COVID-19 has had a polarizing effect on consumers’ finances. Some have been directly affected, e.g. loss of earnings or employment — while others will have been less directly affected and will be building their savings. For example, 45 percent of customers still claim to be financially comfortable.
Retailers will need to better understand the needs of these groups — via segmentation driven by AI and psychometrics. Personalization not only of communications, but also of developed products, will be key to meeting the needs of the new consumer. Consumers are consistently looking for more competitive prices — presenting a potential challenge in markets where discounts and special offers are already prevalent, with a risk of mid-tier retailers unable to keep up.
In other markets further through COVID-19 however, such as mainland China, consumer behavior has returned to normal — with increased spending activity. Companies can benefit from preparing for the return in demand for goods and services — provided, as above, they are able to closely understand the new needs of the customer.
For those directly affected, retailers need to focus on value for money and providing products suitable for those with reduced spending power. For those less affected, brands that tap into the psychology of economic cycles/consumer confidence will be the winners.
In the medium to long-term, it is even more necessary to clearly separate marketing between segments. Then working with the government as an industry group, consider what measures can be taken to encourage consumer spending for each segment.
Erosion of trust
The outcomes of COVID-19 for retailers have been very unbalanced - some big winners, and a lot of losers. Some types of retail have been doing well — grocery, home goods, DIY, etc. In markets where these categories are doing well, these brands have positioned themselves positively in the narrative, being seen as supportive of consumers and their new behaviors.
Success depends more on communicating and demonstrating commitments to consumer safety, on top of just actions taken. Customers have noticed a reduction in messaging relating to safety, and are perceiving it as relaxing measures (in markets beyond the first wave of COVID-19).
Social safety is still a top-of-mind concern — non-grocery retail chains in particular have been perceived as not putting customer safety first. To convince consumers to spend, retailers need to show a clear purpose and commitment to safety — why would a consumer spend their money with you? This is especially relevant for financially vulnerable consumers, who feel even less trust for brands across sectors.
Life in China has almost returned to normal since March 2020. Considering the strong consumer trust and high e-commerce penetration, the China market now plays an even more important role to drive business growth for international brands.
Consumers are gravitating towards brands that are empathetic and supportive of their values. Retailers will need to go back to their purpose, identify what the consumer expects of them and act accordingly.
Rise of digital
There will likely be a transition, accelerated byCOVID-19, towards consumer commerce —where those brands able to go direct to the consumer are expected to be the winners.The switch to delivery-focused models has been challenging owing to the changing cost of doing business — online delivery carries a lower profit margin, and retailers’ ability to adapt to the new reality has been affected by their infrastructure and available capital to invest. Consider Nike vs. their competitor — each specializing in sporting goods, but different in their business models. Nike placed emphasis on delivering direct to the customer, and as such has excelled — while other brands have focused on supplying department stores, and have performed more poorly as consumers shift away from store shopping. With this in mind, large scale mega-retailers are succeeding, off the back of years of investment in direct-to-consumer infrastructure. For those small to mid-scale operations, consolidation of infrastructure will likely be necessary in order for those brands to survive. What does this mean in the new reality?
With this in mind, large-scale mega-retailers are succeeding, off the back of years of investment in direct-to-consumer infrastructure. For those small to mid-scale operations, consolidation of infrastructure will likely be necessary in order for those brands to survive.
Clients have said that they have been fast to grow online sales via existing online services but building supply chain capability and meeting fulfillment expectations from customers has been a real challenge.
Consumer Commerce is the future. Bricks and mortar will remain an important channel although we know channel agnostic and customer centric is key and the competition will be much broader than today’s retail.
Retailers must rethink their priorities for transformation — where is the best place to spend my cash, so that I can live to fight another day in 2021?
Home is the new hub
The shift towards regionalization has presented challenges for retailers, such as the decline in consumer use of larger department stores. However, for those brands better able to understand their customer segments, and identify the differing needs of those consumers, there is significant opportunity — provided consumer individual needs for value for money and ease of experience are met. Brands with the ability to reach customers in or close to their own homes, and those willing to consolidate infrastructure to more easily enable this, will likely be the success stories. There is opportunity for further growth here, with consumers willing to spend more for locally sourced products.
In addition, with consumers spending more time in the home, retailers will need to rapidly understand the new consumer preferences and trends for types of products — the new view of what is essential vs. non-essential.
Companies need to recognize the changing role of “the home”, as well as the new flexibility on its location away from urban areas, as working from home becomes mainstream. They should seek to tap into the growth of the community and the demand for localization and new ‘essentials,’ such as home-office ware.
The centralization of the home as a place of work, rest, and entertainment provides a two-step opportunity for retailers. Step one involves winning a consumer’s trust, once accomplished, allowing for step two to unlock the offering of nontraditional product categories to consumers.
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National Sector Leader,
National Advisory Industry Leader,
Consumer & Retail
KPMG in the US