Digitization prepares brands for pandemic
Brands optimize convenience, sustainability
The digital transformation of retail helped mitigate sales lost because of physical store closures during the Covid-19 pandemic. Retailers had not anticipated a global pandemic that would require closing most physical stores, any more than they had anticipated 25 years earlier that an online bookstore would become world’s largest retailer. But this time retailers were better prepared.
Retailers had struggled for years to meet the needs of consumers conditioned to expect an Amazon experience, the retail trifecta of price, selection, and service—good value, for what I want, now. Operational changes had produced online-offline (O2O) integration that enabled retailers to better meet the unprecedented uncertainties and pressures of serving customers during a pandemic.
Having shut thousands under-performing stores, retailers had converted the remaining big boxes from liabilities into important assets, physical locations where customers could purchase and pick up products and experience the brand. Online retail leaders Amazon and Alibaba validated the O2O strategy when they imitated it, adding physical stores to complement their virtual presence.
This year’s BrandZ™ results added further confirmation. Amazon, Alibaba, JD, Walmart, and Target—brands that invested heavily in digitization and O2O—drove retail category growth. E-commerce helped balance the slowdown of physical store sales for Costco, which led the category in value growth, rising 35 percent. With a 21 percent increase in value, following a 25 percent increase a year ago, retail led all 14 categories ranked in the BrandZ™ Global Top 100.
The 020 transition is not completed, however, because Covid-19 is changing shopping habits. More shoppers are adapting to new levels of convenience, according to Kantar research. Over a quarter of households shopped online for groceries for the first time during the pandemic. And among people selecting home delivery, 60 percent were first timers. First timers accounted for 42 percent of curbside delivery and 39 percent of store pick-up.
Walmart invested in its US stores, particularly to grow the grocery business with improvements to pick-up and delivery services. The pick-up stations include 16-feet tall, in-store towers that act like vending machines. Customers who shop online receive a bar code they scan to retrieve their order from the Pickup Tower.
While careful to maintain the treasure hunt and bulk merchandise appeal of its warehouse stores, Costco drove e-commerce growth with travel and other services, and with improvements to delivery, including collaboration with Instacart and acquisition of Innovel Solutions, a last-mile logistics company.
Target expanded its click-and-collect service to another 24 US markets. Around 200,000 items were available. Through a delivery service is acquired several years ago, Target offered the option of same-day delivery, for a fee, in most of the US. When asked what retailer they were likely to try, to improve shopping during the pandemic, 20 percent of respondents to a Kantar survey answered Target.
Home Depot increased its online sales with over half of the orders picked up in-store. In part to drive online business, Home Depot changed its tagline from “More saving. More doing” to “How doers get more done.” The new line enables the home improvement chain to highlight O2O improvements, including an enhanced app that includes augmented reality capability and in-store product-locator maps.
Meanwhile, Amazon moved on, making shopping even more convenient with Amazon Go grocery stores, which eliminate checkout. Instead, in-store cameras and the Amazon Go app track purchases, making the shopper’s smartphone a virtual shopping cart.
Convenience and complication
But convenience achieved its fullest expression in China where, for example, shoppers in Alibaba’s Freshippo stores scan items with an app, checkout using facial recognition, and take their items home or have them rapidly delivered. JD introduced one-hour delivery on essential items.
Developments in China also signaled new complications for the future of retail, with the interconnection of social networking, online content, and e-commerce. ByteDance, which operates the short video site Douyin (TikTok outside of China), enabled users to link with shopping sites. The rise of delivery services like Meituan and Alibaba’s Ele.me also drove the boom in O2O retail, expected to grow 57 percent in China during 2020, according to Kantar.
Retail competition in China intensified, even for Alibaba and its rival, JD, with the rise of Pinduoduo, a newcomer to the BrandZ™ Retail ranking this year. Established as a group buying e-commerce site with special appeal to less affluent consumers, especially in lower tier markets, Pinduoduo added more upscale brands that appeal to a wider audience also attracted by the site’s group buying discounts and gamification of shopping.
The dominance of O2O especially pressured traditional hypermarkets, many of which have been repurposed as distribution centers for expediting rapid deliveries. France’s Carrefour departed China, selling its stores to Suning.com. Originally a bricks and mortar home electronics retailer, Suning is developing as an O2O brand of products, services, and entertainment. UK-based Tesco planned to leave China in 2020 as part of its exit from all of its Asian markets.
Even Amazon reduced its e-commerce presence in China, continuing to offer imported products, while eliminating sales from its Chinese suppliers. Meanwhile, Costco opened its first China store, in Shanghai, after years of developing an online presence in China. And Alibaba Group acquired NetEase Koala, a cross-border e-commerce business that facilitates the sale of Chinese products abroad and the purchase of overseas products by customers in China.
Because of this intense global competition, the traditional retail promotion calendar experienced disruption, as European retailers expanded their promotions on Black Friday, a day of shopping frenzy that began in US as the day after Thanksgiving and the kickoff of the holiday season. The international adaptation of this US phenomenon resulted an unexpectedly chaotic sales pattern that flattened sales levels during December in some places.
The development reflects a larger disruption of the traditional retail calendar by special, retailer-created shopping occasions—Black Friday, Singles Day ( 11_11), Prime Day, and JD 6-18. These occasions, which began as price-driven promotions, have become societal events that include concerts, contests, and other programs that create excitement and draw consumer attention.
Singles Day in 2019, which generated $38.4 billion for Alibaba, featured a concert by Taylor Swift. But, along with international celebrities, Alibaba also localizes programming for national audiences, presenting Singles Day under the banners of local retail partners, including El Cortes Inglés in Spain and Lazada, an Alibaba acquisition in Southeast Asia.
The challenge of managing inventory for these retail events generally is solved by announcing a limited supply to create excitement or, when supply runs out, giving shoppers the option of canceling an order or waiting for a later delivery date.
These special retail occasions, a vivid example of retail as experience, were also a counterpoint to changing attitudes about consumption and its impact on the environment. After years of steadily improving sustainability practices, certain retailers, including Walmart and Ikea, have chief sustainability officers charged with improving the environmental impact of the stores and reducing waste throughout the system.
Tesco added KPIs related to sustainability and trialed refill options to reduce the use of packaging, in partnership with TerraCycle Loop an organization devoted to reuse packaging. At EuroShop 2020, the retail industry exhibition devoted to retail store fittings, sustainability-related products included machines for refilling bottles of shampoo and other personal care liquids.
Waitrose, a premium UK grocer, eliminated plastic wrapping in several hundred items in a test store it called Unpacked. The store includes several refill stations where customers put items such as fruits or pastas in refillable containers. The French superstore chain Carrefour, in partnership with IBM, implemented an effort to cut food waste using a blockchain system to predict demand.
To accommodate changing living and shopping styles and concern with sustainability, Ikea continued several transformative strategies, including expansion of e-commerce and small urban-center stores to new markets. It also widened its range of smart home products and tested new concepts, such as furniture rental. Target achieved its goal of installing 500 rooftop solar panel units on its stores and distribution centers by 2020.
Improving sustainability practices also required satisfying a widespread consumer desire to save the planet without sacrificing too much convenience. Amazon now offers a delivery option that gives Prime customers the option of delaying delivery until Amazon can consolidate the order into one shipment, which reduces carbon emissions. Amazon ordered a fleet electric delivery vans from the start-up Rivian and expects to have the first vehicles on the road in 2021.
Online shopping surges
as physical stores shut
Physical stores worldwide shut to limit the spread of Covid-19, yet the 21 percent increase in value achieved by retail topped all categories examined in the BrandZ™ Global Top 100 report, and followed a 25 percent increase a year ago. This paradoxical performance happened partly because of retail’s digital transformation over the past decade. Having progressively integrated their online and offline operations, both retailers that originated online and those with legacies of physical stores, were well positioned prior to the pandemic and able to fulfill the Covid surge of website ordering with home delivery and curbside and in-store pick-up options. But the shopping experience during the pandemic changed consumer behavior. Of shoppers surveyed by Kantar during the pandemic, 92 percent reported a negative in-store experience. As a result, the average number of retailers shopped for groceries increased from 4.1 To 5.1. Across all retail channels, online increased most, 93 percent, based on the number of customer trips or visits.
Brand Building Action Points
- Lead the change
Consumers expect retail operations to maximize both convenience and sustainability. But convenient delivery adds packaging and carbon emissions. Consumers may be OK with this cognitive dissonance, at least for now. Retailers cannot ignore this disconnect and could collaborate with their customers to resolve it.
- Resist complacency
Many retailers have made significant progress improving all aspects of their operations, including customer experience, sustainability practices, and workforce diversity. However, what worked last year, may not work this year. Be cautious about repeating initiatives that succeeded. Study failures to discover new opportunities.
- Be local
Retail is a service that varies according to the needs of the local community. Recognizing distinctive needs and tastes—featuring locally-produced foods or other products—strengthens distinctiveness and connection.
- Sustain trust
During the height of the Covid-19 pandemic, a period of anxious uncertainty, retailers reliably served the needs of their communities, suppling essential items, adding special hours, and providing home delivery. Going forward, retailers have an opportunity to sustain that well-earned trust.
- Add friction
With the wider use of self-checkout, and the potential elimination of checkout completely, it may seem time for retailers to declare total victory over shopper pain points. But the reality is more complicated. Shoppers will not miss the long queues, but if the in-store shopping experience is too swift, it may flatten some of the brand experience and selling possibilities. With so much commerce moving online, the brand experience is an important opportunity that may require adding back a bit of friction.