Up to 17.2 million UK consumers are expected to make permanent changes to their shopping habits in the wake of the COVID-19 pandemic.
A new report by global professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics, estimates that 17.2 million British consumers plan to make permanent changes to the way they shop, as perceived risks of contracting COVID-19 at physical stores redirects spending into online channels. The forecast is based on a major new survey of 6,000 consumers spanning six European countries.
Consumers who perceive the risk of COVID-19 to be very high are almost four times more likely to shift their shopping habits in the long-term. This group reflects those in society who have in the past been slow to adopt online banking and shopping. They have now been forced to shop in new ways for essential items, and they do not intend to change these new habits.
Implications for retail business models
The advent of the new group of online shoppers alongside ‘early adopters’ means the proportion of online retail sales in the U.K. is estimated to increase by an additional £4.5 billion in 2020, despite consumers cutting back spending on all non-food purchases.
Over the next few months, retailers will need to engage with this increasingly valuable new group of online consumers. Those that are successful will leverage the shifts in behaviour to fill gaps in the market, repurpose stores to meet changed customer expectations and radically change their operating models.
Erin Brookes, Managing Director and Head of Retail, Europe, A&M comented that retailers are facing a make or break moment. “The race is on to transform operating models, product proposition and channel mix to ensure these meet the demands of a new type of shopper”, she said. ” Those that emerge on the other side will be stronger and more adaptable.”
Government response drives long-term behaviours
Consumer confidence in the government and its response has been found to be critical in determining intended shopping behaviour. The majority (69%) of U.K. consumers do not think the government’s response has been positive, while over half (55%) believe the risk of the virus to be high or very high.
Elsewhere in Europe, Swiss consumers generally think their government has handled the crisis well, with 63% believing its response to be good or excellent – compared to just 24% in France and 25% in Spain. Only 56% of Swiss consumers plan to make permanent changes to their shopping behaviour versus 76% in the U.K and 72% in both France and Spain.
The future of physical stores
Attracting shoppers back to physical stores is a major challenge for retailers. The priority for consumers is safety – above that of convenience, price and choice. Retailers failing to meet this expectation risk loss of confidence at a time when gaining trust has never been more important.
Meanwhile, social distancing measures place the quality of the traditional customer experience in jeopardy. Nearly half (48%) of U.K. consumers plan to avoid busy destinations such as large shopping centres, suggesting scepticism in the ability of retailers to reimagine the customer journey.
As revenue diverts online, retailers must look to tackle legacy cost bases. Redundant stores could be repurposed for online fulfilment, city centre hubs for consolidating deliveries, click-and-collect points, or drop-off destinations for returns. But addressing the heavy burden of store rents will be essential to creating sustainable business models.
Richard Fleming, a Managing Director at A&M believes that the way we shop has fundamentally changed. “It is unclear how the dust will settle. Retailers with large store footprints face onerous rental agreements and they are locked into a stalemate with landlords. The two parties need to start working more collaboratively to preserve mutual value.”
Image courtesy of iStockPhoto.com