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News Article

New Consumer Habits Terrify Traditional Retailers

By Daniel González | Mon, 05/04/2020 - 17:15

The e-commerce sales increase that many companies have experienced due to COVID-19 has been making headlines for the retail sector, as shown by numbers of traditional stores such as Sanborns, Walmart or Sears, which have seen an exponential online sales growth. After years of positive sales projections, online sales became part of billions of people’s daily life, even in Mexico. Although many companies have turned to accelerating the development of e-commerce departments, they also face a difficult dilemma: what will happen after COVID-19? To what extent will consumer habits have changed? What scenario will emerge once the new normal arrives?

Jason Goldberg, a regular contributor to Forbes and CEO of shop.org, along with many other analysts, have projected a possible scenario that could become a common element in all cultures where traditional retail has had an impact in recent decades. The goal is to project possible scenarios so that the world can be prepared for a post-COVID-19 reality. The first question for Goldberg is whether new buying habits acquired will continue once the end of confinement comes. In Mexico, Uber Eats, Rappi and digital services such as those offered by Amazon, Sears, Liverpool, Inditex or Palacio de Hierro have seen a substantial demand increase. As with any disruptive element, it will be difficult to return to the previous stage. It did not happen with the steam engine after the arrival of the combustion engine or with information, which went from being sold on paper to being free on the Internet. Could the same thing happen for e-commerce?

Goldberg says there is evidence of disruption in the SARS virus that shook China in 2003. At that time, AliExpress was a company with a turnover of just US$10 million a year. Today, AliExpress and all of its associated services have become China´s symbol of success, as a factory and global manufacturing market. In other words, the current context has allowed a leap in digital growth that the world was expecting to happen 15 years from now. What was seen as an element of the future is today a reality.

Life at home can also affect other businesses, such as gyms, cafes or restaurants. Tik Tok, the social network par excellence during times of COVID-19 and the one that has grown the most in users and influence in this 2020 has been filled with recipes for food and physical training programs. Will we pay for a gym membership again? Will we go to restaurants to have breakfast, lunch and dinner or will we do it through apps like Uber Eats, Deliveroo or Glovo? Whatever the case, these types of businesses must be alert, while trying to adapt to the new normality.

Another issue for the retail industry that countries must consider is the economic reality many find themselves in. IMF economic projections show worrisome numbers for most countries. According to the IMF, Mexico’s GDP will fall by 6.6 percent in 2020, a figure that would be added to the 0.1 percent drop the country experienced in 2019. This will mean less purchasing power and a contraction in purchasing power that will directly affect retail and tourism, the latter being the sector with the worst projections for 2021. According to the IMF, the falls in GDP will be significant in most markets, both for consumers and manufacturers. In Italy, GDP is expected to fall by 9.1 percent in 2020, in Spain by 8 percent, in France by 7.2 percent and in Germany by 7 percent.

In the near future, the world will emerge from COVID-19 with the biggest recession since WWI. Morgan Stanley has predicted a drop in US production not seen since the Great Recession. It is still too early to predict what the future will bring, but the new geopolitical world order may face gaps that will be impossible to fill. IMF reports China will be one of the few major economies that will grow by the end of 2020, although with numbers similar to those shown before Den Xiaoping’s bet on the economic-political theory of “one country, two systems,” which has nothing to do with the growth of the last two decades. In this context, it will maintain its position as the ‘factory of the world’, although probably, due to the contraction of consumption caused by the crisis, it will not have customers who can buy its manufactured products. Companies and brands that know how to adapt to this likely new scenario will be the winners of the economic battle of COVID-19.

In this new economic context, we must consider the state in which many retailers dealt with the crisis. Those who depended on bank financing, those who bet on increasing their stocks thinking that trade would not stop despite the confinement and those who decided to bet on face-to-face sales instead of digitalization, will be the most affected. In Mexico, according to ANPEC data, sales increased by 10 percent in the first two weeks of April, a trend that is expected to continue in May. The same is true for giants like Walmart, El Palacio de Hierro, Sears, Liverpool and BestBuy. All of them have grown, but they all used digitalization before COVID-19 was even a possibility.

All roads to recovery go through digitization to survive in the post-COVID-19 world. As Jason Goldberg says, it will be hard to turn back consumer habits. The future is here, especially in the retail sector, and consumers have always had that power in their hands.

 

The data used in this article was sourced from:  
Forbes, IMF, El Economista, Financial Times, El Universal
Photo by:   Unsplash
Daniel González Daniel González Senior Writer