Retailers prepare for a gradual return of customers

Global Market Perspective, May 2020

With more countries and regions planning their COVID-19 exit strategies, retailers are testing pragmatic solutions to allow for a safe but gradual return of customers into their stores.

Following Mainland China’s footsteps, the first European countries, including Germany, have started loosening lockdown restrictions, allowing for more stores, mainly smaller formats, to reopen. In the first few days after opening, a handful of retailers have reported strong trading results, benefiting from pent-up demand and high conversion rates. However, consumers continue to be cautious for now with footfall levels in Europe’s main high streets still substantially below pre-COVID-19 levels. Several U.S. states are also preparing to ease lockdown restrictions.

Cash-flow concerns remain globally, particularly among retailers reliant on discretionary spending. Structural challenges vary by retailer type. Despite robust revenue growth in Q1, many grocery retailers have reported margin erosion as extra efforts were required to keep stores supplied and online orders fulfilled. Numerous fashion operators are dealing with elevated levels of unsold inventory, exacerbated by the seasonal change of stock. F&B operators typically operate with lower margins and smaller cash reserves; continued social distancing measures and start-up challenges across their supply chains will constrain their ability to swiftly return to full performance.

A longer-term perspective: strategies for omni-channel retailing

Retailers will shift their focus from cash preservation toward reviewing their strategies to drive sales. Well-capitalized retail groups are eyeing potential retail and leisure failures to expand their operations. Consumer goods manufacturers who have not yet built significant store portfolios continue to develop their store expansion plans. Retailers will be keen to strengthen their ability to fulfill omni-channel purchases, including micro-fulfillment, click-and-collect (buy online, pick up in store) and product returns.