As COVID-19 continues to alter the way industries operate, the retail sector remains particularly hard hit.
It’s clear now, even as the aftershocks of this pandemic subside, the impacts will be long-lasting and forever alter the landscape. This climate will require an agile and proactive approach, but will also present an opportunity for data-driven retailers.
Assessing the portfolio
Not all stores are created equal. During this unprecedented time, it is imperative to assess the pre-COVID-19 performance of each store against the sales potential of its trade area utilizing sales forecasting models. Doing so will quickly separate the winners from the losers, and where to focus operational help and new real estate strategies.
For example, a store that is performing poorly (low to negative cash flow, high rent, etc.) and is in a low potential trade area should likely be shuttered permanently. A location that has poor performance but is in a trade area with high potential would fall into a location strategy category of lease renegotiation, operating improvements, or relocation.
The most critical focus of any retailer at the moment is maintaining the health and wellness of its workforce and shoppers, but survival and future success also remain of high concern. Prioritizing cash flow in this challenging environment is vital. Occupancy costs are generally very high on the list of expenses, with most organizations ranking it at number two or three.
Therefore, shrewd retailers should analyze their portfolios and identify where they might be able to renegotiate their leases and payment terms. They should reexamine lease terms to better understand cancellation, co-tenancy clauses, and areas of flexibility.
In the current climate, landlords are likely to extend more understanding and willingness to renegotiate with current tenants than take their chances on the open-market post-COVID-19. Retailers should capitalize on this landlord need for occupancy versus vacancy, securing favorable terms through the remainder of their contracts.
Location strategy with a nod toward digital & omnichannel
After evaluating lease terms for potential savings, location strategy should be next on the list of retailers’ playbooks as the tremors of the epidemic subside. Physical stores may remain shuttered, and brick-and-mortar retail at a standstill, but operational leadership should take this opportunity to pause and reassess. There may never be another time where management will be able to cohesively restructure physical retail operations at a macro level.
Accordingly, retailers should reevaluate their store deployment strategies now with a firm nod toward fueling digital sales and streamlining their omnichannel strategy.
Redesigning physical retailing with the emergence of the omnichannel store
Brick-and-mortar locations historically drive more profound relationships with consumers and maintaining these physical connections will be crucial for success long after the pandemic. As retailers begin to retool their store locations and footprints, customer behavioral metrics, demographics and trends will inform these decisions.
Therefore, it’s more important than ever to understand how all these factors coalesce. By leveraging comprehensive technology solutions, retailers can gain data-driven insights and the analytics they need to strategize on whether to relocate, remodel or close their brick and mortar locations. Having this technology advantage will be critical to retailers’ success in the current climate and well beyond.
One thing that is clear, and was also represented in recent data from China prior to the U.S. COVID-19 lockdown, shopping behaviors will likely never return to pre-pandemic patterns. The acceleration of delivery and pick-up channels will have a “hangover” effect and likely become much more commonplace.
As such, retailers need to completely rethink their location strategy from one of pulling customers into a store from the surrounding trade area, to an omnichannel coverage model that optimizes in-store, delivery, pick-up and returns. The pieces on the chessboard need to be shifted and the store experience must accommodate and support all channels. Target and Panera Bread are two shining examples of brands who completed this transformation before COVID-19 struck and, as a result, are weathering the storm better than most.
As the effects of COVID-19 continue to accelerate the trend of shoppers moving away from physical stores to online, differentiation will remain a primary driver of growth and success for omnichannel retailers. Providing a seamless experience between both the online and physical retail experiences will continue to contrast the winners and losers in the post-pandemic landscape. Strengthening online connections will drive sales, brand loyalty, and deeper brand-customer relationships. Unifying brand encounters and the omnichannel itself will be fundamental to thriving in the new retail world.
In many ways the changes to the retail landscape shaped in the quakes of this epidemic were unpredictable. And for several industries, including retail, it is truly an unimaginable event where what came before will be irrevocably transformed. But, instead of focusing on what has already occurred and the resulting challenges that came with it, omnichannel retailers should create strong data-forward and streamlined process-oriented playbooks to look forward to steadfast strength, prosperity, and profitability. With thoughtful agility, retailers can capitalize on this time as an opportunity for the future.
Pranav Tyagi is founder, president and CEO, Tango.