has quickly become one of the world’s largest tech and innovation gatherings. This year’s event, Collision From Home, took place online from June 23-25. Over 32,000 startups, investors, industry leaders, and innovators from across the globe came together virtually to explore, discover, learn and connect.
Doug Stephens, best-selling author and founder of Retail Prophet
, joined a panel at Collision From Home to discuss Rebuilding the Retail Sector. I was able to meet with Doug later in the week to further discuss innovation the retail sector and the long-term impacts of COVID-19.
What will be some other long-term effects of this pandemic for the retail industry?
First of all, COVID-19 has basically been hunting for retailers with preexisting conditions. If you happen to be a retailer that has taken on tremendous amounts of private equity debt, COVID-19 has found you. If you happen to be a retailer who has been too dependent on physical stores for the distribution of your product and your top line revenue, COVID-19 has discovered you. If you are a brand that has struggling to find your positioning or find your place in this new retail environment, COVID-19 has found that vulnerability. Many of the brands we see struggling in these initial stages are brands we already knew had problems.
My deeper concern is that as we venture forward, as economies begin to reopen, we are going to be operating against what economists call the 80% economy. In markets like South Korea that have begun to reopen, we are seeing that there is not a full return. There is not a sense on the part of consumers that the coast is clear. There is a percentage who are still sitting out or being extremely cautious about their behavior. Even in a reopened economy, consumers are going in, getting the things they need, and they’re getting out. They’re not taking the time to shop.
Until a vaccine is widely available, it’s going to be really difficult for retailers. The result of the 80% economy is that you have to bring down your cost structure as a retailer in order to drive that period of time. We’re starting to see the beginnings of that shaping the market. I think we’re going to see persistent levels of unemployment that are going to match the kind of unemployment levels we saw during the financial crisis. As that continues through Q3 and Q4 of this year, that’s going to mean a spate of new bankruptcies in Q1 of 2021.
If some of these retail struggles carry into 2021 and store closings continue at their record pace, then what eventually happens to all those empty stores?
For the Amazons and Alibabas of the world, this has been like an intravenous drop of steroids for those companies. If you were going to design a crisis that would play to the hand of Amazon, this would be it. They’ve had their own share of challenges as well, but by and large, the beneficiaries of this crisis have been the online services, which potentially spells opportunity for them.
Rumors abound that Amazon is potentially eyeing urban real estate, which I acknowledge is one piece of the puzzle they haven’t quite have pinned down yet. It’s this notion that physical stores on the ground can also serve a dual purpose. They can be a great form of media for your brand if you’re Amazon, but they can also become a logistics hub for last mile delivery. Something that we know Amazon struggles with. Getting that product from their warehouse to the customer’s door. So I could see Amazon picking up some of those pieces, recognizing that this is an opportunity to increase their presence and their footprint at a bargain in the months to come. So it’s a shifting landscape for sure. As it spells disaster for some brands, it will spell opportunity for others.
What are some retail innovations and trends you were excited about heading into 2020 and how those have shifted?
It’s interesting. Our team had a project lined up with a major retail client prior to the pandemic that was aimed at creating a live stream from stores in New York City. We were going to put together a full broadcast, using the store as a stage to produce really intriguing content for an audience around the world. We thought that part of the the future of physical retail was using the store as a stage. I don’t think any of us realized at the time how predictive that actually was, and certainly none of us expected that only a few months later live streaming would become one of the most essential needs of retailers actually bridging the gap with consumers.
Certainly we’ll get to the point where there’s a widely distributed vaccine, but even in a post COVID-19 world, I believe that this repurposing of stores will be key for retailers. To not just use stores as distribution channels for products, but to distribute media using the store as a backdrop for those media experiences.
I think another thing we’ll see is the redistribution or redeployment of in-store resources, or the people side of things. There’s already been some really creative efforts on the part of brands to maintain relationships and interactions with customers using technology. They are using live video technology to assist customers or setting appointments to have personal interactions with customers in the retail space. There’s a lot of creativity out there and some of those trends are absolutely going to take retailers in a very different direction in their thinking around the purpose of the physical store.
We’ve also been following in recent years, the advent of things like augmented reality, virtual reality, and computer generated store environments. And that too is something that’s getting tremendous traction now. One example comes from Tommy Hilfiger. They’ve created a 360 degree immersive experience in these digital store environments that can be navigated from any mobile device. We were already seeing this evolution pre-COVID, but post-COVID we’re going to see a significant evolution of what the online shopping experience looks and feels like. As powerful and as good as what Amazon does, I think most people would agree that it’s not by any stretch of the imagination an interactive or entertaining experience to shop on Amazon. There’s no reason that shopping online cannot be fun and entertaining and discovery-based. I think that will be the new evolution of the online shopping experience.
There’s no question that money is moving from the physical to the digital. If COVID-19 proved anything it’s that about 90% of retailers are not prepared. They’re not capable of literally serving any customer at any time across their entire range of products. As stores are closing, that is troublesome for most brands. I think you’re going to see a reallocation of assets. We will see store closures, downsizing of locations, rental agreements being rehashed and renegotiated, and that money will be flowing back into digital capabilities.
This is all part of the book I’m working on right now about this crisis and what the post-COVID landscape looks like.
You’ve discussed some of the economic and physical impacts of COVID-19 on the retail sector, but what about the consumers? How might this pandemic change the shopper?
Some of the long-term changes for consumers are going to be really compelling. Will people be germaphobic? Will they move more of their spending online? I think these things are almost academic at this point, but the real question is what happens to our cities.
If people in New York City all of a sudden don’t have to come into the office to work anymore, what does that mean for the city? If people can work from anywhere they want, what does that do to the complexion of the city?
If students are all of sudden told, “Hey, you don’t have to come to classes. You can study online, regardless of where you live.” How does that change the complexion of a city like Boston, and how does that change transportation in that city and much of the retail that has been dependent on those commuters, students and transportation systems to bring them customers every day.
I think we will see an exodus from cities to the suburbs. How will that reshape retail in those areas? These are the big, open questions that I think are far more momentous than just what do we do between now and the time there’s a vaccine.
What are some silver linings to COVID-19 that will open up longer-term opportunities in the retail sector?
I like to think of the retail industry as an old growth forest. If you talk to any arborist, they will tell you that if you want to make a forest more robust, you must burn a lot of that old growth down. For the most part, the retail that we see around us today was born out of an industrial era. It was a construct that was necessary in an era where it was all about the distribution of products to market and segments. If you were a brand, you needed that physical network of retail distribution.
The problem is that we have known, or have been feeling this energy pulling us into the digital era. We live this life that is partly digital and partly industrial. The silver lining for me is really twofold. COVID-19 and its impact will burn down a lot of that old growth retail forest and make way for new ingenious concepts coming from younger, more tuned in entrepreneurs. And that’s a good thing for the industry.
The other part is this will pull the entire retail industry kicking and screaming into the digital era. And if we’re being honest about it, I think that is just fundamentally better for consumers.
Another short-term trend I think will become a long-term change is the advent of more people shopping online and more people signing up for subscription programs. In 2020, do I really need to go to the grocery store 1.6 times a week just to pick up more laundry detergent or diapers or dog food? Why on earth would that stuff not just come to me when I need it?
These are going to be fundamental changes to the way we live and hopefully give us time to focus on what matters in our lives as opposed to standing in the detergent aisle of a grocery store.
What is something you wish more people asked about the retail industry?
If we were honest with ourselves, I think the most important question goes to innovation and goes to humanity. Retail over the last 30 years has not necessarily been a force of good in the world. We have tranquilized ourselves as consumers, particularly in the West, with mindless consumption. We ship a boatload of cotton to one side of the world, and ship a $2 t-shirt back to the other side of the
world so that a consumer can buy it for $7 and throw it in the garbage after two uses. It really is an embarrassing amount of waste.
My question is this: Is COVID-19 really the universe tapping us on the shoulder and saying, get your shit together. This really is the opportunity we have as an industry to sit down collectively and say, “You know what. We have a choice here. We can either continue on this perilous path to destroying the world around us, or we as an industry, can sit down together and make a chance.”
We can change the course of history and we can work collectively for the betterment of humanity and the preservation of the planet. That really is the question I wish more people were talking about and less about what payment paths customers will still want in stores.
What does innovation mean to you?
I think innovation starts with humility. If you don’t have humility in the leadership of your organization, it’s very difficult to be innovative because humility is what drives you to say, “I don’t know what’s going to happen. I don’t know what the answer to this is.” And as soon as you admit that you don’t have the answer, that hopefully propels you to set about trying to find what the answer could be, and that leads to experimentation and ultimately to innovation.
In some cases, we also need to open ourselves up to the idea that maybe our entire business model needs to change. Maybe what we considered to be our core product, is not our core product. Maybe we should be exploring other things, other services, other experiences that we can monetize. Maybe there are different ways.
This is a time when everything is up for grabs. Consumers are changing, the landscape is changing, and business does need to change along with them. Otherwise, you’re just going to be a refugee, held back in the industrial era. And that is a not a good place to be.
About Doug Stephens
Prior to founding Retail Prophet, Doug spent over 20 years in the retail industry, holding senior international roles including the leadership of one of New York City’s most historic retail chains. He is the author of two groundbreaking books, The Retail Revival: Re-Imagining Business for the New Age of Consumerism and Reengineering Retail: The Future of Selling in a Post-Digital World. Doug is also the nationally syndicated retail columnist for CBC Radio and sits on multiple advisory boards, including the David Sobey Centre for Innovation in Retail & Services at St. Mary’s University. You can learn more about Doug’s work at retailprophet.com