The State of Retail After the Pandemic Outbreak – STUDY

The State of Retail After the Pandemic Outbreak – Data from National Retail Federation and Salesforce

According to the Salesforce Shopping Index, online sales rose by 20% in Q1 2020. During that period, e-commerce sites saw 40% more unique visitors than a year earlier. The growth of e-commerce has been accompanied by a collapse in traditional retail. In this area, analysts identify 6 major problems that emerged as a result of the pandemic.

Pandemic Effects in Numbers

How did COVID-19 affect retail worldwide? Due to the pandemic, governments of many countries decided to impose restrictions on the trade of non-essential goods. Many brick-and-mortar stores have remained closed for over a month or are operating at reduced capacity. Mandatory quarantine and imposed "social distancing" mean that stores that remain open see fewer customers, as shoppers have either moved their purchases online or reduced store visits to the bare minimum. What are the economic effects of these phenomena?

Data collected directly from retail and e-commerce entities is already available. Some information comes from members of the National Retail Federation (NRF), the world's largest association of retail businesses, and some directly from Salesforce systems that handle sales, marketing, and customer service processes for over 150,000 companies. What does the data say? 87% of retail companies confirm that the pandemic has significantly affected their operations, which is reflected in the following:

• 94% of retailers are already experiencing or expect a sharp drop in foot traffic in their stores,
• 88% fear that their suppliers will have limited production capacity as well as limited ability to deliver on time,
• 81% have either been forced to reduce headcount or already expect staffing shortages once social quarantine ends,
• 77% say there will be logistics delays in retail,
• More than half (53%) of operating traditional stores are reducing their hours,
• 49% expect shortages of goods in warehouses,
• 35% of retailers are still paying employees for full working hours despite forced store closures.

Online Retail – Unprecedented Growth

Developing or launching e-commerce channels is an opportunity for retailers to weather the crisis or at least minimize its effects. According to the Salesforce Shopping Index – an indicator updated in real time based on data from the Salesforce Commerce Cloud system and the behavior of millions of consumers worldwide – in Q1 2020, compared to the same period in 2019, unprecedented changes occurred in online retail, even though the pandemic only developed in America and Europe in March. Here is what transaction systems recorded:

• 20% growth in e-commerce revenue (compared to 12% growth in Q1 2019) – such a jump is higher than those recorded during the best holiday shopping periods,
• an average 15% increase in traffic on e-commerce websites,
• 40% growth in new customers, i.e., those who visited a store's website for the first time and made a purchase,
• an average 5% increase in spending per shopper – also significantly above holiday-period increases.

COVID-19 Triggered 6 Fundamental Problems

The Retail Front Line: 6 Problems

NRF and Salesforce analysts highlight the key problems that have affected retail as a result of the COVID pandemic. The closure of national borders and reduced operations of manufacturers (especially in China) disrupted or broke supply chains. A significant portion of brick-and-mortar stores ceased operations, and consumers significantly reduced spending, which in turn caused a slump in domestic demand in many countries. As a result, retail today faces 6 enormous problems:

Supply – Initial consumer panic triggered mass purchases of essential items, which depleted short-term inventories and accelerated the need to restock. At the same time, Chinese industrial production slowed significantly, which will adversely affect the fulfillment of increased orders across global retail once the pandemic ends. 88% of retailers already believe their existing suppliers will have limited capacity.

Demand – There was a sudden and drastic drop in demand for non-essential goods during the pandemic. Many product categories are piling up in the warehouses of closed stores, and pandemic-related fears will not necessarily prompt consumers to increase purchases after it ends. Rebuilding demand to pre-pandemic levels will likely require a long period.

Finance – A long-term reduction in demand will be disastrous for retail, as most retailers operate on relatively low margins with small capital reserves. Most financial targets set for the current year will not be met, and stores will be forced to seek alternative financing sources, the cost of which may further burden them.

Liquidity – Securing access to new financing sources will be a key problem, as revenue from customer purchases has significantly decreased, is unlikely to recover quickly, and the supply chain has been disrupted. For this reason, many companies may struggle to repay debt, increasing the risk of potential bankruptcy.

Cash Flow – All variable costs, such as wages, marketing expenses, new technologies, process maintenance, and other expenses not critical to business operations, will be under strong pressure due to the need to cut costs.

Employees – During the pandemic, employees are on the front line, putting them at risk of illness. The availability of new staff is severely limited. Meanwhile, for headquarters employees, working from home is a completely new experience. Typically, such a sudden shift from office work to telework, combined with the need to care for children learning at home, causes a significant decline in employee efficiency and productivity.

e-commerce in the Lead

While the pandemic has shaken the entire industry, retail has been grappling for several years with challenges related to declining foot traffic in brick-and-mortar stores, changing shopping patterns, and growing competition from the internet.

e-commerce has steadily gained importance year after year and has been highlighted more than once in Salesforce publications as a sales channel with great potential. Already two years ago (the "2018 Holiday Shopping Report"), during the pre-holiday period, retail was shifting online, including to social media. The 2019 "Connected Shoppers Report" indicated that customers make their first purchases most often in brick-and-mortar stores, but as many as 75% of repeat purchases are already made online, which is causing stores to massively digitize their offerings and enable online shopping. The crisis triggered by the pandemic has significantly accelerated the development of e-commerce channels, replacing purchases in regular stores. But what good is that when, for example, in Warsaw it is already impossible to order home delivery of basic groceries, as all available transport slots are booked by customers for the next three weeks? Clearly, logistics cannot keep up with growing demand.

The Salesforce Shopping Index for Q1 2020 confirms this trend. E-commerce in Q1 of this year grew by 20% compared to Q1 2019. The highest e-commerce gains were recorded by the household goods sector (51%), games and toys (34%), and sportswear (31%). Online traffic increased by an average of 15%, and shopper spending by 5% (average amount spent per visit to an e-commerce site). Of course, not all online stores are currently generating higher profits.

The pandemic also caused a 27% increase in Q1 2020 in the number of stores offering buy online, pick up in store (BOPIS). This trend was already visible in 2019. In the third edition of Salesforce's "Connected Shoppers Report," as many as two-thirds of young millennial consumers placed online orders with an in-store pickup option. Today this model is becoming widespread regardless of age group. Between March 10 and March 20 (during the peak shopping panic), BOPIS revenue increased by 92%.

Polish e-commerce also sees strong growth

Growth in Polish e-commerce

As in other countries, during the pandemic retail in Poland was largely paralyzed, and many customers are looking for ways to shop online. Since the announcement of the epidemic state, not only has the number of orders placed through e-commerce channels increased significantly, but many new online stores have also appeared. According to a report by research agency Mobile Institute, "e-Commerce During the 2020 Crisis," commissioned by the Chamber of Electronic Economy, during quarantine 38% of respondents shopped online; 55% of customers bought cleaning products, and 48% bought food. Clothing and footwear, health category products, and pet supplies were also purchased. According to data from the Polish Payment Standard, which operates BLIK, in March sales in electronics stores surged by 270%, and streaming services also recorded large gains.

The growth in online sales is confirmed by press releases published by companies, according to which e-commerce's share of sales in Q1 2020 is as high as never before. Vistula Retail Group admits that its online sales revenue in Q1 2019 accounted for 15.5% of total revenue, while in Q1 2020 it will be 24%. Komputronik records a several dozen percent increase in visits to its online store, and at Grupa CCC, online sales, which accounted for 25% of total sales in March 2019, rose to 45% in March 2020.

With the growing popularity of e-commerce, the number of new stores is also increasing. A report prepared by Wiadomości Handlowe, which analyzed data from the Shoper platform, shows that interest in opening an online store increased by nearly half compared to the previous year. Data for the period from January 1 to March 15, 2020, compared to the same period last year, show that the number of stores offering books and multimedia increased by 23%, food products by 18%, gifts and accessories by 17%. Next are the categories of health and beauty and home and garden (16% each). Meanwhile, 15% fewer jewelry and clothing stores were opened.

Will the growth in e-commerce maintain its momentum? It is difficult to predict, as the current market situation is dynamic and unpredictable. Time will tell.

Summary

The COVID-19 pandemic has triggered unprecedented changes in retail. According to Salesforce Shopping Index data, in Q1 2020 online sales rose by 20%, and the number of new e-commerce customers by 40%. At the same time, 87% of retailers affiliated with the National Retail Federation felt a significant impact from the crisis, and 94% expect a decline in foot traffic in brick-and-mortar stores.

Analysts point to 6 main problems: disrupted supply, falling demand, financial difficulties, liquidity, cash flow, and employee issues. In Poland, quarantine accelerated digitalization – Vistula Retail Group increased e-commerce's share of revenue to 24%, and at Grupa CCC the online channel already accounts for 45% of sales. The number of new online stores is also growing, confirming the durability of the trend. An interesting fact is the 92% increase in BOPIS revenue during the shopping panic in March 2020.