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Traditional retailers must adapt as Covid-19 drives consumer behaviour changes

As virus accelerates the shift to online, retailers must ensure they still have a profitable business

While the inexorable shift to digital platforms may be the dominant trend in global retailing, there are quite profound shifts taking place. These include changing consumer behaviours and attitudes and a recalibration of cost and business models.

“Covid-19 has changed the way people think about their lives,” says Prof Damien McLoughlin of UCD Michael Smurfit Graduate School of Business. “Suddenly the idea of being in a packed store on Christmas Eve getting just the thing you needed and going out into a thronged Grafton Street doesn’t sound all that appealing anymore.”

That is leading to a rethink of some fundamental aspects of the retail business. “In food and clothing, the economic model is built around consumers getting into their car, driving to the store, doing the search themselves, queuing to pay for the shopping, packing it ourselves, bringing it to the car and driving it home,” says McLoughlin. “All those costs are borne by the consumer. The margins are so tight even that they can’t offer an online alternative. Now that stores have restricted access, they will have to scale up their online activity.”

Very challenging

According to KPMG partner Niall Savage, coronavirus has accelerated the shift to online. "Physical shopping activity was on pause during Covid-19," he says. "This allowed online retailers to get people to sample the experience and get comfortable with it. Consumers had no real choice. This is going to make the strong guys even stronger. The challenge for traditional retailers is how to evolve. They have to make sure they still have a profitable business. They will need new sorts of skills. With Amazon you can buy with one click, and they get to know you, and personalise their offerings. Traditional retailers will have to be able to do that. That will be very challenging."


The solution for many will be to partner with existing platform providers. "A lot of retailers are going on to platforms like Amazon and eBay, " Savage notes.

KPMG’s 2020 Global Retail Trends report noted the rise of purpose as a differentiator for retailers. The report pointed to a 2018 study by Edelman which found that nearly two-thirds of consumers around the world said they would decide to either buy or boycott a brand based solely on its position on a social or political issue.

Savage believes this presents an opportunity for Irish retailers. "It can help local businesses," he says. "Musgrave and SuperValu make people aware of their active role in their communities. There is an opportunity for Irish retailers to say they stand for more than just profit. Dunnes Stores have Paul Costello designing clothing for them, for example, and they promote the fact that they are buying locally and supporting Irish businesses and communities."

The growing importance of customer relationships is another key trend. “A lot of people think we are at peak Amazon now and that the company is at the height of its powers,” says McLoughlin. But coronavirus has exposed some of the weaknesses in its model. Everything works well when things are predictable, but it hasn’t coped well with unpredictability.”

He explains that Amazon does well in countries with advanced logistical systems. “About one billion people in the world live in those countries, another two billion live in places where they don’t have access to roads for half the year, and the other half of the world’s population live in the middle. Amazon tends not to do well in the middle and are being outcompeted by local operators in regions like Latin America.”

Online selling

Walmart is now planning to take on Amazon in one of its key markets. “They have been trying to figure out how to deal with online selling for the past 10 years and they seem to have done it now with Walmart Plus. It works a bit like Amazon Prime in that it changes the relationship between the retailer and its customers from a transactional one to a relational one. We used to say location, location, location for property. Now its relational, relational, relational for retailing.”

Relations with the supply chain are also important. “If the majority of the developed world goes to Amazon to shop how do you compete with them?” McLoughlin asks. “The only way is by having something that Amazon doesn’t have. You have to work with your supply chain on that so that you can have some unique offerings. Retailers are working with their supply chains more closely to have unique products that consumers can’t get anywhere else. That is a great opportunity for Irish producers. We don’t have a great tradition in consumer products, but we are outstanding in business to business.”

Savage concurs. “People always talk about the squeezed middle,” he says. “We are seeing some chains going upmarket to premium quality. They are either offering a full range or a carefully curated range. Retailers are going for niches. Trying to be all things to all people is difficult.”

And finally, there is the issue of costs. But it’s not simply a question of reducing costs. “It’s not just about slash and burn,” says Savage. “It’s more about investing where you can have most impact. Retailers are looking at the full cost base and identifying what is most valuable and which cuts could damage things like customer loyalty. They are investing in the right costs.”

Barry McCall

Barry McCall is a contributor to The Irish Times