The future of retail amid Covid-19

The coronavirus pandemic is likely to change how and what consumers buy, forcing the retail industry to quickly innovate in a race that’s likely to squeeze smaller brands.

Retailers were already under pressure prior to the pandemic, struggling to adapt to a growing online world and facing lower margins amid a plethora of competitors. The Covid-19 outbreak has accelerated some of these trends, with more people shopping online and an inventory excess that’s likely to cut margins even further. 

However, analysts are confident that the pandemic is not the end of Main Street.

“I am quite bullish on this,” Aneesha Sherman, senior analyst of European general retail at Bernstein, told CNBC last week.

“People like buying in store, even millennials and Gen Z who have all the apps on their phones, still like to shop in stores.” Researchers define millennials as those born between 1980 and the mid-1990s, while “Gen Z” or Generation Z refers to those born between the mid-1990s and early 2010s.

Several brands have recently announced store closures given the financial pressure from the virus. For instance, Inditex, the retail giant which owns Zara, announced earlier this month that it would close between 1,000 and 1,200 shops worldwide.

In addition, other retailers have fallen into administration as the virus exacerbated their liquidity problems. This has been the case for Oasis, Warehouse, Debenhams and Cath Kidston, to name some of the British names affected.

As lockdowns have started to lift, many consumers in Europe have returned to stores, with some people happy to line up for hours before being allowed inside. 

“A lot of people want to get back to doing normal things,” Jat Sahi, retail consultant at Fujitsu, told CNBC. “Going into a store and going shopping could be a part of bringing that normality back.”

Though many European governments have now lifted some lockdown restrictions, challenges remain when it comes to vacations abroad, cultural events, and most people are still being encouraged to work from home.

It means shopping has become one of the few social options available — and larger shopping centers could benefit from this.

“Malls and retail parks will do better because they are able to do social distancing. They are wide, open spaces, they have big passage ways, it doesn’t feel unsafe,” Bernstein’s Sherman said.

There’s been an inevitable move toward online shopping. Kantar, a consulting company, has said that e-commerce sales have soared amid the pandemic. The research firm said that 40% of consumers now say they have “increased or significantly increased” their online purchasing, “rising to 48% for households with children and millennial households.”

Going forward, expectations are that this shift online will continue.

“People are going to go back to their old habits to a large extent, but one structural change I see over the next few years is fewer occasions for new clothes, so we are going to have fewer big concerts and sporting events and big celebrations, weddings and holidays,” Bernstein’s Sherman told CNBC.

Occasions are one of the biggest shopping drivers for consumers.

“We will see a lot more of athletic wear, loungewear, casual clothing, fewer dress-up and occasion-wear and combined with the fact that people will be working from home more, there will obviously be less office and formal clothes,” she added.

Kantar has also suggested that consumer behavior won’t be the same going forward, with more than half of millennials and Gen Z consumers surveyed by the research firm saying they believed their lockdown habits would continue post-pandemic.

“Increased hygiene, healthier eating, spending time with the family and personal development are most likely to be maintained,” the firm said in a paper published earlier this month, in which over 100,000 consumers in over 50 different markets were interviewed.

“More than half the world (51%) now claim to be trying to exercise more. These changes all lead to different needs and spending patterns.”