A new formula for retail recovery and growth has been saved
A new formula for retail recovery and growth
The five paths to profitability
Stagnating profits and sweeping changes in consumer behavior triggered by the COVID-19 pandemic presents retail organizations with an opportunity to rethink and restructure their business to expedite recovery and drive margin improvement.
- The hill to climb for retail recovery
- The pandemic effect
- Retail innovation: It’s now or never
- Five archetypes for retail recovery
- Steps forward
The hill to climb for retail recovery
Today’s apparel and discretionary retailers find themselves scrambling to maintain profit levels or recapitalizing and facing a heavy debt load.
Apparel retailers—even successful ones—can only remain stationary for so long. As the market matures and consumer trends change, sales begin to dip and profits plateau or decline if their offerings don’t continue to evolve. Over the past 10 years, the apparel industry has seen it play out time and time again: Those who fail to adopt pay the price in profits.
Entering 2020, US discretionary retailers were facing challenges on multiple fronts. The ongoing coronavirus (COVID-19) pandemic is exacerbating these challenges and creating new ones that further squeeze retailers’ profits.
Factors already contributing to retail cost pressures and profit squeezing include:
- Increasing rent and labor expenses
- Declining in-store foot traffic
- Reduced overall category spend
- Intensified competition
The pandemic effect
Many consumers were conditioned over the years to buy apparel and other discretionary items on sale, in stores, and with high-touch customer service. The COVID-19 pandemic has accelerated changes to consumer buying habits by as much as five years1 and increased the collective power of their demands for convenience and value in every aspect of the retail shopping experience.2 Still, today’s consumer trends are quite different than those of six months ago.
COVID-19–related health and safety concerns have changed the definition of a frictionless purchase, whether it’s in-person or online.
Having redefined expectations for convenience and value, today’s consumers are likely unwilling to return to their past purchasing habits and lower their expectations to previous levels. Apparel and discretionary retailers should seek to keep current with consumers and understand which aspects of convenience their customers are willing to pay for so they can target their investments accordingly.
Retail innovation: It’s now or never
While retailers work through the short-term challenges of mitigating consumers’ COVID-19–related shopping concerns, they should also focus on long-term demands and opportunities, which include efficiently manage costs, strategically invest in retail innovations, and adopt a business model that enables them to stay agile with evolving market and consumer demands.
Some of those investing in retail innovation focus on building out their existing R&D function. Others—especially those interested in accelerating time to market—decide to acquire new capabilities. As consumer needs continue to rapidly evolve, retail M&A is likely to increase. Reaction time to emerging trends has become a strategic differentiator, and consumer M&A is a way to leapfrog competition.3
Five archetypes for retail recovery
There’s an opportunity on the back end of the current health and economic crisis for retail recovery. But organizations should take steps now to rethink and restructure how they do business to stay ahead of changing consumer needs and demands. Our analysis identified five archetypes that can put them on the path to sustained profitability. CEOs and their leadership teams need to pick the right archetype and quickly move forward with confidence.
Retailers currently thriving in the apparel and discretionary spend market—even during the pandemic—are doing so because they are delivering goods and services in ways that are meeting consumers’ redefined expectations for convenience and value. These companies are migrating to agile, efficient delivery models that can quickly adapt to changing market conditions, using cost savings to fuel innovation. They’re also investing in strategies to enhance the consumer experience.
Retailers that take steps now to rethink and restructure how they do business have an opportunity to outpace competitors, exceed consumer expectations, and emerge as leaders in future markets.
1 Melissa Repko and Lauren Thomas, “As pandemic stretches on, retail bankruptcies approach highest number"
2 National Retail Federation, “Convenience and the consumer,” Consumer View Winter 2020, January 14, 2020, https://nrf.com/research/consumer-view-winter-2020.
3 Kasey Lobaugh et al., “The future is coming … but still one day at a time,” Deloitte Insights, June 17, 2020, https://www2.deloitte.com/us/en/insights/industry/retail-distribution/retail-and-consumer-products-predictions.html.