First in an occasional series on the effect of the pandemic on retailing
The customer is always right. Or at least that's what retailers have said for years.
But that adage has never been more true than during the last year and a half when people — many for the first time — tried a host of alternatives to in-store shopping.
"Nothing compares to the last 18 months for retail," said Kim Sovell, a business professor at the University of St. Thomas. "Nothing."
The pandemic dramatically set in motion a new age of consumer behavior that many retail experts say will persist.
Stores like Best Buy and Target, which posted record sales growth during months of the pandemic, are experimenting with store formats, technology and experience concepts.
"The customer is really in control of how they want to shop," Best Buy CEO Corie Barry said in an interview with the Star Tribune. "Every customer is going to decide based on what they believe is safe, based on what they believe is convenient, based on what's right for their schedule and their time."
Cathy and Patrick Peick, a recently-retired couple, didn't venture out to stores during the height of the pandemic last year. Instead, they relied on Amazon drivers to bring packages to their doorstep.
"It was darn near a daily delivery," Cathy Peick said. "It was fun, like Christmas every day."
Last week, the pair made a rare trip to a store. They were at Best Buy in Eagan, one of four in the metro the electronics retailer remodeled in the wake of the COVID-19 outbreak, reallocating half of the shopping area as space to fulfill orders. The store installed lockers last week near the entrance for customers to pick up products. It also has a larger Geek Squad help section.
In many ways, the pandemic accelerated changes already occurring at retailers.
Before the pandemic, a growing percentage of shoppers used online sites and social media. But when COVID-19 forced many people to stay at home, digital shopping became more common.
"Along comes COVID and it turbocharges an already raging change in behavior," said Mark Cohen, director of retail studies at Columbia Business School. "For customers who were partly in on e-commerce, they went all in."
In three months at the onset of the pandemic, the country vaulted forward 10 years in e-commerce penetration, research firm McKinsey & Co. estimates. The U.S. Department of Commerce reported last week that e-commerce sales accounted for 13.3% of total retail sales in the second quarter this year.
People are often creatures of habit, but the pandemic provided a rare disruption and opportunity for retailers. In the United States, 75% of consumers have tried a new store, brand or different way of shopping during the pandemic, according to research by McKinsey.
"Groceries were, until recently, one area in which many people were reluctant to shop online, but COVID-19 has quickly changed that," said Jill Standish, senior managing director for retail at Accenture. "The findings show how people who haven't been as comfortable with e-commerce and other digital technology have been pushed to overcome their hesitancy — and this shift is huge."
Target and Best Buy were prepared because of their earlier investment in contactless services, technology such as mobile apps and store fulfillment before the crisis. Both companies had been shipping items directly from their stores and offering versions of order pickup for years.
Last March, Best Buy temporarily closed stores to in-store shopping and ramped up curbside pickup so it expanded nationwide. Online revenue for Best Buy's total fiscal year grew nearly 145% to about $18.7 billion. As it expanded same-day options, it even started having employees deliver items to customers. It plans to continue to test different store prototypes, including small 5,000-square-foot format stores, as it prepares for a more hybrid world.
"Best Buy has always been good at omnichannel. ... I think that one of the things that really served Best Buy very well [at the start of the pandemic] is that they could very quickly ramp up their model," said Neil Saunders, managing director of retail at GlobalData.
Target's online sales skyrocketed last year. Digitally-originated sales went from 8.8% of total sales in 2019 to 17.9% in 2020. Much of Target's digital growth was from its contactless, same-day services. It expanded its pickup options to include fresh produce and frozen groceries and more recently alcoholic beverages. It even updated its mobile app so customers could specify exactly where in a car they want their items placed.
"Target in my mind is one of the biggest winners," said Scott Mushkin, retail analyst and founder of R5 Capital. "They never really shut down. They have done a good job and people are comfortable going to Target."
Target customers haven't shirked away from stores even as digital and contactless options grew. When it announced quarterly results last week, Target revealed that its store and digital-originated sales were relatively similar to the same time last year leaning more to stores. Target will spend $4 billion a year opening new stores, remodeling as well as engaging in supply-chain projects such as expansion of its robotics solutions, one of which started at a local warehouse.
"Target consumers, like many, want to be in charge and have the tools at their fingertips," said Christina Hennington, Target's chief growth officer. "We've seen incredible digital acceleration across our business, and our investments in supply chain, store operations and technology capabilities ensured we were ready to meet such unprecedented demand last year. But the safety, ease and convenience that guests needed last year remains popular."
This past week Target began to open mini Ulta Beauty sections in select stores complete with trained Target staff who can offer beauty consultations. This month, Kohl's is also opening the first of its Sephora sections at different locations.
To Best Buy's Barry, there is no going back to pre-pandemic retail practices. Customers have become too accustomed to services like curbside pickup. "We now have a whole suite of customers who got very used to the convenience of curbside," she said.
But she added, "The store is pivotal in the customer experience and it's not just in the shopping journey. It's in the fulfillment journey. It's in for us the repair and support part of the journey. It is sometimes the consultative part of the journey."
In the past week, there have been reports that Amazon, which also recently launched Amazon Fresh grocery stores, will open department stores.
"Amazon is not a stupid retailer," Saunders said. "It's really savvy. If Amazon is moving more into physical stores, it kind of suggests there is probably a future for physical stores."
For in-store experiences, customers are still concerned about hygiene and cleanings. Most stores during the pandemic adopted more stringent cleaning schedules and retail leaders such as Target have said cleanliness will be key in how remodels are imagined.
A big challenge for retailers will be to make sure the services consumers became accustomed to, including curbside pickup, are cost-effective in the long term.
The picking of items from shelves has to be done by a store associate who otherwise could be working on other tasks like helping customers so there's a labor cost as well as a cost in the in-store customer experience, Mushkin said.
"What you run into is a really bad store experience," he said, in some instances.
There are also costs and inefficiencies in shipping items to people's homes. Traditional mail carriers have only been increasing shipping prices. At the same time, the consumer has been conditioned to expect things fast and at the same time free or very cheap.
"One of the things we really learned about ourselves was how convenient we like things," Sovell said.
Retailers' first test in how to approach a post-COVID world will likely be this back-to-school season. Target executives last week said the season is off to a strong start.
Best Buy's Barry said, "I think you are going to have parents preparing for a variety of outcomes and at the same time likely catching up in some ways on shopping that they haven't done for quite some time."
