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Chain of Demand

How Social Distancing Has Changed Retail

As the coronavirus continues to spread globally, various countries have implemented social distancing guidelines in an effort to flatten the pandemic’s curve. From nationwide lockdowns to the major shift towards remote work, it is clear that the day-to-day lifestyle of consumers has significantly changed. The advent of social distancing measures has disrupted and will continue to shift the landscape of the retail industry.

 

How social distancing is affecting retail

Social distancing is a way to limit face-to-face contact between an individual and others outside of their home. In many countries, this has meant stay-at-home orders and school closures, accompanied by the elimination of mass gatherings and closures of many non-essential businesses. Globally, strict travel restrictions have been implemented. Social distancing guidelines have also affected traditional methods of retail and retail business from multiple angles. Among the most significant are temporary closures of major retailers and a negative impact on sales.

 

Various retail companies have responded differently to these increased restrictions. In early April, the Wall Street Journal highlighted that social distancing would deepen the digital divide in consumption patterns, helping companies with a digital presence while hurting those more reliant on traditional retail methods.

 

The response by retailers 

With consumer spend changing and the retail landscape shifting dramatically, companies are finding ways to respond accordingly. In response to the pandemic, Walmart quickly began to test and expand on an Express Delivery service that allows customers to order a large variety of Walmart products online with a speedy 2-hour delivery time. The company didn’t previously have a same-day delivery service. Target, another large retailer, introduced special accommodations for elderly and immunocompromised customers. This allows these groups into the store during the first hour of business on some days of the week, giving them the opportunity to get the shopping done safely. 

 

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A number of companies have also enacted new zero-contact options in an effort to encourage social distancing while keeping their businesses alive. Multiple fast-food chains and food delivery platforms, such as Domino’s, Deliveroo, and McDonald’s, have implemented contactless delivery systems.

 

According to a paper by the Harvard T.H. Chan School of Public Health, considering current medical capacities, the coronavirus pandemic may last up to two years, requiring forms of social distancing until 2022. With social distancing becoming a new norm in our society, it is worth exploring how consumer behavior is shifting, and what retailers can do moving forward.

 

Shifting trends in consumer behavior 

Despite the gradual shift to digitized retail over the years, according to Statista, 85% of sales worldwide still occurred in physical stores prior to the pandemic. However, during the second half of March when lockdown policies were implemented in much of the West, Listrak data demonstrated a 31% year-over-year increase in overall e-commerce sales. The increase has differed amongst different industries, with apparel sales falling by 4% and toys and sporting good sales increasing by 50%.

 

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According to a Mckinsey report on consumer sentiment, intent to spend more on groceries, home entertainment, and personal care products remained high over a range of countries. In China, where many COVID-19 restrictions have been lifted, intent to spend increased in the fitness and gasoline categories. However, across all other countries surveyed, intent to spend was down between 15% to below 50% on restaurants, apparel, fitness, and personal care services, and travel. Overall, intent to spend remained high on essential products, but dropped across all discretionary products and non-contactless services, as evident in the chart below.

 

Social distancing guidelines and stay-at-home orders have also resulted in an intentional shift by consumers towards contactless pick-up and delivery options. According to a survey conducted by Astound Commerce in late March, 72% of U.S. consumers indicated a conscious shift towards no-contact options, with contactless store pickups increasing by 44%. Worldwide, grocery deliveries increased by 39%.

 

What retailers can do in the future 

As the effects of COVID-19 and long-term social distancing policies continue to impact traditional retail methods, it is important that retailers respond appropriately. Potential solutions include increasing online shopping capabilities and contactless pick-up or delivery services, developing new products that cater to a social distancing lifestyle, compassionate and compelling messaging, and effective management of inventory going forward.

 

As consumers begin to familiarize themselves with digitized retail methods and convenient pick-up options, it is likely that digital purchases and spending through omnichannel services will remain high. Therefore, it is essential that retailers prioritize the development of e-commerce platforms and continue to expand convenient contactless services. It may also be beneficial to develop new products or services that cater to consumers who are spending most of their time at home. 

 

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With the sudden decrease in spending on discretionary products, especially apparel, it has become very critical for retailers to effectively manage their supply and replenish key products in order to reduce markdowns and increase sales. 

 

AI-driven predictive analytics solutions like Chain of Demand help to solve these issues, by minimizing inventory risk through advanced analytics. By digging into the data, from socio-economic conditions, social media, CPI & unemployment rates, and historical sales, retailers can rely on AI to help them to navigate the shifting landscape of retail during a rising recession.

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