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How Can Physical Retail Drive a Post-Pandemic Recovery?

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Vaccines are working. Some states are opening. Even some movie theaters are beginning to peek out from behind the sofa, as the horror flick that is COVID-19 shows signs of rolling credits. What hope, then, for a post-pandemic recovery, especially for physical retail stores?

This article looks at the timeline for a post-pandemic recovery, including how habits have changed and what we can learn from brands that have pivoted across various forms of retail as eCommerce continued its disruptive rise.

If You Build It, They Will Come (Back)

Prior to the events of the last year, movie theaters saw visitor numbers on par with attendance in their early 1980s heyday. Long nominated for extinction by industry analysts pointing to the likes of Blockbuster Video and Tower Records, both of which died by the sword of streaming entertainment services, movie theaters continued to hold their own until 2020.

Even with the immense challenge of shutdowns presented by the pandemic, some movie theater chains are repositioning to bounce back as the economy reopens. A post-pandemic recovery is anticipated, even for this most ravaged of business sectors that survives on in-person attendance.

This is not a head-scratcher. People are willing to endure the high ticket prices in order to enjoy a new motion picture on the big screen. Getting out is an adventure. The anticipation and physical experience of attending a movie screening are almost as important as what's projected onto the silver screen. Despite all the adversity of 2020, the National Association of Theater Owners continues to express optimism that attendances will come back brighter in the long term.

The same could be said of in-person retail if brands and mall owners come together to understand how consumer behavior has changed and what retailers need to do to deliver an experience worth coming out for.

Pandemic Conditions, Plummeting Retail

On March 11, 2020, the World Health Organization (WHO) declared that the spread of COVID-19 constituted a global pandemic. That, together with findings that determined this coronavirus could be spread by asymptomatic carriers, lead to strict measures imposed by governments and businesses.

Enforced closures and redesign of many business operations slowed commercial activity overall. At its high in April, unemployment reached 14.7 percent. Yet retail sales were robust if skewed more in favor of electronic transactions. Forbes reports that retail was virtually unchanged from 2019 to 2020.

In many cases, a physical location served as a pick-up point but the sale was made on a website. The drop was not just an American phenomenon. The United Kingdom saw a 25 percent decline in sales at non-essential retail locations according to the British Broadcasting Company (BBC). Like much reporting the world over, the BBC does not expect a post-pandemic recovery any time soon, at least in terms of pure brick-and-mortar business.

Pre-Pandemic Retail: In-person in Decline

Like movie houses, physical retail space was forecast to recede to irrelevance as online commercial enterprises offered the same products, often at lower prices, with the convenience of purchasing from home, followed by rapid delivery of what consumers wanted. An early casualty of Amazon was book giant Borders in 2011.

National Public Radio reported on the failure of Borders, citing this quote typical of so many shoppers: "'I'll go to Borders to find a book, and then I'll to go to Amazon to buy it, generally…'" Other established names like Sears and Toys R Us, both cornerstones of malls and big-box retail stores, followed in the years ahead. Only a handful of categories, such as grocery stores and pharmacies, seemed to offer greater resistance to the lure of online shopping.

This all rebounded to the benefit of eCommerce and to the detriment of brick-and-mortar stores. Other than grocery stores, physical shops, outlets and showrooms gave way to digital shopping. With US $792 billion in online sales, eCommerce more than doubled its growth compared to 2019.

On the other hand, some in the retail sector learned how to play to their strengths and use physical spaces to their advantage.

By offering amenities and outsourced staffing, these brands discovered that profitability came quicker than expected. Ulta Beauty and Sephora are cosmetic retailers that adopt these practices. The reforms proved so successful that brands strictly found online started getting in on the physical retail act.

Another example of this phenomenon is Boll & Branch, a seller of distinct linens made from specialized organic cotton. This operation began online in 2013 and inaugurated its first brick-and-mortar store four years later. One attraction is that their sheets are posted to the walls so that customers can experience the look and feel of such items directly. This is an advantage physical retail stores enjoy over eCommerce.

What the Pandemic Taught Us About Retail

As our CCO Noah Sange discussed with Deck Commerce last summer, retail in a pandemic presented some unique challenges and altered buying habits, possibly forever. These are some of the lessons that retailers can learn from the experience:

  1. Don't assume that nothing has changed: The pandemic has unleashed the potential and advantages of eCommerce on an entirely new section of buyers who hadn't previously considered its value. It's reasonable to assume that a lot of them won't go right back to buying in stores, if they do at all, so brands will need to be prepared to follow them online.
  2. Amazon is not essential: Far from being the only game in town, the pandemic has shown that Amazon can only handle a certain portion of eCommerce demand when everyone moves online. As Amazon's delivery times for non-essential items have extended into weeks rather than days, nimble brands have stepped in to fill the void. Customers will remember the companies who came through for them when Amazon could not.
  3. Don't stop at eCommerce: Although the realization that we can get almost anything online is new to some people, the concept of eCommerce has now been around for decades. For brands who were late to the online retail phenomenon, an opportunity presents itself to keep going and make the most of this momentum. Explore mobile commerce, social media shopping, location-based marketing, and other relatively nascent market practices that even digital native brands have not yet fully exploited.
  4. Look for emerging business models: The temptation to hunker down and maintain "business as usual" is especially dangerous at times like this. Think about the risk in existing supply chains, as well as new ways to source and sell your products as this dynamic environment continues to force retailers to iterate.

Is There Hope in a Post-Pandemic Recovery?

If the pre-COVID trends resume in the wake of a pandemic recovery, there are reasons to believe that physical stores will make a contribution to a general retail recovery.

First, look back to Barnes & Noble in the wake of its peer Borders going under. By focusing on the atmosphere in its physical stores, exploring the joys of reading through events, and diversifying into items like toys and collectibles, B&N presents the best of both worlds: the convenience of technology to order online and the comforting intimacy of a place to relax and enjoy reading.

The MIT Sloan School of Management recognizes the importance of the physical retail establishment, advocating what B&N is developing: relevance to customer needs and interests; quick access to resources not on-site; and staffing that values customer relationships. This troika creates a customer experience that online shopping can not replicate.

Despite this, it won't be enough for traditional retail stores to pay lip service to eCommerce and double down on physical retail. A report from Adobe Analytics confirms this, predicting that 2022 will be the first trillion-dollar year for online shopping. Put simply, the $183 billion in additional spending that consumers shifted during a year in various levels of quarantine are not going to be poured right back into the bucket of in-person purchases. Striking a balance between frictionless online research/ordering and a meaningful, memorable in-person brand encounter is what Adobe expects to distinguish successful retailers from also-rans in the years ahead.

Indeed, customer experience is what keeps some retailers afloat when others sink. Like Sephora and Ulta Beauty, successful businesses know the power of sampling and having the expert advice of a seasoned sales rep on hand.

High-end mall managers know this as well as anyone. Attracting tenants like Cartier, Diane von Furstenberg, and Jimmy Choo -- each with its unique ambiance and customer service philosophy -- keeps these properties thriving while JC Penney and Macy-oriented malls flounder.

As stores re-open, it will be more important than ever before to focus on enhancing the customer experience and inserting physical retail into the post-pandemic recovery that we all hope to see.