As the pandemic surged in the U.S. five years ago this spring, Walmart, the world’s largest retailer, faced an unprecedented series of business challenges.
Shifting government regulations, sudden changes in consumer buying and spending behavior and the logistics of maintaining a business of vast scale as the world dealt with a global health crisis added up. The changes contributed to higher sales for Walmart but also higher expenses and a lower gross margin during Q1 sales in 2020.
The retailer pivoted quickly by improving its website and expanding its value proposition on convenience. It also adopted a broader omnichannel approach, one that it said resonated with customers.
“Before this crisis, we were already seeing robust adoption of online pickup and delivery. As this crisis created a need for social distancing and required people to stay home, customers embraced pickup and delivery even more,” CEO Doug McMillon said during a May 2020 earnings call.
Although consumer spending remains strained, Chief Financial Officer John David Rainey said during a February earnings call that Walmart’s global e-commerce penetration was 18% of sales, or about 1,100 basis points higher than it was for the fiscal year ended January 2020.
In contrast, other retailers were caught off guard or didn’t adapt quickly enough to changes, like the rising importance of omnichannel, Barbara Kahn, a professor at the Wharton School at the University of Pennsylvania, told Retail Dive in a phone interview. “They didn’t know what was where, and so there was a lot of scrambling, learning how to become not just online but omnichannel, so that your systems were seamlessly integrated across the different channels of different platforms.”
The pandemic warmed more people up to the idea of online shopping, which is here to stay. It helped fuel the rise of omnichannel and drove a wave of alternate shopping fulfillment options, like curbside service. Now, e-commerce and seamless digital shopping experiences are evolving into essential elements of retail.
But many retailers, including department stores, are still trying to chart a path forward. The strain of adapting to so many changes was too much for some retailers, contributing to dozens of bankruptcies and ultimately some went out of business.
Retailers rise to meet consumers’ e-commerce interest
As screen time surged with remote work and learning arrangements, so did interest in casual apparel and home decor. Dressing up was out. Sprucing up your home decor and dressing down and comfy, with items delivered to your door was in.
“The pandemic of 2020 saw an explosion of mobile commerce, social commerce, and e-commerce simultaneously across every age demographic among consumers,” Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University of New York, told Retail Dive in an email.
Retail sales declined nearly 6.2% year over year in February 2020, just ahead of when many non-essential stores shut down, according to federal data tracked by Retail Dive. However, a year later, sales rose 7.8% year over year as pandemic stimulus checks began to buoy bank accounts.
Overall, retailers responded well in meeting the challenge of offering essentials while meeting health mandates, NRF Executive Director of Research Mark Mathews, told Retail Dive in an email.
The ability of retailers to deliver growth across new channels and modes of engagement, despite logistical and supply chain challenges, is worth noting, Mathews said.
Several important operational and strategic changes to retail that emerged or rose during the pandemic remain in place today, Mathews said. They include the quick deployment of contactless payments and offerings like curbside pickup. Retailers also diversified their supply chain sourcing.
“Still, the retail industry remains responsive to the wants and needs of the consumer. While retailers will continue to innovate, it’s the consumer that decides what changes have staying power,” Mathews said.
Looking ahead, companies are taking a high tech and high touch approach to cultivate consumer loyalty, Carter said. That shift, in turn, meant that retailers and fashion brands needed to offer an omnichannel shopping experience.
Consumers now use social media and social commerce to connect with influencers and brands that reflect and share their style and personal core values on issues like sustainability and ethical product sourcing and supply chains, Carter said.
However, with many Americans living paycheck to paycheck on stretched credit, e-commerce is sometimes outside their reach, Nick Egelanian, president of SiteWorks, said in a phone interview. And while a low single digit uptick in e-commerce is noteworthy, it also reflects the growing wealth gap in the U.S.
The fastest growing chains are those that do a large percentage of business in cash, like dollar stores, Egelnanian said. In contrast, participating in online shopping requires credit and a willingness and ability to wait, even if it’s the same day or next day.
Egelanian said that’s a trend that ensures the continued viability of physical stores.
Uncertain outlook for stores as fulfillment centers
Experts told Retail Dive that positioning stores to also serve as fulfillment centers is a pandemic-era strategy that may not deliver the results retail leaders were hoping for.
“The pandemic forced retailers to integrate store and online operations much more closely,” Neil Saunders, managing director of GlobalData, told Retail Dive in an email. “A lot of purchases were made remotely during the early part of the pandemic, so retailers had to find a way of managing volume by bringing stores more closely into the fulfillment ecosystem.”
However, the stores as fulfillment centers strategy might be off base, Egelanian said. That’s because “you’ve got a $20 an hour employee fulfilling what normally would be free labor by the customer if they were there,” he said.
“People often like to talk that it’s brilliant to be able to fulfill out of your store but it’s fairly expensive to fulfill out of your store,” Egelanian said. The practice also shifts labor away from other areas, like customer service.
Typically it’s less expensive, Egelanian said, to handle fulfillment outside of the store. But retailers are continuing and expanding the practice because they can make money on the customer information they gather through digital commerce.
Department, specialty stores still charting new course
Kahn, who studies retail, brand management and loyalty and related issues, said some specialty retail category killers and department stores are in a concerning position five years post-pandemic.
While there are advantages to the department store model, like having multiple brands under one roof, Kahn said, “they just haven’t quite gotten the customer experience down right.”
That’s because department stores, typically, don’t offer the best overall prices, while specialty stores and boutiques and luxury brands offer a more exclusive, engaging customer experience.
As Macy’s closes stores, for example, Kahn said that retailer is trying to find the right balance between stores, e-commerce online shopping experience and exactly what a department store should offer in the post-COVID environment.
“I think that’s a question that’s still out,” Khan said. “I don’t think they’ve found the right model yet.”
More broadly, Kahn said some retailers are still struggling to align their inventory and have failed to invest in their store experience and sales associates. As a result, “when people want to go into the store, they want to find the items in the store that they went to try on or they went to see. Otherwise, they might as well buy online,” Kahn said.
In contrast, retailers with a strong omnichannel strategy are better positioned to navigate retail’s new normal. The elements of good omnichannel, Kahn said, include strong inventory control and having product in stock when and where people want it.
She said that applies whether a retailer is using a store as a distribution center or if the company is investing in traditional distribution centers.
Retailers must be good merchants, with a focus on the correct assortment and store merchandising, Kahn said. At the front of the house, “I think you have to have a customer experience that delivers the value that people want so things that they want to touch and feel, they want to see, they want to have the joy of discovery in the store.”
