Retail sector faces transformative moment over Covid-19

Long-term changes in customer behaviour and expectations await sector

Customers queue to enter the Ikea outlet in Ballymun, Dublin, on its reopening after Covid-19 restrictions were relaxed. Photograph: Colin Keegan/Collins Dublin

Customers queue to enter the Ikea outlet in Ballymun, Dublin, on its reopening after Covid-19 restrictions were relaxed. Photograph: Colin Keegan/Collins Dublin

 

The immediate human and public-health cost of the Covid-19 outbreak will pass but will leave behind a fundamental long-term change in customer behaviour and expectations.

Revenues have collapsed for many retailers forced to close temporarily to reduce the spread of the disease. Others have been challenged by demands for online offerings and disruptions in supply chains. On the flip side, some retail sectors have seen a significant increase in revenue for certain items. Indeed, in the short term, for large grocery retailers such as Tesco, Lidl or Aldi, demand has increased significantly.

With consumers required to avoid public places, retailers offering online shopping have seen an upsurge in sales. Amazon moved to hire 100,000 warehouse workers to meet surging demand.

Even prior to the crisis, ecommerce was the fastest-growing segment of the retail market in Europe and North America. Consumers are now buying a broader variety of goods online, a trend that has been accelerated by the imposed reduction in social contacts due to the Covid-19 crisis.

The result of such action and the shift to online shopping in all areas has resulted particularly in a crisis for the smaller and non-grocery retailers. These are threatened by this unprecedented crisis and their survival is at stake.

Opportunities

All is not lost. As with any crisis, there are also opportunities, in particular for smaller retailers to accelerate their adoption of digitalisation. Offering services and products online in an innovative way is one path forward even without the Covid-19 crisis. Demonstrating the capacity to differentiate, to increase customer experience and to adapt is essential to survive.

International and large-scale retailers have altered the retail sector and shifted market shares to online shopping. Traditional online retailers, such as Amazon, have entered the physical, local retail world with Amazon Go, Amazon Books, etc, together with widening product ranges to include groceries and perishable food. Traditional boundaries are vanishing threatening the small and medium-sized retailers, both online and offline.

This trend has now been accelerated with retailers going out of business. A further shift in polarisation of the retail landscape can be expected, with more focus to online and cashless payments.

The creation of more sophisticated customer experience and greater customer engagement through technology presents an opportunity for all retailers. As customer behaviour has changed, with the expectation of digital and remote offerings, it is now time to invest in new technologies.

Free same- and next-day delivery for many products will become the new norm for retailers, with convenient return shipping and detailed package tracking.

Various ways of online and remote communication with customers are setting new expectations for customer interactions that can be created by the use of artificial intelligence (AI), augmented (AR) and virtual realities (VR). Analytics driven by AI can provide insights into business and customer behaviour, and AR and VR can enhance customer engagement.

With the use of mobile devices and increased connectivity with 5G, combined with new smart technologies, we are able to create a seamless shopping experience, removing boundaries between online and offline shopping.

Self-checkouts, click-and-collect, pre-ordering via apps and various forms for customer engagements via chat-bots, virtual shopping environments and support using AR will set new standards.

The virtual shop assistant, an actual salesperson located in the store but available to help remote shoppers, can be considered as one form of digitalisation for the smaller retailer. This virtual shop assistant helps the customer remotely, enabling them to purchase via social media.

Smart mirrors in clothes shops, which allow customers to fit and design entire outfits, are one example of enhanced customer experiences.

Payments paths

In addition to these novel technologies, payments paths will change with cashless and instant peer-to-peer payments.

This transformation has been accelerated by the current crisis, and the changes in consumer behaviour will drive various new developments, such as user-friendly mobile applications allowing the initiation of payments and innovative customer identification methods. Seamless payment will become the standard for global payment instruments that offer reliability, trust and low transaction fees.

Established business models need to be revised as customer behaviour has rapidly changed due to necessity during the Covid-19 crisis. It has highlighted the need for some retailers to review their processes and become more digitalised and remote-focused.

Small to medium-sized retailers need to modernise their work practices. This does not need to cost much but is vital to survival. Customers will no longer differ between online or in-store shopping but will expect seamless channel integration to suit their own personal requirements.

Obviously customer loyalty has been vital during the Covid-19 crisis and regular communication is essential. If not yet started, retailers need to shape a digitalisation strategy for their company, aiming to increase customer experience using digital technologies.

Enterprise Ireland and other State agencies can offer support. Collaboration with Science Foundation Ireland-funded research centres, such as Lero, the SFI research centre for software, and universities can offer expertise and knowledge. An example of this kind of programme is the Perform project co-ordinated by Maynooth University, which is preparing the next generation of digital retail managers.

The project will develop sustainable business models for the digital retail sector and examine approaches to create a unique customer experience along every touch point of the customer journey through digital technologies and analytics, benefiting small and medium-sized enterprises.

The Covid-19 crisis has essentially changed the interactions between customers and retailers – presenting us with challenges and huge opportunities. It is a truly transformative time for retail.

Prof Markus Helfert is a professor at Maynooth University and is a principal investigator at Lero, the Science Foundation Ireland research centre for software and at the Adapt research centre

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