After a long hiatus, as non-essential retail reopened in the UK the early signs suggest there are reasons to look forward with optimism.
Better times
Consumption over the past year fell faster and more deeply than almost any time in recent history, and only unprecedented levels of government support kept the economy on a relatively stable footing.
With people locked at home for long periods, the savings rate across many western economies soared. In the UK it was 2.6 times that of 2019. In addition, consumer sentiment is on a strong upward curve. Indeed, UK consumers were among the most optimistic in Europe in February 2021.
Prepare for a splurge
Consumers across age groups intend to indulge in some post-lockdown retail therapy. Travel, dining out, beauty and fashion are highest on people’s wish lists.
Boomers have been the most resilient during the crisis and will mostly be able to fund spending from savings, while Gen Zs and millennials expect to finance their purchases by economising elsewhere.
As life returns to normal, category preferences may be set to change. Web search trends in the US suggest that sweatpants are likely to take a back seat to more excitement in the wardrobe – brands that combine glamour and comfort are best placed to win.
Digital first forces a reimagination of the role of stores
The acceleration of digital has been one of the most striking trends of the past year. All the signs point to this shift being permanent - across age groups, 92% intend to continue purchasing online, with net intent to shop online staying positive in all categories except restaurants and alcoholic beverages.
This would reflect the post-Covid trend in China, where consumption is ahead of 2019 but store traffic remains 10% to 15% lower than pre-pandemic levels.
During the height of the lockdown, the walls between offline and online were brought down – globally we saw the escalation in drive-through collection, online fulfilment from stores, personal service to web shoppers provided by store colleagues and virtual private appointments in the comfort of customer’s homes.
Many of these activities that unite online and offline experiences for the consumer will stick. In a world of socially distanced retail, innovation in areas such as frictionless checkout, democratisation of personal shopping enabled by technology and reconfiguration of stores to enable online fulfilment are to be prioritised. During the pandemic, players in China and the US led the innovation and can serve as inspiration for the UK to lead the way in mastering the physical-digital interface.
New measures of success
Over the past year, revenue and profit profiles have inverted, with online increasingly driving earnings (and valuation) growth, amid more efficient scaling of customer acquisition costs, higher repeat frequency, lower return rates and better drop densities.
The economics of physical retail, meanwhile, have become more challenged. With online and physical now merging, retailers need to apply new performance metrics to reflect the shift.
Channel economics will no longer provide a sufficient measure of return – customer economics and lifetime value need to become the primary metric for the Monday trading meeting.
Agility required
While the outlook is becoming more optimistic, it is unlikely that the recovery will be on a straight line. Given persistent uncertainty, planning horizons will become shorter, budgeting will need to be dynamic and resource allocation will need to be nimble – calling into question the long-range plan.
Resilience will require companies to adopt agile methodologies that enable rapid response to changing consumer needs.
In the wake of the crisis, being nimble is what makes you strong.
With thanks and acknowledgement to Sajal Kohli and the teams behind the MGI Consumer Demand After Covid-19 report and Consumer Pulse Survey
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