The vaccinated ‘in-store’ future of retail after COVID-19

The future of retail after COVID-19 is promising

More than half of Americans are now fully vaccinated. States and businesses are relaxing COVID-19 restrictions in line with new CDC guidance. And consumers are rapidly returning to public life. That’s all good news for the future of retail, as nearly 3 out of 4 consumers felt comfortable going into a physical store in May 2021, up from just one-third over the previous year.¹

This injection of optimism can’t come soon enough for retailers, as the vast majority rely on physical locations to serve many of their customers and drive topline results.

COVID-19’s initial impact on spending

As US cities imposed lockdown and quarantine measures in early 2020, there was a substantial short-term drop in consumer spending, and the impact on brick-and-mortar stores was dramatic. While overall sales and revenue recovered from the initial shock and maintained growth for the rest of the year, driven primarily by substantial increases in online spend, physical retail continued to see muted growth or slight declines.

Not all categories are created equal, and not all retailers had the same experience in 2020. As initial lockdowns forced discretionary retailers to shutter thousands of stores, many categories saw a substantial decline in offline spending, with department stores, footwear and apparel, and electronics taking the toughest blows.²

But retailers that reopened their doors in summer 2020 (after any temporary city- or state-forced closures) saw their in-store spend rebound to pre-pandemic levels—and other retailers even enjoyed great gains. Home improvement experienced 21% year-over-year growth in offline spend. And grocery saw more than 257% year-over-year growth in online spend (the highest increase across categories), along with 4% in-store growth.

With Americans returning to travel and event-based life, retailers face additional competition. Restaurants, leisure, and other sectors are also vying to provide renewed in-person experiences that will compete for share of wallet (and for grocery retailers, competition for share of stomach). As the role of the physical store evolves to meet shifting demand, retailers must fight for the attention of the energized consumer and capitalize on Americans’ renewed desire for social connection while providing them with the products and services they expect in the shopping modality they prefer.

However specific retailers fared during the pandemic, the priorities and expectations of the post-pandemic consumer have irrevocably shifted. As a result, all retailers must now consider transforming their store offerings to serve customers in the “next normal.”

Digital and physical are here to stay

Digital shopping gave consumers a safer way to buy the goods and services they needed during the pandemic, and their digital behaviors seem to be sticking. Online spend now accounts for 37% of total retail spend, up from 27% pre-pandemic.³ The pandemic has rapidly accelerated consumer shifts that were expected to take hold over the next several years, but this past year certainly raised the bar.

Despite the dramatic increase in overall online spend, many consumers still prefer physical retail for some or even all of their shopping. They value the experience: a personalized, engaging immersion with the brand. They visit to touch or try the product and feel confident in their purchase decision or to engage store associates for specific services. And they enjoy the convenience of the physical channel, which allows for the real-time, immediate purchase (or return) of a good.

As consumers return to physical stores, they also want digital options to stay, with nearly 90% of consumers looking for a digitally enhanced shopping journey, whether engaging at home, via mobile, or inside a physical location.⁴ Retailers are compelled to embrace these changes to serve the post-pandemic consumer.

Embrace what’s next

For retail, there’s no return to the past “normal” after the pandemic. Customer shopping preferences shifted greatly over the past year, and they now have a strong desire for flexibility and options.

As retailers put the “customer at the center” and focus less on binary channels, we believe we’re on the verge of a transformation of physical retail. This transformation will allow retailers to better connect with their customers and provide them with seamless options to shop whenever, wherever, and however they want.

Endnotes

¹ Deloitte, State of the Consumer Tracker, as of May 27, 2021.
² Affinity Solutions Inc., Deloitte InSightIQ Analysis, “2020 Retail Retrospective.”
³ Ibid.
⁴ According to Salesforce, State of the Connected Customer (4th ed.), October 27, 2020, 88% of consumers also expect retailers to accelerate their overall digital initiatives, especially with respect to the in-person experience.

The authors would like to thank Katelynn King, Carol Cui, Farzain Rahman, Eliza Brodie, Nilesh Phillips, and Megan Ames for their support and collaboration.