The new Deloitte report “The future is coming … but still one day at a time,” analyzes market trends that led the consulting firm to identify seven trends that will affect retailers and the vendors who support them as the market emerges from the coronavirus crisis.
The study characterizes the advancing trends and considerations that arise from them as:
- Convenience is the new battleground. Prior to COVID-19, consumers were embracing convenience, and the coronavirus crisis has accelerated the trend. In the report, more than half of consumers reported spending more on convenience to get what they need, with the term convenience now covering contactless shopping, on-demand fulfillment and inventory availability. Mobile payment usage, delivery app downloads and buy-online-pick-up-in-store adoption has advanced. For many, scarcity of other options drove adoption but others have opted for services offering some shade of convenience because they perceive them to be safer and healthier.
- Commoditization and premiumization of products. As of April 4, consumer spending across all retail categories decreased by more than 40%, placing significant strain on short-term operating margins. As spending slackened, private brand sales increased, with price and supply chain constraints playing a key role in the growth as well as consumer trading of brand preference for product availability amid stockouts. The degree to which consumers will emerge with new preferences or lower brand loyalty from the coronavirus crisis can’t yet be gauged with any certainty, but income bifurcation may play a critical role in the choices consumers make.
- Digital sales grow, but achieving success remains complex. COVID-19 has accelerated digital channel growth in recent months with online orders up 130% year over year in mid-April. Meaningful gains occurred in categories where digital commerce penetration had been historically low, such as grocery. At the same time, with consumer mobility significantly decreased, desktop share of digital traffic saw a significant uptick as consumers swapped their phones for computers while at home. What bears watching is the degree to which spending trends switch back the other way as stay-at-home regulations fade and stores reopen not to mention how retailers update distribution systems strained and reconfigured to accommodate altered consumer behavior in the acute stage of the COVID-19 pandemic. The ultimate question is: What will consumers prove willing to pay for enhanced fulfillment when they have a full range of shopping choices available.
- Bricks and mortar changing its role. As of 2019, stores still accounted for 85% of retail sales. In certain retail channels, the numbers of physical stores have even grown in recent years. From a certain perspective, circumstances prompted by the COVID-19 outbreak demonstrated the importance of the physical store, with many brands and retailers experiencing significant revenue loss from the temporary closure of bricks and mortar stores. The coronavirus-inspired shift to e-commerce hastened the reconsideration of physical store roles, as, for example, many retailers turned stores into order fulfilment centers to meet digital demand and drive last-mile execution. The shift in purpose may be sustained by consumers who remain wary of in-store shopping as coronavirus concerns linger and who, for that and other reasons, maintain digital shopping behaviors. Still, some degree of return toward pre-crisis shopping behaviors may be expected. Just where consumers settle in regards to their shopping preferences is a factor that is worthy of ongoing consideration.
- New business models have a growing impact. COVID-19 has led to the adoption of nontraditional models in what have been deemed essential categories such as food, grocery and pharmacy, while at the same time decelerating short-term growth of new models in other categories including apparel, where, according to the report, consumer spending has experienced a decline of more than 70% versus 2019. Past events also demonstrate that economic uncertainty often results in changing consumption habits and the emergence of new models. Retailers and consumer products companies that already were expanding outside of their traditional revenue models to fast-track growth and meet changing consumer preferences before the COVID-19 pandemic will continue testing ideas in an effort to prepare for consumer behavior evolution.
- Health and sustainability growing as priorities. COVID-19 also has substantially altered consumer spending habits as regards healthy and sustainable products. Consumers have dramatically increased spending on hygiene items such as hand sanitizer and certain medicines, but, at a time when the definition of wellness is becoming broader, shoppers have been reconsidering sustainable and organic sales. It remains unclear how much the availability of options amid out-of-stock conditions drove consumer purchasing consideration in the coronavirus crisis. Beyond that, income disparity also plays a role in the growth of healthier and sustainable products. With low- and middle-income households reporting more job losses than upper income households, at 50% versus 32%, that role may become more critical, at least temporarily. So, budgets could become a factor in mitigating purchasing shifts in the direction of products that promise social advantages.
- Consolidation in retail and fragmentation of market share. With the closure of non-essential bricks and mortar stores due to COVID-19, consumers shifted spending to still-open physical and always open e-commerce retailers that could provide essential goods and meet their convenience needs. The impact of COVID-19 could accelerate retail consolidation, creating a market environment where a small set of players emerges stronger at the expense of competitors with fewer resources, whether chains or independents. The pandemic also has accelerated short-term fragmentation in the packaged goods sector, whether as a true signal of consumer demand or a temporary behavior driven by supply chain constraints and stockouts. With circumstances being what they are, economic uncertainty could have longer-term implications on fragmentation, as brands become increasingly challenged to overcome decreased consumer spending and increasing operational challenges.