“We’re already seeing a resurgence in shopping with the vaccine being shoppers’ safety shield,” says ... [+]
Having come through the tremendous disruptions caused by the Covid pandemic, retailers need to dispel the notion that business will return to normal – whatever that may be, since almost nothing about retail following the 2008 recession could be considered normal.
Many of the changes in shopper behavior wrought by the pandemic are likely to persist, like online shopping and a continuing concern for physical, emotional and financial wellbeing reflected in the products people buy, ways they shop and prices they pay.
And while retailers were encouraged by the unexpectedly strong growth in retail sales in 2020 – 6.7% increase that broke the previous record of 6.3% set in 2004 – the gains were not evenly distributed. In “to the victor go the spoils” fashion, retailers classed as essential during the shutdown experienced a rapid rise in sales, while those categorized as non-essential suffered.
All retailers, but most especially the non-essentials, are anxiously awaiting shoppers’ return to in-store shopping.
Taking the pulse of consumer sentiment in March, Nielsen found a large majority of consumers – 61% classed as “Ready to Go” – are eager to resume their day-to-day lives. Those still in “Wait and See” mode dropped to only 9% from a high of 29% at this time last year. And the middling “Proceed with Caution” folks stand at 21%.
Already over 70% of the 1,000+ consumers surveyed by Nielsen report their town is starting to emerge from the crisis and as a result, some three in ten consumers expect to do more in-store shopping in the months ahead.
Retail’s final hurdle: Wide-spread vaccinations
At the present moment, retailers’ future hangs on the vaccine, but a fair number of people have not or may not ever take the plunge and get vaccinated. In a global survey among 15,000 consumers conducted by IBM Institute for Business Value in February, only about 20% of consumers report being partially or fully vaccinated.
In the U.S., vaccine hesitancy threatens the herd-immunity goals of 60% to 70% that most epidemiologists advise, though Dr. Anthony Fauci suggested 85% is needed.
The IBM study found nearly 30% of U.S. consumers said they won’t get the vaccine and another 25% are uncertain. And it noted that the U.S. is below the global average in confidence in the safety and effectiveness of the vaccine.
Given so many U.S. citizen’s caution about the vaccine, the report states, “Rather than a guarantee of safety, they see the shot as a new risk to navigate.”
Nonetheless, consumers want to see vaccination rates in excess of 70% to feel comfortable returning to their pre-Covid lifestyles. Given the uncertainties surrounding the vaccine’s acceptance and rollout, the study projects it won’t be until 2022 that people will regain a sense of normalcy.
“Amidst the uncertainties, consumers are rethinking the way they want to work, socialize, travel and shop,” the report states and adds, “Businesses should stay agile with working to deliver on changed consumer demands.”
Rather than hoping for a ‘return to normal’ or planning for the ‘next normal,’ retailers need to focus on the ‘now normal’ because the situation is and will remain fluid well into 2022. Day-to-day, week-to-week and month-to-month changes, along with regional differences, will continue to confound business planning.
“We’re already seeing a resurgence in shopping with the vaccine being shoppers’ safety shield,” says Karl Haller, IBM’s Consumer Center of Competency leader. “Everyone’s optimistic for the balance of spring season, especially in the non-essential category. But there are caveats to that optimism,” he warns.
Balance has shifted and will continue to shift
While retailers have long talked about omnichannel shopping, Haller advises retailers to think of a new hybrid retail model that combines in-store and digital shopping and that aligns inventory, pricing and purchase information seamlessly.
“There is a new baseline between store shopping, digital shopping and hybrid shopping combining elements of both,” he says. “And that baseline has a lot more digital in it than it had pre-Covid. We are going to see that new baseline continue going forward.”
One change predicted in the IBM survey as in-store traffic increases is a reduced call for curbside pickup and buy-online-pickup-in-store services.
Traffic on the rise
Overall, some 73% of consumers that typically visited shopping malls and centers before the pandemic will return to those stores once vaccinated, according to the IBM survey.
Already signs are that mall traffic is picking up. Placer.ai which tracks data from more than 50 U.S. malls, finds foot traffic has been trending up month-over-moth since November, with the exception of February, when weather drove visits down. But from February 22 through March 15, traffic has been increasing nearly 20% each week.
However, mall traffic still lags behind pre-pandemic 2019, though the gap is narrowing with March 2021 traffic down just 24%, the lowest since the pandemic began.
Shuffling the retail deck
In-person shopping will boost many non-essential retailers hit hard during 2020, with the IBM study anticipating retailers will see much greater demand in toys, games and hobbies purchases, up 121%, and a 76% increase in apparel, footwear and accessories purchases due to increased in-store shopping. Home-related spending is also likely to continue strong this year.
On the other hand, retail sales are going to shift out of grocery as more restaurants open up and consumers feel comfortable dining at their tables.
Haller notes that in 2019, grocery retail and food services were roughly the same size, about $765 billion. But those sales shifted in 2020, with grocery and beverage stores increasing 12% during the pandemic year and food services dropping 20%.
“We could see the grocery segment going negative this year, as spending shifts back into restaurants,” Haller cautions. “A back-of-the-envelope calculation is that every dollar that flows into restaurants is probably 60 cents out of grocery.”
He also foresees that discretionary spending which went into the retail sector during 2020, particularly among the affluent top 30% of shoppers, will revert back to services categories like travel and entertainment. So, for example, he sees retail sales of big-ticket durables are likely to shift back into services.
But on a positive note, as people get out of their homes and start traveling and doing more things, it will drive demand for retail purchases associated with those services, like a new outfit for the theater or clothes, accessories and luggage for travel.
“Services spending has a carry-on retail effect, not necessarily for a big-ticket item, but for spending on things that go with the event you are doing,” he explains.
Don’t expect a full-on retail surge, but a ‘surge-let’
Based upon the unexpectedly strong retail results in 2020, Haller and I are less skeptical that retail could hit the high marks predicted by the National Retail Federation for 2021 between 6.5% to 8.2% growth forecast. The 2020 stimulus checks, followed by the second round this year, are likely to do what they were intended to do: stimulate consumer spending.
That said, he sees a “selective resurgence,” with continued bifurcation between what IBM calls the splurgers versus the strugglers.
“The strugglers have been buffeted with the stimulus checks, but the real implications and impact on that group won’t be felt for a few months,” he advises.
As for the splurgers, which skew toward the top 30% of income earners, he sees strong pent-up demand that should favor retailers, though services spending will siphon off a growing share of their spending as they start leaving home.
“Maybe it’s not going to be the Roaring 21s,” he quips, “But we will see a retail bump. It will be less a splurge than a ‘spurge-let,’ then it will settle down into what normal looks like.”
In conclusion, the vaccine has injected a spirit of hope and optimism in the consumer market that was missing throughout 2020, which gives hope to retailers too.
“The vaccination is creating a change in mindset. Since March 2020, people were clouded with fear. That is starting to lift. Of course, there is still concern about the variance in the population that are not yet ready to get vaccinated. But from the data, we see the consumer is more confident and optimistic than they’ve been for a long time.”
