The Future of Retail Post-Covid-19

If you are a shopaholic like me, you were probably very excited when U.K. Prime Minister Boris Johnson announced the reopening of retail stores on Monday 15th June 2020. I definitely could not contain myself, and took the opportunity to go on my first retail shopping trip since the beginning of England’s three-month lock-down.

Naturally, there were long queues outside of stores, and plastic screens and floor markings had been erected at tills to keep shoppers and employees safe. However, what hindered my shopping experience the most was the absence of testers for makeup and perfume, and the restricted access to changing rooms. These intrinsic elements of an in-store shopping experience are what would usually tempt me to shop in-store as opposed to online. This lack of ‘in-person experience,’ and hearing shoppers murmur that they “want to buy cheap items” throughout my shopping day, awakened me to the new economic reality that retail stores and businesses will face post-Covid-19.

To add to this, the PM has since announced that shoppers in England must wear face masks from 24th July, which will further compromise a shopper’s in-store experience and possibly deter them from visiting stores all together.

Store Closures, Redundancies and Bonus Cuts

Since the outbreak of Covid-19, many retail companies have announced the closures of their stores. Zara’s parent company, Inditex, announced the closure of up to 1,200 locations, followed by John Lewis’ similar announcement of store closures, redundancies, and bonus cuts for employees. So, with retail shopping already on the decline pre-Covid-19, it must be asked: what does the future hold for brick-and-mortar stores?

“The biggest shifts in fashion have historically not come from runway trends, but followed events such as wars that disrupt society on a huge scale.”

- Kimberly Chrisman-Campbell, Fashion Historian

Chrisman-Campbell is right, especially as we observe major changes in consumer habits towards fashion since the pandemic hit.

Less is more?

With 50 per cent of the U.K. workforce set to work from home by 2021, many have shifted towards the ‘less is more’ attitude, opting for lounge wear, leading to a decrease in demand for formal wear. This is analogous to consumer behaviour after the 2008 recession, which saw shoppers’ interests in logo-heavy products reduced significantly. With a similar recession on the horizon, a shift towards minimalism in fashion seems closer than ever.

This was certainly observed as resale websites prospered during the pandemic. Consumers shifted towards a more affordable fashion fix as incomes declined, coinciding with the World Bank forecasting the global economy to shrink by 5.2% this year. For example, Depop has seen “triple-digit year-on-year growth,” with platform usage increasing by 150 per cent globally. For U.S. rival Poshmark, the third week of April represented its highest sales week ever.

In an insightful interview with The Guardian, retail consultant Mary Portas stated:

‘For those who can afford to shop around, the companies that have proved heroes could find that the goodwill towards their brand lasts.’

Consumers, now more than ever, will look to brands which demonstrate strong ESG values. After the recent criticism of ASOS and Boohoo (covered below), consumers will be increasingly aware of their duty to ensure their clothes are ethically sourced.

ESG stands for Environmental, Social and Governance. It refers to a company’s commitment to go beyond making a profit, by contributing positively to the environment or social causes and to conduct themselves responsibly. The 2008 recession was characterised by a shift away from environmental priorities for a prolonged period. However, unlike the 2008 recession, the human impacts of this crisis have been immense, urging businesses to pay close attention to their human capital and community impact.

In contrast, the popular ethical casual wear brand Lucy & Yak has maintained transparency during this crisis, regarding safety measures it has adopted, such as the closure of its factories to protect workers. Recently, they introduced a successful fundraising campaign targeting communities local to their Indian factories. The success of the fundraising campaign is evidence of the brand’s customer loyalty despite seeing their supply chain altered and sales affected.

With all these changes, the future success or failure of a business is now dependent on its response to the crisis and adaptation to behavioural shifts in clientele. These changes have been favourable, on one hand, for online fast fashion companies such as UK-based Boohoo, which moved quickly to supply athletic styles and lounge wear. The agility of their supply chain, compelling marketing strategy, and resilience of its young base of customers, enabled the group to grasp this opportunity swiftly. With first-quarter results showing an increase of revenue by 45 per cent, the billionaire owner Mahmud Kamani was fast to buy the struggling online businesses of Oasis and Warehouse to help build on its momentum.

However, Boohoo’s momentum was short-lived as its shares dived by more than 46% following a Sunday Times report claiming workers at a Leicester factory were paid just £3.50 an hour, while being offered no protection from coronavirus. Analysts at Bank of America suggested that Boohoo’s sales growth in the U.K. could be halved by the bad publicity, while its costs might have to increase by up to £20m a year in an attempt to improve transparency in its supply chain. This further reinstates that, although fast fashion boasts an agile supply chain pushing it to grow at a rapid pace, in the long run, the adoption of strong ESG will contribute to more robust and sustainable growth. To learn more about the Boohoo supply-chain scandal, read our article on it here.

On the opposite end of the spectrum, Primark, Boohoo’s high street equivalent, has been put at a great disadvantage for not having an online presence during the lock down period. According to Retail Gazette, Primark is suffering an “inventory crisis,” as it is estimated to have stock worth £1.5 billion that it has been unable to sell due to a lack of an online retail platform.

So, could this push more retailers to expand their businesses online going forwards?

At the higher end of fashion, Chanel, which only sells its brand’s sunglasses, fragrances, and makeup online, was asked if the brand had intentions to now sell clothes, bags, shoes and jewellery, that make up the bulk of its revenue, online. The response was not what investors of LVMH, the owner of Chanel, would have been hoping for:

“We don’t intend, crisis or no crisis, to sell fashion, watches and fine jewellery online,” claimed Chief Financial Officer Philippe Blondiaux. “We remain convinced that the in-person relationship between fashion adviser and client will remain central to the luxury experience.”

Without a doubt, the luxury sector has also been particularly hard hit by the halt of in-store shopping. McKinsey & Company reports that 20 to 30 per cent of the luxury sectors’ revenues are generated by consumers making in-store luxury purchases outside of their home countries. Purchases outside of China accounted for more than half of China’s luxury expenditure in 2018. Asian consumers are attracted to the lower prices in Europe as well as the authenticity and pleasure that forms a crucial aspect of the whole travel experience. With a 95 per cent decline in travel, which is not anticipated to recover quickly even as restrictions are eased, this halts an important driver of luxury spending. This industry also heavily relies on couture fashion weeks to showcase its seasonal designs by hosting spectacular shows that attract international press, key fashion figures and influencers from all over the world. With Paris, Milan, and London fashion weeks going virtual, the organisers must now explore alternative ways to deliver the same level of glamour and appeal.

To conclude, it is evident that this industry will undergo many changes before adjusting to the new ‘normal.’ Whilst M&A is currently quiet, it is expected to be busier as companies look to restructure their business models to meet new demands. There will be a deep polarisation between shoppers who gravitate towards more affordable options, and those who choose more ethical brands. This will inevitably promote the rise of discounted stores, such as Primark and Poundland, that prospered following the 2008 recession, and will also propel brands that showcase strong ethical values to lead the road to recovery from Covid-19.

  • Facebook
  • LinkedIn
  • Instagram

©2020 The Student Investor