It’s anyone’s guess how quickly retail will mount any semblance of a meaningful rebound from the COVID-19 crisis. Yet, regardless of the pace and distribution of potential outcomes from such a recovery, five major forces are revealing themselves. I suspect few sectors will be untouched by their impact.
#1: Bifurcation 2.0
As I touched on in a Forbes piece earlier his month, the retail world of the past decade or so has been characterized by a great bifurcation, where success has been found at either end of a spectrum. Going into the pandemic, value-oriented retailers (from Amazon AMZN, to off-price to warehouse clubs and dollar stores) have, by and large, been strongly growing sales and opening large numbers of stores. The same is true for well executed higher-end, more experiential specialty brands. Yet, more and more the middle has been collapsing.
In the first months of the Coronavirus outbreak we saw obvious polarization of retailer results as consumers stocked up their pantries, were restricted from shopping non-essential items and were “forced” to shop online more. But even as physical retail re-opens the bifurcation we saw going into the crisis will become more pronounced. High unemployment and a more uncertain economic outlook will cause more shoppers to seek out value alternatives, particularly given the highly disproportionate impact of the crisis on certain populations.
Many, if not most, of the retailers that were struggling mightily in the middle will either liquidate or engage in major store closings and overall retrenchment with most of their former customers migrating to either end of the spectrum.
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The crisis is driving what my colleague Carl Boutet has labeled “the great acceleration” (which you can hear him discuss with Ollie Banks here). The most obvious is the dramatic increase in online shopping. Much of this, of course, has been driven out of necessity, and growth rates are certain to moderate with brick & mortar options opening back up. But clearly some new consumer habits will persist, likely accelerating e-commerce annual growth rates from around 15% to more like 20%.