally translates to product boycotts. While many product boycotts don’t necessarily get the traction to result in a massive drop in sales, they can however considerably damage a brand’s reputation.
In 2017, retail coffee giant Starbucks faced a strong backlash from consumers in the U.S. Many called for boycotting the brand after the company announced it will hire refugees. More recently, the AFT (American Federation of Teachers) called for a boycott of Walmart over the retailer’s gun sales.
Strong from over 1.7 million members, the AFT is easily the largest teachers union in the U.S. The union states that on average, a teacher spends $500 per year at Walmart on school supplies. If you do the math, this is a potential loss of $850 million per year for Walmart!
Key takeaway: Retailers need to manage the risks associated with social media and ensure they implement the best practices in their digital communications.
4. Increased competition from Amazon
Amazon is possibly one of the biggest success stories in e-commerce history. Its success is however an ongoing threat for many retailers. According to a 2019 consumer behavior study, 74% of consumers turn to Amazon when they need to purchase a product. Such is its dominance that even some of the biggest retailers are struggling to compete on the digital landscape. The shopping behemoth accounts for over half the ecommerce market on its own.
Retailers face an even stiffer threat as Amazon expands into brick and mortar spaces. Lately, the company has been opening several grocery stores in major U.S. cities. Additionally, Amazon has acquired Whole Foods Market for $13.4 billion back in 2018. This move gave them access to over retail 460 stores, making Amazon a heavyweight in the space almost instantly. Who would bet against the company acquiring more competitors in the long run?
Key takeaway: Be ready to face strong competition from Amazon, regardless of your niche. Stay competitive is by enhancing your ecommerce experience and offering a unique selling proposition that Amazon cannot.
5. An aging workforce
As the years go by, the population is getting older. Many would not expect an aging workforce to be a concern for the retail industry. Over the next decade, the current retail workforce will age and will be much more susceptible to health hazards. According to the Bureau of Labor Statistics, working in the retail industry is ‘riskier than working in a U.S. factory. In 2018, over 3 out of every 100 retail workers suffered an injury or illness, requiring time off.
The retail industry is not the go-to for younger adults looking for an after-school or summer paycheck anymore. This can potentially lead to a shortage in the retail workforce soon. The situation has caused many retailers to offer more competitive benefits, such as paid time off and 401(k) eligibility.
Key takeaway: Retailers need to have reliable insurance coverage to make up for workers’ compensation claims and at the same time offer competitive packages to attract new talent.
Summing it All Up
Retailers have been facing an ever-increasing number of challenges over the past years. Nothing suggests that things are going to get easier for the retail industry, with the ever-changing economic landscape.
At the end of the day, only one certainty remains; the retail industry needs to keep improving its customer experience to stay in the game.
Sam Meenasian is the Operations Director of USA Business Insurance and BISU Insurance and an expert in commercial lines insurance products. With over 10 years of experience and knowledge in the commercial insurance industry, Meenasian contributes his level of expertise as a leader and an agent to educate and secure online business insurance for thousands of clients within the Insurance family.