Q&AMarch 19, 2020

Q&A: COVID-19’s Impact on Retail

with Gautham Vadakkepatt and Ricardo Belmar


On Wednesday, Mar. 18, RETHINK Retail Editor in Chief Julia Raymond spoke with Gautham Vadakkepatt, Assistant Professor of Marketing and Retail Innovation Center Director at George Mason University, and Retail Thought Leader Ricardo Belmar, on the COIVD-19 pandemic and its impact on retail. 

 

Julia Raymond:

In the foreseeable future, what impact will the pandemic have on retailers in your opinion? Do you think there is any “silver lining” that can come out of this crisis?

 

Ricardo Belmar:

It’s definitely an interesting situation. The impact and survivability of retailers is partitioned by different segments by size. For example, smaller retailers make up the majority of the industry and it seems clear they’re the most severely impacted, at least in the near term. 

Specifically in the U.S., we’re seeing more and more states shutting things down, from restaurants to bars to cafes, those kinds of things, and in parallel, we’ll see increasing numbers of retail store closures lasting a minimum of the next two weeks.

Smaller retailers are the most constrained because they’re most likely to be maintaining their existence on a month-to-month basis. As they sell and continue to do business, they’re able to replenish products, pay employees and survive. If things shut down, then obviously, none of that commerce is happening. And they’re less likely to be selling things online than larger retailers, so they depend on store footprint. If they have to shut down for an intermediate amount of time-based on what local and federal governments directs, I won’t be surprised to see a number of them stay closed afterwards, unfortunately. I think that they’re going to be very hard hit.

 

Gautham Vadakkepatt:

The retail landscape is going to change dramatically. You’re going to see, unless there’s some kind of government intervention, a lot of these small and medium-sized retailers either reduce their footprint or completely go away. In the longer term, with an extended period of social distancing , you’ll see people shift more towards online.. So the response to the pandemic has the potential to dramatically change the way people buy and retailers operate and you will see the largest magnitude of impact on the small and medium players who are not yet operating in the “modern retail world”,  of technology and data. So, I 100% agree that this will have an impact, but I feel like it might be a longer-term impact, unless there are policy interventions.

 

Ricardo Belmar:

Up until recently, say last month even, if we had asked ourselves, “What is the maximum percentage penetration of retail that online will have? Where if today it’s 15%, do we realistically think it would ever grow past 25%?” I think today we would all answer that question differently than the way we would have answered it a month ago. We absolutely will see a shift. We’ve seen this before, right? Once behaviors at the consumer level change, it’s very hard to undo them.

 

Julia Raymond:

What about larger retailers? 

 

Gautham Vadakkepatt:

I think there will be unintended consequences. Big companies, they’re going to accelerate technology adoption and use technology to replace tasks currently done by humans. I am always concerned as to how robotics and other technology are potentially going to replace current human jobs. And I think this is a scenario where you’re seeing widespread chaos could accelerate the speed of adoption of technology replacing humans in some of these jobs. For example, it’s possible to consider how drone applications could increase exponentially. 

 

Ricardo Belmar:

Yes, drones and the cashierless “Just Walk Out” technology like Amazon Go.

 

Julia Raymond:

Is Amazon protected during all of this?

 

Ricardo Belmar:

If you had asked me that yesterday, I probably would have answered differently but now Amazon is restricting shipments to prioritize essential items due to significant demand increases. At this time Amazon is not accepting shipments of non-essential merchandise from its independent sellers. 

 

Gautham Vadakkepatt:

So Ricardo, do you think the issue is because they don’t have the people to do this? Given the announcement, they’re hiring 100,000 people, and that’s not a small number.

 

Ricardo Belmar:

It’s a good question given how deeply integrated robotics are in Amazon warehouses, but if they could handle it, why wouldn’t they? They’re Amazon, right? They’re not one to give up an opportunity. So I tend to believe a lack of employees is a real problem for them. Still, I’m going to be a little cautious about their reaction. It’s possible there’s a PR-related element to their announcement… hiring people and prioritizing essential items makes them look like a better citizen, right?

 

Julia Raymond:

And you think the strain of demand is mostly due to lack of employees, not supply chain problems?

 

Gautham Vadakkepatt:

It might not be an Amazon supply chain problem. Amazon can be viewed as a platform with roughly 50% of sales on Amazon coming from 3rd party sellers. Thus, while Amazon might have a very efficient system, its sellers might not have one. Eventually, you are as strong as your weakest link. If Amazon is viewed as a platform, then the issue might not be with Amazon delivery but with merchandise getting to them. I was trying to look for antibacterial wipes. Obviously, the worst thing to look for at this time. We don’t have any at home and it’s all sold out at our nearby stores.  I looked through several pages on Amazon and it’s all sold out. But they’re mostly branded products, not Amazon manufactured ones. So my point is that it could be a supply chain issue of the sellers as well, and it will get worse as the shutdown gets more problematic and people call off work are manufacturers shutdown.

 

Ricardo Belmar:

So to your original question: is Amazon sort of immune, it seems that they’re not.

 

Julia Raymond:

Right. But in a better position than a lot of our traditional retailer friends. And not to mention consumer behavior spending will be likely down as people are fearful of losing their jobs or of other economic impacts. And so while e-commerce is still around, and hopefully that will prop-up some retailers during this time, it might not be enough.

 

Gautham Vadakkepatt:

No, I don’t think it’s enough. I do think we will see a significant decline in consumer purchasing patterns. Right now it’s the public health issue that is front and foremost, then you’re going to see the trickle-down effects of the economic aspects become more and more salient. Then, people are going to cut their purchases, buy only essential products and so forth. All of a sudden P&G and Clorox are the hot stocks.

 

Julia Raymond:

Is there anything you think retailers could be doing? On our last rundown episode bestselling author Shep Hyken said something along the lines of retailers should think twice before immediately cutting staff in stores because that’s going to be most noticeable to consumers in the short-term who are still going to their stores. But we realize many retailers may need to switch more focus on delivery models or consider adopting just walk out technology, this year.

 

Gautham Vadakkepatt:

If you’re a smaller retailer, now is an opportunity to get more ingrained in the community by doing things that actually benefit the community. Recently the Wall Street Journal reported on grocery stores dedicating shopping hours for seniors only. There are some adaptations that seem kind of easy to do, that many retailers are not doing.  In my opinion, these activities could actually build a lot more loyalty amongst your customers, attract new customers and when the economy comes back you will come back a lot stronger. And it’s simple things, staying in touch, being empathetic, doing some of these smaller things, delivering as you said, Julia, if they could do it.

Gautham Vadakkepatt:

Laying off people is not great. I’ve spoken with two owners who worry about how layoffs will hurt their employees and their families. But they are also hurting and trying to figure out solutions, for example pooling the limited hours available and sharing amongst all the employees to avoid laying off people. But retailers need to shift from a “retailer” mindset to a community member mindset: how can you enhance and support a community through this difficult period before thinking as retailers again? It is really hard. Many of them don’t have the financial slack to do it and they’re operating on very thin margins. But it’s an opportunity for those who can do it.

 

Julia Raymond:

And potentially for some gig workers who are displaced during this to find jobs driving for Amazon or delivering for other retailers, especially grocery stores, which are doing very well, I assume, right now.

 

Ricardo Belmar:

Yeah. I would ask, “Are we going to see Uber and Lyft start delivering things rather than people, more and more? Are these services like DoorDash, Grubhub, are they going to grow?” We’ll also see more ghost kitchens designed for delivery only. From a consumer perspective, how is this whole notion of experiential retail going to change? It’s all based on putting people together. And now there’s going to be some hesitation to that. So there should be opportunities coming out of this for retailers on improving the delivery side and pickup services, by minimizing contact for example. Organizations like Shopify might have an opportunity to expand fulfillment service offerings. We might see more warehouse-like locations and distribution centers pop-up to be able to move things closer to people.

 

Julia Raymond:

To localize the supply chain?

 

Ricardo Belmar:

Yes, and micro fulfillment. Robotics and to some extent AI technologies will also be repurposed to help modify how retail works. It’s not going to be a matter of, I’m putting in this “just walk out” technology because I want to reduce labor. I’m putting it in for different reasons and I still have the labor, but now they’re going to do other things that are equally important that didn’t exist before because we weren’t worried about human contact.

 

Gautham Vadakkepatt:

Regarding non-contact options for pickup, just to play devil’s advocate doesn’t that defeat the purpose of a physical retail store? Don’t these touchpoints allow you to engage with the customer? But the micro fulfillment, I think that’s going to happen. We’re going to see more regional and localized supply chains to reduce the risk of supply chain disruptions. That change will be an opportunity for new players to enter the market, but may also displace older players. 

 

Julia Raymond:

And this might be a good time for certain retailers to connect more directly and personally with their customer base online through social media to add more of a human element to the brand.

 

Gautham Vadakkepatt:

Yes. The survival of retail depends on building a community of loyal,  frequent customers. I think what is a better way to do it than more direct and personal communications, especially when you’re stuck up in a home with nothing to do and uncertain. At least for me, provide me with content and activities, I’ll take it. You will have my loyalty.