Retail Innovation: Why COVID-19 Is the Shot in the Arm the Industry Needed to Innovate in the Retail Apocalypse
Before COVID-19 disruption, retail brands were reeling from years of what’s been dubbed as the “retail apocalypse.” Disruption to traditional retail has been in the spotlight for the last 20+ years since the dawn of e-commerce and Amazon, and the rapid evolution of digital consumerism. It’s estimated that in 2019 alone, more than 9,300 stores closed in the U.S. as of July 2020. More than 13,000 stores were expected to close in 2020, a number that’s almost certain to rise. Malls too, are seeing traffic deteriorate. Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology, warned that about 25 percent of the country’s nearly 1,200 malls were in danger of closing. Green Street Advisors, a real estate research firm, forecast in April 2020 that more than half of all mall-based departments stores would close by the end of 2021.
If already managing through increasing market disruption from not only Amazon, but never-ending arrays of D2C brands, and increasingly digital-savvy competitors, traditional retail can’t seem to catch a break. Now, add a global pandemic to the already devastating apocalypse and it almost seems unfair.
Disruption is an overnight phenomenon over 20 years in the making
From the onset of COVID-19, difficult decisions were made to shut down stores to help flatten the curve while also having to furlough and lay off staff to cut costs and ensure stability and business continuity. Then, as re-openings occurred in stages, retailers quickly faced reality that they were operating under unprofitable (and unusual) conditions. Added together, the long, but eventual disruption from digital, and now COVID-19 only hastened the retail apocalypse.
While devastating, the truth is that COVID-19 only accelerated the inevitable. Following the launch of the first GUI (graphical user interface) web browser, the internet became mainstream in 1993. Amazon popularized e-commerce in 1994. Social media started to gain early mainstream likes in 2006. The iPhone changed the world in 2007. Uber started driving change in 2009. Postmates started delivering disruption in 2011.
Essentially, there’s been more than enough runway to prepare for digital disruption. Because many analog models were so slow to react to the digitization of consumerism, the digital disruption stemming from the pandemic is all the more profound. But, it’s not too late to do something about it for the long-term.
What if we choose to see these times, not as a disruption to our plans and expectations, but instead as an opportunity for a reset?
What if we looked at our current situation, not as disruptive to our previous trajectory, but as an invitation to grow in new directions?
We are not returning to normal, plan accordingly
In my interviews with executives, there are those that believe they need to ride this whole thing out until everything returns to normal.
As a digital anthropologist, I can attest that there is no returning to normal. Nor should we want it. There were many routines and standards tied to yesterday’s normal that were holding us back. It should not go without saying, this isn’t a race toward normalcy. It’s a moment of transition and reflection to build the future we really want.
To invent a new tomorrow and a new future and trajectory for retail, we need to relearn who our customers are and who they’re becoming.
Shutdowns are forcing customers to accelerate digital behaviors. In fact, McKinsey estimates that COVID-19 advanced ten years of US e-Commerce growth in just 90 days’ time. And, according to Salesforce’s Q2 2020 Global Shopping Index, global digital revenue increased in the U.S. by an unprecedented 71% compared to the previous year. Moreover, traditional retailers promoting buy online and pickup in store (BOPIS) or curbside options saw digital revenues grow by 127% year over year.
The advantages of digital are only escalated when people prioritize their safety and wellbeing while a live virus is out there thriving around the world. People are choosing digital over physical experiences as if it were literally a matter of life and death. A study by IPSOS in June 2020, revealed that even though brick-and-mortar retailers are opening, 61% of customers were delaying shopping in physical stores for fear of getting sick.
The truth is that digital is only expected to grow and with it, customer behaviors, expectations, and values will continue to evolve away from traditional retail.
I call this digital Darwinism. It’s the evolution of technology innovation as well as markets and society. Standards for excellence, customer expectations and preferences, decision-making, values and aspirations, will continue to evolve. We have a choice, and a unique moment in time, to reassess, imagine, and invent…forward. We can rethink what retail means in this #NovelEconomy. We can rethink retail space, retail concepts, and retail experiences on digital screens, and how everything comes together in ways not possible before.
The time for retailers to act, if not yesterday, is right now
Innovation starts with personal transformation. Challenge yourself and those around you to see things differently in order to do things differently. This is the only way to unlock new possibilities and outcomes. Otherwise, you’re tethered to yesterday’s potential, standards, and measures. There’s a sense of urgency like never before. Dig deep within yourself to unleash a newfound source of leadership and creativity. Challenge your own conventions and inspire others around you to do the same. Create a community of support and empowerment that helps others feel a sense of validation and commitment to breaking new ground.
Surround yourself with innovators, beyond the current crisis response taskforce and board of directors. In times of retail disruption, executives usually create a close group of cross-functional leaders, including outside experts. The result of these collaborations often leads to cost-cutting or the divesting of interests, maximizing existing returns, and exploring areas for potential revenue creation. It’s the latter part that’s often problematic. Don’t get me wrong. This is absolutely the right thing to do. But, it’s limiting.
To see new opportunities in retail, thinking like a traditional retailer supported by traditional retail models and measures hinders imagination and possibility. Leaders also need a separate innovation taskforce to push them out of their comfort zones, to develop a vision for the future and an actionable strategy and roadmap to move them forward.
I know there are resource constraints, that executives and maybe boards and shareholders are fatigued or impatient. But honestly, you really have no choice. You have to evaluate, spin up and test new ideas. It’s the quickest way to revenue and value creation.
Relearn who your customers are and what they value. In reality, customers are not going to suddenly underappreciate the conveniences, speed, and personalization of digital shopping and return to their old ways. Digital is only going to continue to accelerate. Additionally, these new behaviors, routines, and standards are likely to introduce new opportunities for direct and indirect growth. Behavioral research, after all, suggests that it takes on average, 66 days for new behaviors to become automatic.
Form a cross-functional data team that can assess real-time trends and glean insights to make improvements in digital touchpoints and also create new touchpoints or products and services, that better anticipate and meet their needs…as they evolve.
Ask different questions and dedicate a team to answering them. In times of crisis, it’s natural to hunker down, cut costs, reduce resources, maximize margins, and focus on priorities in a linear, checklist fashion. But none of those activities are designed to drive growth, nor are they going to position the brand for future competitiveness or success. Now’s the time to ask different questions, such as…
- What can we do immediately to earn $20, $50, $100 million in additional revenue?
- What if we outsourced innovation to a team that can open new markets execute for revenue sharing while only enhancing the value of our brand equity?
- What can we learn from D2C brands to create virtual products/services that we can uniquely ramp-up and scale?
One interesting example of this line of questioning, during the pandemic, led Chili’s to develop “It’s Just Wings.” In partnership with DoorDash, It’s Just Wings is a virtual brand that sells wings, curly fries and fried Oreos. The new brand essentially operates out of Chili’s and Maggiano’s kitchens in parallel of the other restaurants and is already expected to deliver $150 million in incremental revenue in its first year.
Stay curious and insatiable
As someone who spends a lot of time thinking about the future, I believe that it’s more important than ever to spend time in the present…to appreciate the changes unfolding right now…to shape the future of retail, your work, and your brand’s legacy in innovation.
COVID-19 and its effects, even with a vaccine, are going to be with us at varying levels throughout 2021. Plan for it.
This isn’t a time to give up or make excuses. This is a time for resilience and digging deep to tap a new source of drive and inspiration. Just never forget the corner COVID-19 backed you into and how you pushed your way out and forward. Never forget how disruption brought the best out in you and your team while also revealing the resources or processes that were holding you back.
Disruption is now a constant. Stay curious. Keep ideating. Surround yourself with new voices and talent. Empower others to step outside of their comfort zones and roles. Just like McKinsey’s findings on e-commerce, your mission is to accelerate 10 years of innovation and transformation…now.
So, what are you doing wasting time with this blog post? Let’s get to it!
Learn more by listening to Brian’s webinar “Rethinking Retail in the Interim Normal to Excel in the Next Normal”