5 ways the pandemic is still impacting retail
With the start of 2024, the COVID-19 pandemic seems that much farther away. “Post-pandemic” stories were already being written in 2021, after vaccines that were swiftly developed for the devastating COVID-19 disease outbreak eased the threat to human health and allowed a return to some semblance of normalcy to daily life.
As a global health crisis, the pandemic is ongoing, though the World Health Organization, the U.S. government and others no longer consider it an emergency. That also means that many of the adaptations and innovations that retailers had scrambled to develop amid 2020’s lockdowns are less necessary.
Still, while many aspects of the retail business have steadily begun to resemble pre-pandemic 2019, there are a few important ways the pandemic continues to affect the industry.
“Rarely in recent history has there been a tsunami-like event that has altered norms to the degree that the pandemic has,” Retail Speak founder Sanford Stein said by email. “The shadow it cast over retail will not likely be lifted soon, if ever.”
1. The hybrid workplace is changing the retail landscape.
Even as offices reopened and companies became stricter about showing up for in-person work, research shows that a hybrid workplace is now the norm for many people in the U.S.
“The biggest change from the pandemic is work from home, inspiring more local shopping or online shopping from home,” Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, said by email.
In a survey of 2,500 consumers by WD Partners, zero respondents said they would ever again work at their office five days a week. That is directly affecting where they go to shop at stores, as nearly 40% said they now frequent retail businesses within three miles of their home, with 10% saying they go to malls.
Similarly, a Pew Research Center survey found that 35% of those with jobs that can be done remotely now always work from home, with 41% on a hybrid schedule. Consultancy Kearney finds that work-from-home has leveled off at about 30%, depending on the type of job.
This is ushering in what Stein calls a 21st century version of the post-World War ll flight to the suburbs, this time featuring millennials and their young families.
“Their urban-to-suburban push has only been invigorated by home working dads and moms,” he said. “With it came the flexibility to sneak out between zoom meetings to shop close to home, rather than during office lunch breaks in urban centers.”
In December 2023, visits to buildings in Placer.ai’s nationwide office index were down 36.5% compared to December 2019; foot traffic has fluctuated somewhat but has hovered around 40% of pre-COVID levels, according to the analytics firm’s report. Retailers near corporate centers should expect a gradual decline in foot traffic to continue, as more companies evaluate their downtown office leases, according to Kearney Partner Brian Ehrig.
“Sophisticated retailers are already tracking this with analytics, but smaller retailers, especially mom-and-pop shops, will be at a significant disadvantage due to lack of capabilities to sense the shifts in demand,” he said by email. “I would predict more retail will end up nearby ‘bedroom communities’ as a result of these changes, compared with what we’ve seen in the past.”
2. E-commerce got a lift
The vast majority of retail sales continue to be conducted in stores, and many physical locations like restaurants and stores have recovered nicely in the past company of years as people ventured out again. But while e-commerce sales have dipped from the peaks during the height of the disease outbreak, many consumers have stuck with the ease of shopping online.
E-commerce sales growth is expected to be 10% or less in the coming years, but its growth through 2025 will nevertheless be more than double the rate of store-based sales growth, according to FTI Consulting’s 2023 U.S. Online Retail Report.
“The pandemic actually forced people to shop online, and, like single-malt scotch, once you try it, you ain’t going back to that crap you drank before!” WD’s Peterson said. “Online is just too easy, and getting easier every day, while stores do nothing in terms of attracting new customers.”
David Gottlieb, chief revenue officer at Trax Retail, agrees that an “entirely new cohort of consumers” tried out ordering online from grocers and mass merchants in particular, and that many stores have struggled to meet shoppers’ elevated expectations of offline retail.
“The shift that we are seeing is that the way people shop in physical stores has changed; they now expect more from their in-store experiences, as they've gotten used to the convenient and flexible options offered by digital platforms,” he said by email. “Consumers want to be able to interact with stores in new ways, including the ability to search, filter and find products in the store the same way they do online.”
Generally, websites have long been considered less enjoyable to shop than brick-and-mortar stores. But many retailers during the pandemic made an extra effort to engage people online, which has also made a difference, according to Gottlieb.
“Retailers and brands made smart moves during the pandemic — especially those who focused on creating engaging shopper experiences,” he said, noting that, for example, beauty retail giant Sephora has used customer data to personalize products and also offers interactive tools for customers to engage and share on social media. “The adoption of digital technology and AI was incredibly helpful for brands throughout the pandemic and will continue to shape the retail industry for years to come.”
3. Inventory remains a problem
There has been significant recovery from the havoc that the pandemic wreaked on supply chains, though retailers have moved from crisis management to a focus on optimization, according to Kearney’s Ehrig.
“Of particular interest at the moment is how to optimize supply chain networks and reduce transportation costs,” he said.
While global supply bottlenecks have eased since the peak of the pandemic, out-of-stock issues persist, according to Trax Retail’s Gottlieb.
“In 2024, AI will play a significant role in creating a leaner supply chain that doesn’t fail consumers,” he said. “Brands and retailers will be able to make more-exact estimates of how many products to order — which will ultimately reduce costs and ease supply chain issues.”
Out-of-stocks aren’t the only challenge, however. Many retailers pulled various levers to ensure they had stock on the shelves, resulting in overabundance in 2023. In 2024, many will continue to be saddled with excess supply, Ehrig also said.
“There is still too much inventory, and we have a good couple of quarters to get through pushing through this stock before we are back to normal levels,” he said. “This means we should expect continued discounting, especially in apparel.”
4. BOPIS endures
Omnichannel fulfillment like curbside or in-store pickup of online orders were crucial for retailers during the peak of the pandemic, and those services are here to stay, experts said. The service has become handy at the holidays as a way for shoppers to get packages without worrying about shipping delays. Buy online, pick up in store accounted for a quarter online orders in the three weeks after Cyber Monday, according to Salesforce.
“Initially this may have been thought to be a necessary offshoot of the touchless times but has become a time-saving convenience that is not likely to go away,” Stein said.
Target is rolling out a new, larger store format that includes more backroom space for fulfillment. Now, though, many retailers are moving to trim the extra expense of store-based fulfillment, according to Kearney’s Ehrig.
“Generally, retailers can make a profit when consumers walk in the door to pick up, and foot traffic in your store is always beneficial to your brand,” he said. “But curbside and ship from store makes less sense financially unless it’s an unwieldy object or a large basket size. A big reason is that store labor is generally inefficient at picking orders when compared to distribution center labor.”
5. Self-checkout may not
Self-checkout stations proliferated during the height of the pandemic, as retailers sought to address workforce shortages and maximize social distancing. But, as with omnichannel services, retailers are now grappling with the downsides.
The machines became the dominant checkout method at grocery stores in 2023. But they are turning out to be less than ideal as retailers have grown increasingly vocal about shrink and theft; several grocers have been forced to devise ways to deter shoplifting at checkout kiosks.
“Retailers are recognizing that the costs of shrink associated with fewer associates outweighs the value of reducing labor costs,” Gottlieb said. “In 2024, retailers will begin to move away from self-checkout and shift their focus towards loss prevention.”