3. Reimagine the in-store experience
The pandemic is changing consumer behavior and accelerating existing trends. Our increased reliance on e-commerce is clear.
Other trends that physical retail can exploit include a heightened demand for community, convenience, trust and empathy. The real-life interactions in traditional brick-and-mortar retail might meet these needs better than digital transactions, but that’s not to say that technology has to take a back seat in-store—on the contrary, skillful deployment of new tech should be core to the reimagined customer experience.
Consumers still value a curated offering of products and services, and there is time for at least some department stores to update and digitalize their curation formula. Their use of physical space will need to change radically, mixing products with experiences and entertainment.
Think of the sense of occasion felt by shoppers entering their favorite store after lockdown. Now find a way to bottle it, while minimizing the short-term inconveniences shoppers face during the Covid-19 recovery.
4. Become a scale fighter or join an ecosystem
Success in retail used to hinge on having a local scale advantage over immediate rivals. This is still vital but won’t always be enough to support the vast investments now needed in technology, analytics and pricing. “Scale fighters” already have the absolute scale necessary to fund these investments through efficiencies. But other traditional retailers can still strengthen their position by bulking up through M&A or gaining virtual scale through buying alliances and other partnerships.
In the wake of COVID-19, retailers and brands may also reconsider the merits of collaborating with online ecosystem players such as Amazon or Alibaba. These one-stop shops for consumers have deepened their bond with customers during the pandemic.
The strongest retail store chains might even consider building their own ecosystems, supplying a broader range of services to consumers and other companies — the likes of Walmart, Carrefour and Brazil’s Magazine Luiza are taking this route. Collaboration with category platforms (such as fashion and shoe specialist Zalando) is another option.
5. Exploit the last person standing advantage
Bearish forecasters often underestimate the viability of being the “last person standing” in one of the tougher physical retail categories; for instance, they wrongly assumed that some store chains—such as the U.K. bookseller Waterstones, Best Buy in consumer electronics and Dick’s Sporting Goods—would be steamrolled into oblivion by digital natives.
The last retailer standing advantage hinges on discovery: Consumers and brands benefit when shoppers can test or try on a product in person (that’s why brands still pay for stores within stores). Executive teams need to find ways to preserve that tactile advantage while keeping customers safe from COVID-19.
There’s also a last person standing dynamic emerging in the relationship between store chains and their landlords. Retailers’ bargaining power had been hampered by the fact that their sites could often be relet to restaurants. Few landlords will be able to deploy that as a credible threat in rent renegotiations during the next 12 to 18 months. Some retailers could aim to reset their rent at a level that puts them on a more sustainable footing in the medium term (progress indeed).
Retailers are at a pivotal moment of their crisis response. They have mostly focused on the operational challenges created by the pandemic—dealing with demand spikes, diverting demand to online channels from shuttered stores, hiring staff, furloughing staff and then reopening safely. Executive teams now need to expand their focus to include more strategic planning for the recovery—one in which most sales still happen in stores and more online orders are collected there too.
Aaron Cheris leads Bain & Company’s Americas Retail practice and is a partner based in San Francisco. Marc-André Kamel leads Bain’s global Retail practice and is a partner based in Paris.