Retailing as we know it has changed. Is this the start of the end for bricks and mortar stores? Or will consumers revert to their preferred mode of shopping as stores re-open? How can retailers anticipate what might come next as an inevitable recession looms?
The answers lie in the data.
Lockdown has presented a myriad of challenges for retailers. While most supermarkets managed to keep their doors open, most other retailers have been forced to make online sales their primary source of revenue.
Many customers who previously favoured the physical retail experience have been forced to purchase online with home delivery or a buy online, pick up in-store or a local pick-up point process. For some it was a welcome change, for others, a difficult but necessary adjustment.
The state of retail during lockdown
The latest retail industry report from the Office for National Statistics (ONS) reveals that the volume of retail sales in April 2020 fell by a record 18.1% as many retailers temporarily ceased trading and/or closed their physical stores. While the proportion spent online soared to the highest on record at 30.7%, compared with 19.1% reported in April 2019.
Interestingly, all store types, except online-only / pure play, reached record levels of online spending in April 2020. This shows customers trying to stay loyal to the retailers and brands they know and already shop with in their physical stores — switching their purchasing to their online stores. Online-only retailers saw a modest jump in sales of 18%, with fewer customers seeking out new ecommerce-only retailers.
Given that most of the country has been stuck at home, the increase in online sales could be seen as somewhat disappointing. What’s behind this? There are a number of things happening.
Consumer uncertainty across all income bands is a factor
According to The Guardian, The British Chamber of Commerce estimates that more than 70% of private firms have furloughed staff in response to the coronavirus lockdown, while UK unemployment surged to 1.3m in the first three months of the 2020.
For many households, it’s likely that uncertainty around job security and income has slowed non-essential spending, even for those who haven’t had their jobs impacted by lockdown.
Recent analysis by the New Policy Institute shows that the richest 20% of Britons will have reduced their spending by around £23 billion by the end of June for slightly different reasons. They found these households have used the money not spent on holidays and accommodation, travel and transport, eating and drinking out, and personal and beauty services, to pay down debt and boost their savings.
How long will it take for consumer confidence to recover and what will the post-lockdown retail experience be like?
For the economy’s sake, it’s hoped that with lockdown easing and a partial reopening of physical stores starting today, customers in a position to spend will start shopping more. Predictions at this stage are mixed.
Economists at the New Policy Institute are less than optimistic, ’It is clear that social distancing is going to delay the revival [of the economy] for quite some while… this saving surge for the better-off is happening at the same time as many are looking at severe drops in their earnings and the UK is facing a severe recession with mass unemployment in the months ahead.’
Yet consumers themselves are more upbeat. Internet Retailing reports that in a recent survey of UK consumers, 42% said they ‘will shop online more frequently after lockdown ends and 40% of shoppers have been purchasing luxury items such as fashion or electronics.’ This is a positive sign for retailers.
For retailers with bricks and mortar outlets, the biggest uncertainty is whether the physical in-store experience can recover any of its former market dominance with consumers. Though multiple consumer surveys have reported that online shoppers expect to favour it over physical stores (at least in the short term), some shoppers still prefer physical store visits.
When Swedish furniture giant Ikea reopened 19 of its stores on 1 June, several stores experienced 5 mile lines of cars and queues of more than 1000 people. It seems that for some retailers at least, fears over social distancing requirements and reduced store ambience keeping shoppers away seem unfounded. In fact, Internet Retailing recently reported that in a survey of consumers 49% said they ‘would go back to shopping as they previously did [before lockdown] once lockdown eases.’
So broadly speaking, people in a position to spend after lockdown eases say they will. With some sticking with online-only or a hybrid order online and collect instore process, while others will revert back to shopping in physical stores, as they did before lockdown. Though with a high number of people affected by job or income insecurity, there will be many who won’t be in a position to make non-discretionary purchases for some time.
Have there been any positives for retailers thanks to lockdown?
Definitely. In spite of unprecedented challenges, there have been a couple of standouts.
First, retailers accelerated the availability of high capacity digital retail channels and supply chain logistics for customers, and many retailers were forced to implement them quickly. Much faster than if trading was taking place under normal conditions and regular business change processes were followed. While it may have felt like a steep and sudden learning curve, an online retail evolution had been on the cards for a while and was a benefit to consumers when they needed it most. Digital first retail strategy is here to stay.
Second, for retailers whose main focus and source of sales was their physical stores, the customer migration to their ecommerce sites provides them with an opportunity for much deeper understanding of their customers and their buying habits.
How? The online buying journey provides many more data points about a customer and their purchasing habits than a physical store. These include how a person moves around the ecommerce site, what they click on, which brands they’re interested in, what other digital channels or retailer’s touchpoints they visit before and after the website, as well as their contact details. It’s also an opportunity to prompt an opt-in email sign-up for marketing campaigns, which is much harder to carry out at point-of-sale (POS) points instore.
How will customer data help retailers profit ahead of an impending recession?
As we’ve already highlighted, there are consumers out there who are able to buy and will as lockdown eases. The challenge for retailers is to understand who they are, what they are interested in / looking for, and reaching them in a timely way. The key to this lies in the retailer’s customer data.
Retail customer data sources include:
- Email marketing e-shot activity
- Website transactions, downloads and behavior
- Social media ad and channel interaction
- App use
- Chatbot conversations
- Pay-per-click (PPC) data
- Other digital marketing efforts – e.g. click-throughs from remarketing and retargeting campaigns
- POS transactions (from physical stores).
Bringing this data together, accurately segmenting it, and using the customer insights gained allows retailers to develop campaigns with a deeper level of personalization and relevance than they have been able to before. This is particularly important for retailers that previously placed more emphasis on their physical stores and gained sales from unplanned or add-on purchases, while the customer was instore for a different item or purpose.
Using data driven insights to underpin targeted digital marketing campaigns will increase the likelihood of repeat purchases and increase the average order value (AOV) of baskets. The foundation of this strategy is audience segmentation.
Being more precise and strategic about audience segmentation when planning advertising and marketing campaigns reduces the costs of contacting or alienating people who are not able to buy right now. This is clear benefit for brand reputation and retailer profit margins. Having this data segmentation and audience building capability is essential for retailers planning to remain profitable during these unprecedented trading conditions.
It also provides an advantage over less tech-savvy competitors who continue to use a more general interest or discount-led strategy. It’s about using the value in assets (customer data) that a retailer already has and using it in a smarter way.
What’s the easiest way to manage and understand large amounts of customer data?
One solution is a customer data platform (CDP). While most marketing technology (martech) stacks focus on collating and segmenting data from one or two channels, a customer data platform allows retail marketers to create an omnichannel single customer view.
A CDP uses smart, flexible identity matching, which identifies when a single customer is coming into contact with the retailer via multiple touchpoints and devices. In essence, a CDP integrates all of the first-party data collected from a retailer’s CRM system, POS, ecommerce platform, social channels, and other databases into one place. It’s an intelligent way of analysing customer data to discover who’s in a position to buy right now (because they’re already looking around your store) and what they’re interested in.
These insights are essential to develop the audience segments and targeted marketing communications approach needed for retailers to succeed in what will be a highly competitive post-lockdown market.
Now is the time for retailers to make the most of their customer data and harness the insights gained to enhance every customer engagement. Achieve this, and the results will be increased repeat purchasing and brand loyalty, and improved return on investment (ROI) on marketing spend — in spite of market conditions.
Maximizing every opportunity to engage with customers who are still buying is a clear strategy for success in what will continue to be challenging market conditions during the rest of 2020 and beyond.
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