Consumers want to go shopping again, but uncertainty remains
The Swiss retail sector and the COVID-19 crisis
Swiss consumers want to go shopping again. Many turned to online shopping because of COVID-19, though for the time being it seems unlikely that high street shops face an existential threat. But if shopping in future is no longer an easy, pleasant and safe experience, consumers will stay at home – and online. How and when lockdowns will unwind is still unclear, but it seems certain the Swiss retail sector faces a painful loss of revenue. Both retailers and brands need to do more to bring the online and offline worlds together and find new ways to meet evolving customer needs fast.
The COVID-19 outbreak has completely changed the face of retail in Switzerland and almost every country worldwide. Until early to mid-May, most goods, such as furniture, clothes and books, were either completely unavailable or available only online. Deloitte was keen to find out how customers have responded. In mid-April 2020 it conducted a survey of 1,500 individuals living in Switzerland, asking about their shopping behaviour before, during and after the pandemic.
To provide context, in 2019 Swiss websites saw a 9% year on year increase in online sales; online growth has accelerated over the past four years. However, domestic online sales still accounted for only 9% of all retail sales last year, with non-food accounting for the highest proportion (17%) and food the lowest (less than 3%). This places Switzerland roughly in the middle compared to countries like Germany and the UK where online retail figures are almost twice as high.
Less people in the shops post-crisis
The Deloitte survey shows that the COVID-19 crisis is likely to trigger a decline in “traditional shoppers” – that is, shoppers in brick-and-mortar stores – across all categories of goods. Almost two-thirds of respondents (65%) report that before the pandemic, for example, they preferred to purchase furniture and furnishings in shops, but only 60% say they will continue to do so after the crisis, a decrease of five percentage points. Chart 1 illustrates the decline in traditional in-store shopping for seven categories of consumer goods and shows that cosmetics and furniture would be hardest hit in Switzerland, with books and clothing least affected.
However, this does not mean that these cautious high street shoppers will become enthusiastic online shoppers in the future. Many consumers haven’t yet made up their minds on their shopping habits going forward and this is compounded by the uncertainty about how shopping will look like in the months ahead. This does offer innovative retailers a chance to change the way they do business after COVID-19.
Data from China suggests that customers are not flocking back to shops. Those who do seem to shop very deliberately and are actually spending more than usual on items that will help them deal with the crisis. In the UK, the retail association and trade unions have recommended that clothes shops keep their changing rooms closed or, at least, reduce access to them to curb COVID-19 – thus removing one of the major advantages of buying in a shop versus online.
Many consumers delaying purchases
The survey also shows that since the COVID-19 outbreak, Swiss consumers have purchased mainly groceries, with other consumer goods less of a priority. Some consumers will only purchase certain items again once the shops have reopened. As Chart 2 shows, 25% of respondents only intend to buy furniture, watches and jewellery when stores reopen, and 16% will hold back for now on buying books, music and games. Other goods lie between these extremes, with about a fifth of consumers intending to wait until stores reopen.
Sporting goods, furniture and fashion stores therefore have good reason to believe that some customers will catch up on postponed purchases, when they can return to the shops thereby starting to lay the foundations for a slow recovery. Consumer brands and department stores that maintained relationships with their customers during the crisis should be able to count on their loyalty, while special offers will certainly help to move stock rapidly. But the spring collection will no longer be on the shelves of the fashion houses.
The shopping experience versus health protection
Traditionally, many people enjoy the atmosphere and shopping experience of the high street, strolling along, window shopping, tempted by the sheer range of goods and distractions in shopping malls. As mentioned above, initial surveys and experiences from China suggest that customers are now very purposefully buying what they bought in the past, but in larger quantities.
If queueing, physical distancing and the need to wear a face mask in public spoils the shopping experience – and once online retailers get delivery times back to normal– then traditional shoppers may well switch to online shopping in large numbers. Retailers are therefore intending to take advantage of the almost two months in which shops have been closed not only to get their shops in order, but also to creatively introduce new safety measures. If not, they may lose out in the Christmas season this year.
Population groups at particular risk from COVID-19 and older people in general will probably continue to avoid shops, creating potential for a new online target group that might be won over by new approaches. Meanwhile, innovative delivery models for at-risk groups devised during the crisis, such as the collaboration between the Coop and the Swiss Red Cross, could be converted into profitable services.
Omnichannel in focus
Retailers need to make greater efforts to integrate online and in-person shopping to ensure a seamless interaction between the two. Three years ago, a Deloitte study showed that 83% of Swiss consumers use digital devices before, during or after a visit to a brick-and-mortar shop. There is an opportunity here to use retailers’ apps and suppliers’ websites, whether through QR codes in the shop, beacon technology or GPS.
Even before the COVID-19 outbreak, a number of furniture shops and garden centres introduced or expanded click-and-collect services that enable customers to order online and then drive to the outlet to collect their purchases.
In the future, this omnichannel approach will be the norm:
- the fashion-conscious shopper who finds a pair of well-fitting trousers in the store will order another pair in a different colour to be delivered at home
- the tech-savvy mountaineer can book an appointment online in order to have his or her hiking boots fitted in-store
- the repeat customer can have a one-on-one online consultation with her favourite home furnishing boutique.
Current trends may well accelerate
Overall, COVID-19 has given momentum to digitalisation in the retail sector and has triggered a significant increase in online sales. In the short term this is unlikely to lead to widespread store closures. This is because brick-and-mortar shops are easily accessible, plentiful in city centres and offer a good shopping experience. Swiss consumers also remain less price sensitive than others.
All this could change rapidly, however. Our survey shows that 19% of Swiss nationals expect to lose their job due to the COVID-19 crisis. These people are likely to search for the cheapest offer on the Internet or, once borders re-open, travel outside Switzerland to make major purchases.
The virus has already significantly accelerated structural change within the retail sector. Before the pandemic, the retail outlook was uncertain, according to the Deloitte study, Global Powers of Retailing, with online sales generating most of the sector’s growth. In Swiss retail, overall sales improved for the first time in 2019 following a steady decline since 2015.
Significant fall in revenue inevitable
In 2020, an exceptionally strong drop in sales is expected. Most shops have been closed for almost two months and although many retailers have been able to recoup much of the high cost of paying staff through Switzerland’s short-time working compensation scheme, they will have to pay their rents sooner or later, and city centre rents in particular can be high. It therefore remains uncertain whether the retail sector will see growth even in 2021.
COVID-19 has prompted a number of traditional brands and retailers, such as luxury watch manufacturer Patek Philippe, to reconsider their long-standing resistance to online sales. Others have improved their e-commerce offerings, technology and website user-friendliness to respond to the increase in online shopping. Local businesses, too, have responded to shop closures by rapidly setting up online stores. Many are using pre-existing e-commerce software from established providers; Canadian company Shopify has seen both customer numbers and revenues increase since the beginning of the crisis.
Growing competition from online shops
The new online shops are making a wider range of goods available, and many will stay in business and increase competition in the sector. Local providers of niche products will need to think carefully if they want to sell via their own website only or prefer to cooperate with a larger supplier. There is space for further consolidation in the online distribution sector, creating opportunities for national or product-specific online shops beyond Amazon Marketplace. Local suppliers retain the advantage of being able to control their supply chains more effectively.
Additionally, it is likely that companies, brands and properties will merge and relocate. Financially strong businesses, particularly foreign companies, could take advantage of the crisis to buy up competitors to secure retail space or introduce strong brands into the country. Recent examples include furniture store chain XXXLutz’s takeover of Pfister or the Thai-Austrian joint venture that acquired retailer Globus.
Further major changes expected
Switzerland remains attractive to foreign companies given the high prices that can be charged in Swiss stores; the strength of the Swiss Franc reinforces this. Yet in recent years a number of major international brands have repeatedly failed to gain a foothold in the country and have pulled out. Examples include the Carrefour supermarket chain, Flyer furniture chain and Picard, the frozen food specialist.
It remains unclear how the COVID-19 crisis will change the consumer landscape in Switzerland. Climate change has provoked increasing criticism of the consumer culture and a shift towards sustainably produced products and authentic experiences. This trend might strengthen. Companies with a strong corporate culture, clear corporate purpose and ethical business practices will probably be best placed to meet consumers’ needs in future.