The Covid-19 crisis has caused massive disruption in many industries, but particularly hard hit are the hospitality and retail sectors, both of which are heavily reliant on face-to-face human interaction.
A range of measures have been introduced by the Government to contain the virus, including the closure of non-essential retail outlets, leisure outlets, food and beverage businesses, hotels, sports facilities and gyms, leaving only a small number of retailers functioning, such as grocery stores, pharmacies, fuel stations and other essential services. This effort was further tightened in the latest restrictions announced on March 27th, whereby there is now an effective lockdown.
Arising from all of this turmoil, questions are now being asked about physical retail versus online shopping and what impact the fallout from the current crisis will have on the future of both. Right now, necessity grocery and other key services are seeing a massive surge in activity. Similarly, DIY services had, up until the most recent restrictions, witnessed a rush of customers looking for materials to tackle projects while their movements are restricted. While most of this is still happening at a physical store level, understandably there is also a surge in customer activity on the online platforms of the grocery retailers with an online presence, be it for forward ordering or home delivery.
This activity may well represent a fundamental change in terms of the Irish shopper's approach to grocery retail. Included in this are platforms such as Amazon and Ocado which are also seeing a surge in their online activity, but one that is very much food and essential items focused. The use of online for groceries is not new in Ireland, but with many older and more vulnerable people staying indoors to "cocoon", they are utilising this platform to purchase their groceries. The physical stores are responding to the new context through home deliveries and by setting out fixed times for specific groups, such as older customers, to shop in their outlets; however, these services are already under pressure, and as further limitations on people's movement come into play, it is likely that the length of time to receive deliveries will increase.
In the weeks running up to the introduction of the most recent restrictions, there were examples, certainly in the Irish market, of the proportion of online sales outstripping instore transaction in areas such as electronics and mobile phones. It has been suggested by some commentators over the past few weeks that there is, or was, also an overall upswing in online shopping in other areas of the market.
From my own interaction with retailers and people in the retail industry, however, it would appear that while there is activity online, discretionary spend falls dramatically in times of difficulty. This has been the case particularly for those with strong online fashion and leisure businesses. These retailers have not experienced this claimed upswing in online sales. The chief executive of Next, Simon Wolfson, summed the situation up recently, saying: "Online sales are likely to fare better than [physical] retail but will also suffer significant losses – people do not buy new outfits to stay at home."
Quite apart from the fall in online fashion sales, a number of leading high street names, including Next, River Island, and TK Maxx, have had to close their online operations in response to employees' concerns over social distancing at their warehouses and order fulfilment centres.
With even the online operations of certain brands showing they are not immune to the impact of the Covid-19 crisis, it might be worth considering allowing the grocery sector and retailers to reopen their textile operations to enable customers to purchase the likes of bed linen, towels and other essential household items.
Longer-term impact on the retail sector
It is certain that this pandemic and what has occurred is going to lead to some long-lasting changes in people’s consumer behaviour. Those previously not accustomed to online shopping have, through necessity, shifted to this platform. This could see some areas of retail experiencing a greater shift into ecommerce than before.
This behavioural change has certainly been demonstrated during the current crisis, with recent data from digital marketing agency Wolfgang Digital finding that online transactions rose 44 per cent in March compared with February. It's worth noting though that actual online traffic was much the same, albeit with a move away from higher-value purchases such as travel towards items such as laptops and video games as consumers prepared for the restriction of their movements.
Those restrictions, while essential for the duration of this crisis, have served to underline the importance of human interaction in our daily lives. In terms of the retail sector and the ongoing debate in relation to online retail, the current lockdown shows us the value of the high street “experience”. It’s something I am sure most people would now appreciate more than ever.
While the exact nature of the longer-term impact of the coronavirus outbreak on people’s shopping behaviour remains to be seen, I believe retailers will now take steps to ensure a deeper integration of their offline and online services to guarantee a more robust business model.
The immediate challenges
There are undoubted challenges for businesses as a whole at the end of all this, and nobody knows with any great certainty how the Irish economy will react once the threat of Covid-19 has passed.
For the retail sector, the post-pandemic recovery is very much down to keeping those retailers that have closed shop afloat, so that once things return to normal, they can resume trading both on the high street and online.
I believe that many of these retailers, once reopened, will see a resurgence in activity given the restrictions that have been in place. I would caution however that the experience of our colleagues in Cushman & Wakefield offices located in countries where the threat of Covid-19 has begun to subside is not to expect a deluge of activity. People will continue to be mindful of social distancing for a period after the peak.
Karl Stewart is a director and head of retail at Cushman & Wakefield