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05/07/2021

Exclusive Q&A: Brick-and-mortar future looks bright, but different

Dan Berthiaume
Senior Editor, Technology
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Keith Jelinek
Keith Jelinek

Brick-and-mortar retailers who make the necessary adjustments across their omnichannel enterprise can thrive post-pandemic.

Chain Store Age recently conducted a wide-ranging discussion with Keith Jelinek, managing director in the retail practice at Berkeley Research Group (BRG), about the multi-faceted approach brick-and-mortar retailers should take as they prepare for a COVID-19 rebound in the second half of 2021 and beyond.

What permanent changes will COVID-19 cause for traditional brick-and-mortar retail?
The pandemic was definitely a crisis that every retailer felt, both essential and non-essential operators. Nearly every brick-and-mortar retailer has had to completely rethink how they will engage with the customer.

This means looking at your consumer through an omni-focus lens. You have to be able to connect with your customer using new means of marketing and providing goods and services wherever and whenever they want. This means understanding the customer journey and your customers purchase behavior, and communicating with them in a personal way; providing personalized communications based on their preferences.

There are also implications to the supply chain to match these customer behaviors. Capital investment in fulfillment options and driving efficiencies continues to shift, and will do so into 2022-23. The dramatic shifts in digital at-home delivery, BOPIS, ship-from-store, and even curbside pickup, as well as local delivery options, have provided new vehicles for customers to shop for products. They are still centered around the brick-and-mortar ecosystem, but come at a higher cost to serve. 

As a point of reference, BRG analyzed fourth quarter 2020 earnings for 96 retailers across 17 sectors – While revenue was up 8%, SG&A expenses increased 1%. This is an indication of some of the inefficiencies in the traditional bricks and mortar supply chain, and additional costs that have had to be incurred to serve consumers.

How can retailers effectively bring customers back to stores?
So far, we have seen the year getting off to a strong start. In reading Mastercard’s analysis of March sales, specialty apparel was up over 60% from 2020, and nearly 19% up from 2019. Department stores were up 114% over 2020, and flat to 2019. These two channels are strong indicators that Americans love to shop, and just can’t wait to get back into stores.

First and foremost, customers want to feel that they are in a safe environment – not only for them, but for the associates that serve them. This means re-thinking how much space to provide in walkways, removing cluttered racks and shelving, providing touchless payment options at the cash wrap, and even reconfiguring the changing rooms and how to handle product that was tried on, and cleaning after each use.

Bringing customers back to the stores does not stop with then they cross the lease line. It also means a safe environment in the mall and outside strip centers. Bringing the customer back to shopping inside the store does not mean eliminating any of the additional purchasing options that have been provided to date, such as BOPIS and curbside delivery.

Is there any effective future for retailers that do not include a major digital component in their store environment?
The pandemic has leapfrogged us ahead as much as three to five years in digital components and services. It has forced many smaller retailers to up their games, not just to try and survive, but what we have termed ‘sur-thrive.’ Digital components such as virtual selling, CRM personalization, digital fulfillment options, and the e-commerce ‘front end’ tools to more effectively engage with the customer are no longer nice-to-haves, but table stakes. Unfortunately, those retailers that don’t make the capital investments necessary may find it difficult to survive.

What type of growth do you see for brick-and-mortar retail in the second half of 2021?
The NRF is projecting up to 8.2% retail growth in 2021, as Americans look to spend post-pandemic. About half of that growth is projected to come from online sales. We are definitely seeing the re-mobilization of consumers as vaccinations are increasing, and states and local authorities are lifting social distancing restrictions. 

We would say that the whole year estimates are in the ballpark, but we also need to remember they are against 2020, and not 2019. With that in mind, as long as we don’t see a leveling off of the vaccinations rates, which could lead to more outbreaks and state and local restrictions on access to retailers, we would expect the backhalf growth in 2021 to be significant. 

We need to remember that in the second half of the year, we will see a more robust back-to-school season as kids head back into the classrooms for in-school learning, as well as more social gatherings around football season, and additional social functions such as gatherings and parties into Thanksgiving, Christmas and Hannukah. On top of all of this will come more travel, and with the travel come more opportunities to refresh the wardrobe. All in all, the back half of 2021 could be significant.

One last thought here; retailers have significantly leaned out excess inventory, and reduced promotional discounting thresholds. With a projected increase in back half revenue, this should also provide an opportunity to improve the top line, and most importantly, the bottom line through margin expansion.