Just when brick-and-mortar retailers thought the so-called “retail apocalypse” was ending, supply chain woes and rising inflation reined in their optimism. There had been good reasons to be optimistic. During the height of the pandemic, dire predictions about retail’s future insisted the rise in e-commerce signaled a permanent change in consumer behavior away from in-store shopping. That proved not to be the case. Journalists from the Wall Street Journal explain, “When millions of locked-down Americans went online during the Covid-19 pandemic, it looked like the possible start of a permanent shift in consumer behavior. … But hold off on those obituaries. … It turns out there are limits to buying stuff on screens. Foot traffic to malls and bricks-and-mortar stores has rebounded since vaccines and booster shots became widely available and the worst waves of the virus receded.”[1]
That doesn’t mean everything was coming up roses. Beni Basel, founder and CEO of CiVALUE, explains, “Paradoxically, the key to connecting with customers who want to shop in a physical store can be maximizing the store’s digital means and integrating the physical and digital shopping experience. For this to happen, though, retailers need to adopt the right omnichannel customer experience strategies and invest in infrastructure that will enable them to future-proof the way they interact with their customers.”[2] In other words, physical retailers can’t return to business as usual. Journalist Amy Sokolow (@amysokolow) reports that analysts from Deloitte insist that physical retailers must undergo a “Great Retail Reset.”[3]
What Does a Retail Reset Entail?
According to Kate Ferrara (@KateFerrara1), national retail, wholesale and distribution sector leader for Deloitte & Touche LLP’s Risk & Financial Advisory practice, “A lot of retailers have had antiquated systems [and] older supply chains. The pandemic has accelerated the need for some [retailers to say], ‘Alright, we don’t have a choice anymore. We have to fix our supply chain. We have to figure out our workforce management and our talent, and our pricing and our systems and our inventory management. This isn’t a nice-to-have anymore.'”[4] In other words, many retailers have to reset the way they do business. The question is: During a period of inflationary prices, can retailers afford to reset?
Journalist Helen Atkinson (@NYCHels) insists retailers have no choice. They must reset. She explains, “We’ve seen an increase in ‘mall deaths,’ as 75% of Americans tried a new shopping behavior during the pandemic. Arguably, there was always a correction coming. Prior to the pandemic, America had an average of 23.5 to 46.6 square feet of retail space per person, according to The Berkeley Economic Review; the most of any other country, 10 times more than Germany or Mexico, and 40% more than Canada.”[5] Like the Wall Street Journal reporters, Atkinson doesn’t believe anyone should be writing eulogies for the physical retail sector. She writes, “[The fact that retailers need to make a major correction] doesn’t mean brick-and-mortar retail outlets are doomed. And it’s not yet clear what will be the impact on the irreducibly physical part of the supply chain — the behind-the-scenes activities of fulfilment and distribution.” What is clear is that retailers need to invest in omnichannel operations. Atkinson explains, “Retailers understand the importance to consumers of presenting a coherent brand experience, with online and in-person shopping combined.”
First Insight CEO Greg Petro insists other factors, like inflation and inventory gluts, are also factors driving the great reset. He writes, “The economy appears to be slipping into (or is already in) a recession and the retail industry faces yet another year of scrambling to readjust to rapidly changing conditions. In fact, this may be a year of widespread consolidations, restructurings, and bankruptcies.”[6] By one estimation, nearly a third of all retailers are at risk of going bust over the next several months.[7] Journalist Harriet Torry (@HarrietTorry) reports, “[In May 2022], big-box, department stores and grocery stores all cut staff. Retail employment had surpassed its pre-pandemic level for the first time in January, but since February, the sector has shed more than 70,000 jobs as consumers pivoted their spending toward the types of services they missed out on during the pandemic, like travel and dining out.”[8]
Preparing for the Great Reset
According to Petro, summer “is one of those moments in the year when the rhythm of nature, our lives, and our businesses slows and briefly pauses, giving us a chance to catch our breath and reflect on where we’ve been and where we’re going.” He lays some of blame for the current bleak situation on retailers themselves. He explains, “Retailers weren’t paying close enough attention to what consumers were thinking and feeling about the future. They weren’t paying attention to the slow but steady rise in the price of gasoline, an obvious and pervasive factor in consumer sentiment and consumer expectations about the future, both of which indicators were crumbling through most of last year.” One way to avoid being blindsided in the future is to have in place a system that can keep your company abreast of what is happening in the world. During the pandemic, Enterra Solutions® created the Enterra Global Insights and Decision Superiority System™ to do just that. As Petro notes, “Forecasting in the retail industry is a challenge during the best of times, but especially during the worst of times, executives should be paying more attention to customers.”
Brightpearl CEO Derek O’Carroll (@DerekOCarroll) predicts it’s going to be a long, hot summer. He explains, “We are still in the relatively early stages of this crisis with the impact of the war in Ukraine and other global factors only just starting to really hit home.”[9] He adds, “U.S. firms are going to need to plan for months of further turmoil and issues over stock, which can result in unhappy customers and major cash flow issues. It doesn’t need to be that way though; the key message is get your demand planning right and utilize tools and technologies that can help. At the same, it’s important to be honest with customers who are well aware that we are in a global crisis and will be more tolerant of delays than they would be in less turbulent times.”
With experts like Petro talking about black swan events and O’Carroll predicting turbulent times, it’s clear retailers have to reset their operations to function in a new business environment. And, as all the experts cited above insist, that reset means leveraging new technologies adapted to the digital age. Wall Street Journal reporters note, “Data suggests consumers are finding a new balance between online and in-person shopping.”[10] Retailers need to find a new balance as well.
Concluding Thoughts
Mark Shmulik, an analyst with Bernstein Research,” observes, “We’ve got over 100 years as a society of going into a store to buy something. That muscle memory doesn’t just switch off because you were forced to buy things online a couple of times during a pandemic.”[11] It’s not just muscle memory that is drawing people out of their houses and into stores. We are social creatures and we long for social experiences. Physical stores can help satisfy those yearnings. As Atkinson notes, “There’s been a movement for some time to fundamentally alter the experience that consumers have in physical stores.” The great reset will only hasten that movement.
Footnotes
[1] Peter Rudegeair, Charity L. Scott and Sebastian Herrera, “The Pandemic Was Supposed to Push All Shopping Online. It Didn’t.” The Wall Street Journal, 16 April 2022.
[2] Beni Basel, “Are Retailers Ready To Offer Hybrid Shopping Experiences?” Forbes, 29 December 2021.
[3] Amy Sokolow, “2022 will be the year of the ‘Great Retail Reset,’ Deloitte report says,” Boston Herald, 14 January 2022.
[4] Ibid.
[5] Helen Atkinson, “The Complex Future of Brick-and-Mortar Retail,” SupplyChainBrain, 8 March 2022.
[6] Greg Petro, “Battered by Black Swans, Retail Industry Hunkers Down,” Forbes, 8 July 2022.
[7] Marina Mayer, “More Than One-Third of U.S. Retailers Will Go Bust From Supply Chain Issues,” Supply & Demand Chain Executive, 30 June 2022.
[8] Harriet Torry, “Retailers Cut Jobs in May With Consumers Facing Inflation, Pivoting to Services,” The Wall Street Journal, 3 June 2022.
[9] Mayer, op. cit.
[10] Rudegeair et al., op cit.
[11] Ibid.
