The retail market at large has been transformed by ecommerce retailers in the past 20 years. With the recent Covid-19 pandemic, this trend has increased. Brick and mortar retailers are seeing their unit economics being displaced by challenger brands, mostly focused on online shopping and fast fulfilment. Traditional retailers are forced to carefully consider store space, employees headcount and their online operations.
First it took the brick and mortar stores
The Covid-19 pandemic has caused many stores to close temporarily or permanently. The trend is consistent across Europe and US. While the US retailers have been hit first and hardest, with over 14 000 stores closed and almost 2 million retailer workers being laid off, this wave of store closures will reach the EU soon. Initially store chains and SMB retail companies have been partly protected by government intervention and job supporting measures but this is unlikely to continue indefinitely.
Retail chains such as H&M are starting closing operations as they saw their operations already in the read with 50% decreases in sales.
While ecommerce stores have saw initial surges in sales due to consumers ordering online this will probably see a backlash in the future. The increase in online sales was caused primarily by existing online purchasing trends and partly by consumers’ fear of Covid-19 infections. These increases in sales have been limited to products with repeated purchase habits.
But online retail won’t be too good for too long
Many customers are unable to experience products like they did before and this in time will surely affect online retailers. After surge in sales many of them are able to return to the slow and steady rate of increase. However, this rate has not passed 20% in Europe historically .
This means that without a way to bridge the gap between online and in-store experiences, total retail sales are likely to decrease, stores will close and many retail workers will eventually be laid off. In this scenario a paradox of increased retail demand and decreased retail offering will result in an increase in prices, inflation and job losses.
The store of the future is live
Quick question: what makes Instagram, Snapchat and Tik-Tok a good choice for Gen-Z? Is it the social networking features? Nope, many apps have that. Is it the video and rich media? Closer but not quite there. It’s the live interaction, one on one and one to many. In some cases, such as Fortnite – it’s many to many.
And retailers are tapping into this.
We noticed that both online and in-store retailers consider live stream shopping a viable model for existing operations.
Brick and mortar retailers see live stream shopping a way for them to decrease costs with retail spaces while at the same time retaining their strengths. They see live streaming as a way to quickly and seamlessly connect digital-savvy consumers to their in-store experiences.
Online retailers see live streaming as a way for them to quickly solve problems in terms of their customers experiencing products. In the past they have experienced with experience-only stores, open-on-delivery processes and return logistics. All of these have improved conversion rates but at the same time have increased unit economics and operational costs.
So what is next? Probably – live shopping operations. Taobao has been promoting this for quite some time with high success. Amazon has jumped on board and even Google has launched ShopLoop, a video shopping app. Live shopping software will probably continue to gain traction as the retailers need a way to reach their customers in an immersive way and consumers need better experiences than two-dimensional ecommerce stores or closed stores might offer.