I don’t know if the world needs another “how X will be changed after the Covid-19 pandemic” article. We are living days none of us have ever experienced before. This is a historic crisis as big as the Great Depression in the 1930s. Epidemiologists, experts and academics have been warning us for a long time of such a potential impending pandemic. Bill Gates had a blockbuster TED Talk back in 2015. The Johns Hopkins Center for Health Security in the United States and Germany’s Robert Koch-Institut (RKI) created simulations years ago about what might happen if a new pandemic swept the earth. Asian countries who learned their lessons from the recent SARS viruses, or used technology and excessive surveillance to be alerted, managed to control the virus in a much more organized way. Each country is having its own bell curve whilst Italy, Iran and the United States are currently the epicenters of the pandemic in their respective continents. The authorities in many countries say that life will not be back to normal before June even though the aftermath might take as long as 18 months. But the question is what is normal? Even teens know the world will not be the same after this. So, what is going to be the new normal? Well, no one knows for sure.
One thing is certain. This crisis will be a major catalyst for change in so many ways. Consumers build new habits that will stay with them for a very long time. Technologies that were considered “nice to have” have become essentials.
Technologies that were commercialized and seen as curiosities 15 years ago have made the jump from mere intellectual curiosities amongst the early adopters to mass-market acceptance. This quantum shift in adoption will have a tremendous impact on all our historic patterns of societal behavior and interaction affecting everything from the concept of workspaces to retail consumption to getting a haircut. The coronavirus crisis will change business processes, consumer behavior, and personal habits. The coverage and the velocity of the digital transformation will be X2 afterward.
We’ll see so many new online and hybrid services emerge of actions that were previously performed in person and face-to-face. We already see the acceleration of online/hybrid gym adoption like Peloton, and previously offline instructors have started online training sessions and tutors have moved their private courses online. We now have online karaoke at scale, and drive-in movie theaters are making a come back.
The exogenous shock of coronavirus will accelerate the inevitable software industry consolidation of the Cambrian explosion of tech and SaaS startups by existing incumbents and new well-funded rollup initiatives.
To help us understand how retail will be affected as the crisis unfolds, I’d like to share my predictions below as someone who has been in the tech industry for more than 20 years and a co-founder of a retail technology company.
- Unified Commerce
We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
Roy Amara (Amara’s Law)
The most profound and lasting effect of Covid-19 will be the accelerated change of the digital transformation of commerce. For the past 20 years, e-commerce started as a novelty and now has taken retailing by storm. Thanks to mobile phones, the digitally native generation, marketplaces, and changing customer behavior, e-commerce has grown exponentially to reach around $3.4 trillion in 2019 (as reported by Digital Commerce 360.) This represents only 16% of the total retail sales (some countries are as low as 5%) making brick and mortar stores still the mothership. Most retailers perceived digital transformation as a marketing or PR gimmick investing technologies that did not solve their structural problems. Some failed to adapt to the new culture. Most retailers positioned e-commerce as just another store (n+1) working or as a company within the company with separate teams, strategies, and budgets (the Russian nesting dolls of commerce). Creating new silos and bad culture doesn’t seem to be the right thing to do.
The distinction between online and offline commerce in the eyes of consumers faded a long time ago, and they expect seamless integration and continuous ubiquitous service at every possible retail touchpoint.
I expect that retailers who want to stay in the competition will finally invest in unified cloud solutions, clienteling, product information management, smart order and inventory management software. In other words, brands want to have a complete inventory for all channels, be able to support all complex multi-channel scenarios, would like to turn every store into fulfillment centers, want to eliminate store queues by turning every sales associate into a cashier, want their sales associates to be able to serve their customers personally and intelligently, allow customers to do self-service shopping in-store or in full digital pop-up stores. Companies -like my company Shopi- that offer compact, modular and affordable end-to-end retail cloud solutions will be on the frontline.
- Supply Chain will be changed drastically
Not only companies but even countries have been discussing how important it is to create alternatives for their supply sources, namely adding new routes other than China in the years to come. Sourcing is actually a small part of the problem. We could expect that the main transformation will be on the other parts of the manufacturing process, particularly on designing and planning. Especially in fashion retail, the current manufacturing system is broken. Similar to the magical shrinking pool math problems, the amount of wasted clothing that ends up in U.S. landfills each year reached 26 billion pounds. I expect AI solutions for trend analysis and production will be regularly used which were once seen as “nice to have” by retailers. We will also see an increase in the adoption of 3D Design. Today we collect fabric, sew it and then decide if it’s what consumers would desire. With the 3D design, you can create a visual image digitally the same day to confirm or to make any changes to clothing. That, of course, goes hand to hand with 3D printers for physical products. They allow products to be printed and assembled close to the place of purchase. Short-term warehouse marketplaces (like the Airbnb of logistics) that suffered to scale fast previously will gain more traction and grow their business in this new period. The current state of robot utilization is already well established and this trend will accelerate.
- Re-commerce will be the digital twin of (e)commerce.
Wikipedia defines re-commerce as “a process of selling previously owned, new or used products, mainly electronic devices or media such as books, through physical or online distribution channels to companies or consumers willing to repair, if necessary, and reuse, recycle or resell them afterwards.” Since the term was first used in 2005, it continues to evolve covering consumer electronics, such as smartphones, tablets, and computers to furniture, apparel, and accessories. Before, sustainability was the main reason for companies considering re-commerce. Optimizing inventory, new revenue streams as well as being proactive to new consumer behaviors might push more retailers investing in that business line in the future.
- Ghost supermarkets will grow fast.
If there is one vertical this pandemic and lockdown help the most are ghost supermarkets. All preconditions are now in place for them to take off. In the short to mid-term, they will enjoy the ever-growing client base, more affordable city-center stores -warehouses-, and a readily available delivery workforce. Since most of them are in Emerging Markets, we could also expect to see them in Europe and some of the densely populated cosmopolitan cities in the US too.
- Rental and Subscription Models
The 2008 crisis gave us a new business concept; private shopping. An online private shopping web site is a members-only shopping club, where members can buy goods at high discounts. The business model became so successful that almost every country had one or two local players next to a couple of global players. Consumers enjoyed fashion and luxury goods at desirable pricing ( 50–70% off) whilst brands have a direct connection with heavy buyers and a clever way to minimize their inventory.
I expect that the Covid-19 crisis could trigger other new online business models that were taking baby steps in recent years; which will include some form of rental and subscription revenue streams. There are several companies providing designer dress and accessory rentals. As an alternative, some startups launched “Airbnb for closets” type of businesses for almost unlimited inventory. Several brands (even Nike) launched their rental services too. Thanks to changing habits, affordability issues and blurred lines between online/offline shopping, we might witness more brands launch their rental services while native rental companies will likely gain more traction in the coming era.
- The luxury segment might be the first to recover.
In fact, the luxury segment has always been the first to recover. A report prepared by Italian luxury brand consortium Altagamma, Boston Consulting Group, and Bernstein during the crisis in February quoted a consumer psychologist saying that since luxury purchases are an emotional act. “Once the immediate threat lifts, luxury consumers will come back stronger in a backlash against all the worry and anxiety they came through.” McKinsey also predicts on its “Covid-19 Facts and Insights Report” dated March 25 that apparel/fashion/luxury is the first sector to restart (late Q2/Q3) and the least hit among many others including Defense, Air & Travel, Insurance carriers, Oil & Gas and Automotive. Since there is a direct correlation between luxury shopping and the tourism industry, any delays on travel and international flights specifically will harm recovery.
- It will take a long time for people to go back to Malls.
In some countries, shopping centers have more meaning and function than shopping. They also function as a societal meeting and interaction points. The magnitude of this outbreak is a traumatic event that is almost beyond comprehension. When self-isolation ends soon, we should not expect people to rush into concerts, stadiums and shopping centers right away. Shortly, shopping centers will invest/promote more on traditional or even advanced technologies offering good hygiene practices. Just like the security checks at the airports, visitors might be required to measure their temperatures or ask for permission to access the app monitoring their vital data history. (Note that it’s already been a standard procedure to pass through X-ray checks entering malls, stadiums, commercial buildings for many years in many countries.)
One can argue that people’s immediate reaction to the over month-long lockdown is to go out, do at least window shopping or do what it’s called “shopping therapy”. Yes, that’s true but there is a high probability that high-streets, open-air shopping centers will be preferred more -along with parks, forests, and beaches. Initial post-pandemic customer habits from Beijing show us that people are reluctant to go out. Those who visit bars are less but they drink more.
- Repurposing the abandoned malls will continue to evolve.
Dead malls, retail apocalypse, store closures… Those were the headlines we kept reading for years much before the outbreak starts. Shopping centers have been taking steps to overcome this downward trend by repositioning, changing brand mix (less food court more fine dining, more co-working areas, larger gyms) or repurposing (turning into residential units, hotels or schools). Since food sustainability, health, last-mile logistics are some of the hottest topics in the coming mid-term, we might see complete or partial repurposing projects including vertical farms, clinics, cloud kitchens, and cloud supermarkets.
- Companies from Emerging Markets will have more business.
During the crisis, cost and speed become the main criteria for companies when they consider new projects or purchases. Technology startups from EMs that previously have been struggling to reach out and close deals with retailers could expect more business in the coming months. Companies offering AI-based software solutions, retail SaaS products, and projects requiring professional services will have a better chance to be competitive.
- The gig economy will have a new expansion area: retail sales associates.
Customer Service has always been a critical component of all businesses. Technology helps retailers to keep their customers engaged, boost their productivity (whether it’s scheduling or communication) and make more sales. A large selection of in-store technologies enables sales associates to provide personalized service too. This crisis will put even more pressure on the retailer’s operating expenses. I expect sales associates will eventually be part of the gig economy.
“Fortune Favors The Brave”
We all hope someone in the world develops the vaccine for the pandemic and everything goes back to normal. The normal though will be dramatically altered for all of us and will manifest itself in different ways both in terms of societal interaction, consumption, and cultural behaviors. Those who are brave and prepared will be the next generation of winners.