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The bad news for companies in the retail sector continues. Insolvency applications, short-time work, layoffs and the much-publicized news of industry giants such as Adidas refusing to pay their rental fees are indications of just some of the problems retailers are facing. The root cause for the actual problem, however, is often the same: The industry still operates according to outdated business models based on “footfall” – individual stores relying on a continuous flow of customers. While this is not true for all retailers (whether independent or chains), it is true for many – some experts would even say “for most” – retailers.
The reluctant implementation of digital business models and E-Commerce platforms is now taking its toll on companies that are still stuck in the 20th century – a toll that is particularly quick and particularly devastating. So far, those retailers have benefited that offer holistic digital solutions and E-Commerce platforms. This will not change in a post-Corona future; the impact of E-Commerce will continue to grow as shops and shopping malls gradually reopen.
However, this change in behavior has been underway for some time. This is evidenced by some figures before the Corona crisis:
Thomas Slide, Senior Retail Analyst at Mintel, puts it in a nutshell: “Online shopping has now reached almost every section of the population in Germany. Even retailers targeting older customers have to accept the likelihood that these customers will increasingly shop online.” He concludes, “In Germany, a multi-platform approach is an essential investment for the future for almost all retail outlets.”
Mind you – before COVID-19!
Of course, this is – especially now – also dependent on the industry, at least in part: E-Commerce sales in the electronics sector as well as in fashion are declining; online sales in groceries, on the other hand, are increasing significantly.
However, we can expect that COVID-19 will significantly change the purchasing behavior of consumers across the board – both online and in brick-and-mortar stores.
Let’s venture a prediction. If we assume the above-mentioned percentage (70 percent) of Germans who use E-Commerce, the absolute number before Corona was around 57 million. Assuming that of the remaining 25 million, around half will now use E-Commerce, more or less frequently, this offers enormous potential for online growth.
At the same time, the number of consumers who shop in malls as well as downtown areas and highstreets will not recover to the pre-Corona levels that we took for granted for the foreseeable future. Many people will shop less frequently in local retail outlets, some will discontinue shopping offline altogether – with the exception of groceries and medications. Out of caution, consumers will avoid places where many people congregate.
Such a scenario can also be expected because the restrictions in public life will continue for a very long time. Moreover, the city centers are currently far less attractive than before the Corona crisis (especially taking restaurants and public institutions into account). Consequently, stationary retail trade will continue to shrink – a trend that, as mentioned, has already be observed for some time. If we assume a decrease in stationary retail sales of only ten percent, this means potential growth of more than 50 billion euros annually for E-Commerce.
After COVID-19 at the latest, companies that have so far resisted the trend towards digital business models will also have to rethink and change their mindsets. Many are already looking for creative solutions to generating new revenue streams – or are already implementing them.
And companies do not have to look far to develop and implement sustainable and meaningful new business models. Omnichannel models will become the norm as a result of developments in retail and society. Customers will increasingly select according to how, when and where they have their touchpoints with retailers – and which retailers they buy from. Companies that rely exclusively on brick-and-mortar models will fall by the wayside.
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AOE now contributes to Bitkom on topics such as agile software development, digital experience management, cybersecurity, E-Commerce, digital marketplaces and data science.