Short-term agility remains essential, particularly as retail weathers the current storm. But this lockdown period is also the perfect time to prepare long-term strategies for growth, in order to benefit during the second half of the year.
A friend made me smile last week by sending a meme: ‘I’d like to cancel my subscription to 2021. I’ve experienced the free seven-day trial and I’m not interested.’
Despite being glad to see the back of 2020, the toughest year in living memory, 2021 has not had the greatest start. Facing into a third lockdown in the most miserable months of the year, many people have resorted to hunkering down into semi-hibernation. For me, that has involved shopping online for yet more loungewear and buying items that make my home more comfortable.
Short-term challenges
With non-essential stores closed, the retail environment remains highly challenging. Online shopping is booming and jumped by 74.7% year on year in November, according to the Office for National Statistics.
For many, it has fundamentally changed the way that they think about retail but the rise in online shopping does not make up the gap for physical stores being closed. Different from browsing in stores, shopping online is mostly functional and it is much rarer for the experience to spark joy, as Marie Kondo might say.
Mostly what is keeping me sane through these dark days is dreaming about all the things I plan to do during the second half of 2021 – seeing friends, going shopping, seeking out crowds, flying off on holiday and properly enjoying life once more.
Retailers have needed to weather the intense storm of a pandemic-induced economic downturn, changing government regulations, uncertainty over Brexit and rapid changes to consumer demand over the past year.
While it has been highly challenging, it has also taught new skills of adaptability and resilience that will strengthen businesses for the longer term. That flexibility will be necessary throughout the first half of the year, but there is much hope for the second half as the warmer weather arrives and the vaccine rollout is fully underway and many retailers are investing in growth.
Investing for success
Already this year we have seen examples of retailers that are investing now to strengthen their businesses for the long term. Frasers Group acquired boutique clothing retailer Psyche. In the US, Amazon has invested to further build out its Amazon Air fleet of planes. Asos revealed plans to build a new UK distribution centre. The Hut Group, which floated in the autumn, has already this year spent £300m on acquisitions, buying online skincare retailer Dermstore.com in the US and UK-based nutrition suppliers Claremont Ingredients and David Berryman.
Meeting the needs of haves and have-nots
The coming year is likely to be tough economically. The International Monetary Fund predicts huge falls in GDP globally for 2020, including a drop of 4.3% in the US, 5.9% in Germany and 9.7% in the UK.
Consumer sentiment will divide in two, just like the year. Income inequality has accelerated – office workers have been able to keep their jobs and even save money working from home, while others have faced uncertainty, furlough and redundancy. That signals heightened price sensitivity for retailers to adapt to in 2021 and beyond.
At the top end, there will be opportunities for luxury brands to sell to wealthier consumers who will be keen to travel, socialise and refresh their wardrobes as soon as life begins to return to some kind of normality. But for many, the major focus will be on low prices and value for money. The market polarisation will pile further pressure on to mid-market brands and retailers, particularly those that have underprepared.
There will be clear retail winners and losers
This will undoubtedly be a year of two halves for retail – there will be those that survive and thrive by resetting their business models, adapting for change and investing for growth, and, unfortunately, those that get left behind.
Now is the perfect time for retailers to review strategies and make changes for the long term.
Our Retail Horizon 2021 report outlines some of the trends that we expect to see this year, including investment in fulfilment and supply chain agility, a continued focus on local and hyperlocal retail, the evolution of brand experience and customer relevance and further tie-ups through partnerships and ecosystems as businesses realise they are stronger together.
It is easy to be distracted by immediate concerns but it is essential to plan now for the long term as we all hope for a much stronger, healthier second half to the year.
Retail Horizon 2021
Retail Week subscribers can access our 90-page report Retail Horizon 2021 – Winning Strategies to Navigate Disruption, which provides an overview of our five winning strategies for 2021.
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