Sustainable design, flexible rent, and live streaming: Nine ways retail stores will change post-COVID

retail store worker

Source: Unsplash/Korie Cull

This year we will see five years of online retail growth concentrated into a few months.

Last April and May, with the majority of retail stores closed through lockdown, we saw the fastest growth in e-commerce ever recorded by the NAB Online Retail Sales Index. Annualised e-commerce sales at the end of May reached a record $34.2 billion, accounting for an estimated 10.3% of total retail. If this growth continues, we could see online grow to 15% of total retail sales next year.

Whilst online retail is expected to generate the majority of future growth, retail stores will still be the largest contributor to overall sales for the foreseeable future. So, how will retail stores be different post the COVID-19 crisis?

Here are nine ways retail stores will change post-COVID.

1. Measured differently

Most retailers measure bricks-and-mortar stores on their profitability, measuring the sales, cost of goods, store labour, rent and overheads. While this will still be really important, stores create value in a number of other ways that are rarely measured.

Stores support brand positioning, are a media channel, drive customer acquisition, and provide product information that drives trial. Stores have become mini fulfilment and distribution centres and they act as a customer service centre. So, in the future, stores will be valued in new ways beyond just direct store profitability.

2. Safe flexible sustainable design

This pandemic will change the way stores are designed and operated. They will become more flexible and more contactless. We will use easier to clean anti-viral surfaces and rethink counters and fitting rooms.

Social distancing and staff safety will be new considerations, while technologies that support store analytics, loss prevention, frictionless payments and faster fulfilment will emerge. We will use more sustainable materials and create more local and flexible design systems.

3. Fewer stores

Major chains will reduce their store network, as they use this economic crisis to close marginal stores.

We have seen global retail leaders announce mass store closures, including Inditex, Microsoft and Starbucks. In Australia, we have seen retailers like Target, Accent Group and City Chic close stores and have their market cap improve, which shows the market is rewarding more focused and more profitable store portfolios.

While most discretionary retailers are looking to close stores, there will also be some who opportunistically look to improve the location of their stores as new local concepts will emerge.

4. Less traffic

Do not expect foot traffic to return to pre-COVID levels at shopping centres or high streets over the next two years, if ever.

With fewer domestic and international tourists (offset by fewer departures), lower population growth  as a result of lower immigration), more working from home, significantly higher online shopping, higher unemployment and weaker consumer spending, we are likely to have to navigate recessionary economic conditions over the medium term. This will mean more marginal stores become unviable. Without a vaccine, the risk of multiple waves of infection will see lower visit frequency from shoppers, more planned visits and shorter dwell times.

For retailers focused on sales productivity, it means growing conversions and the average order values will become more important to offset lower traffic in stores. This will have implications on how stores optimise design, merchandise, and servicing, and enable technologies that improve conversion and order value.

5. Local creativity

We will see a wide range of creative new concepts emerge to take advantage of the lower rent and more flexible terms offered by retail landlords. Landlords will focus on bringing new blood into their shopping centres and high streets, focused on innovative health, wellness, e-commerce and convenience concepts. These new concepts will have strong local community relationships that will be hard to rapidly scale outside of the local trade area.

6. More flexible rent deals that cap occupancy costs

The pre-crisis fixed gross rent model — where rent was paid at the beginning of the month, and increased every year by CPI +2% for a five-year term — will become increasingly unviable. The power shift from retail landlords to tenants has accelerated and that will result in negative double-digit leasing spreads and unprecedented vacancies.

Retailers focused on shifting their cost base from fixed to variable will attempt to negotiate percentage rent deals, which will be tough to execute with landlords. Rather, hybrid deals with a lower base rent and capped occupancy are more likely. New deals with landlords will be more flexible and better share risk, while renegotiating existing deals will see protracted disagreement.

7. Seamless online integration

The retail store will become fully integrated with the core online experience. Online channels will influence the majority of in-store sales, particularly for discretionary categories, and stores will play an increasing role in local fulfilment, especially if retailers are to meet the rising expectations for same- or next-day delivery.

Fulfilment options — including a combination of click and collect, reserve online and try in-store, curb-side pick-up, home delivery and drive-through — will emerge and change the way we locate, design and operate stores. Further, e-commerce and social analytics will be used to better localise the store with more targeted and relevant product ranging, merchandising, servicing and in-store experiences, including local product reviews, recommendations and events.

8. Contactless payment

The future of payments is clear: they will becomes even more frictionless to the point that friction goes away. Amazon Go has already shown us what is possible by leveraging a combination of computer vision, deep learning, tracking and sensor fusion technologies to eliminate the process of paying in store.

Cash payments and handling will decline rapidly, credit cards will diminish, and new mobile-based debit and credit options will rise. The rapid shifts in the way we buy and pay will change the way retail stores are designed, with fewer counters and front-end merchandising, and the way we service our stores, with fewer staff required to process transactions.

9. Content studios

Some retail stores will become stages and studios for e-commerce. Live online shopping events, virtual window shopping in an iconic store, augmented try-ons and by-appointment consultations, could all occur in a store and experienced and purchased online by customers. Here, the store becomes a studio for compelling live-streamed e-commerce content.

There is still a lot of life in retail stores. We are entering a new era where the store will be measured differently; designed for flexibility and safety; will need to convert less traffic; rents will be more variable with capped occupancy costs; online will be fully integrated; a wide range of fulfilment options will be offered; payments will be contactless; and iconic stores will create virtual and live-streamed online shopping content. Those that will adapt will thrive.

NOW READ: Kmart consolidation, local first and goodbye cash: What retail could look like when the recession has passed

NOW READ: Six characteristics of businesses that will survive the COVID-19 pandemic

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