Bricks are coming back

For brick-and-mortar retailers, our shopper activity indices suggest that about half of the consumers who stayed away from retail in 2020 came back during 2021. That improvement demonstrates the resilience of physical stores and the vital role that they play in retail commerce.

For the six-week holiday period from Black Friday Week through the end of the calendar year (November 21, 2021 – January 1, 2022), Total Retail Shopper Visits were up +18.9% compared to the same period in 2020 and down -19.5% compared to pre-pandemic 2019. For comparison, last year in 2020, Shopper Visits were down -33.2% in comparison to 2019. Continuing to measure against pre COVID-19 norms, regionally, the South was down -16.7% for the holidays, followed by the Midwest at -20.6%, the Northeast at -21.0% and the West at -22.4%.

From a center type perspective, there are indications that consumers are now more willing to shop at all types of retail centers. Enclosed malls lagged their open-air counterparts, as they have throughout the pandemic, but there were spikes that indicated shoppers were nearly as interested in those venues as they were in mall alternatives. For the holiday season, enclosed malls were down -26.9% vs. 2019, while other center types were down collectively -22.2%. That gap has narrowed considerably from the 10% difference between center types last year. These differences were even closer during two key periods, with malls down -32.6% Black Friday Week while the other center types were down -31.1% and malls outpacing the other types -22.7% vs. -23.6% during Christmas Week.

While Omicron has made a significant impact around the globe and some governments are instituting or considering further lockdowns, there has not been any noticeable impact to United States store shopper activity. The best way to understand this is to look at the trend differences before Omicron started being reported in the U.S. (Black Friday Week) and more recent trends and then comparing them to the traffic patterns we saw during the last holiday season. When comparing 2021 to 2019 pre-holiday activity, the correlation was extremely high at 94.2%. But it was even higher for the six weeks of the holiday season at 97.0%. In other words, while the numbers were better this year, the trends were nearly identical. It does not appear that U.S. shoppers changed their behaviors at all as a result of Omicron. With the holidays behind us, it will be interesting to see if those trends hold.

2020 lockdowns stopped manufacturing production completely. Once production resumed, there was a slow ramp-up to normal levels caused by continued restrictions and worker availability due to layoffs and social distancing. Vendors and retailers canceled orders because of ongoing economic fears and product availability. When production began ramping up, dock and transportation workers didn’t return to work in numbers necessary to clear out overcrowded ports. All of this resulted in significant delays along the supply chain.

Getting over the supply chain delays requires outside-the-box thinking, such as rerouting to less frequented ports or bypassing ports entirely and using alternative shipping options like air freight or investing in more localized manufacturing. Because of their increased operating costs, these margin-impacting alternatives need to be weighed against the possibility of not having enough inventory to serve customer demand and therefore drive revenue.

Regardless of the supply chain strategy, the retailer’s key to merchandise profitability in 2022 will be highly accurate inventory systems across the entire process. If the cost of goods sold and labor continue to increase, deploying RFID and source tagging solutions will provide instant visibility to on-hand and on-order stock levels to optimize the flow of goods, putting the right products in the right stores or distribution centers exactly when they are needed.

Finally, organized retail crime (ORC) and internal shrink can be better monitored and controlled through the implementation of cloud-based asset protection solutions. Combining inventory data with shrink results not only improves proactive deterrence, but it also helps optimize stock availability.

The shopper controls omnichannel

A decade ago, the catchphrase for combining online and in-store assets was to gain “a single view of the customer.” The slow establishment of merging digital with bricks indicated that this concept was inaccurate. Consumers’ embracing digitally enhanced pickup options throughout the pandemic proved it to be just the opposite. Shoppers, themselves, have merged retail channels to create their own experiences. For example, they find products that they want online and then decide how they want to receive them: shipped directly or picked up at a local store. With the onset of the COVID-19 lockdowns, retail technology departments scrambled to facilitate buy online, pick up in store (BOPIS) options. This required business process changes to their point-of-sale systems, e-commerce sites, inventory replenishment, labor allocation and operating models. Successful BOPIS retailers no longer think of their website and their brick-and-mortar stores as distinctly different because they realize their customers no longer do. The seamless shopping experience is no longer limited to one channel vs. the other; it must apply to both, because it impacts brand loyalty. Further, shoppers now determine their brand loyalty based on their converged experiences.

Retailers who recognize this digital convergence are leveraging shopping and inventory data to ensure no gaps in the shopper’s experience. Shoppers have more choices than ever and just one breakdown in the process – one inconvenience due to unrecognized stock availability issues – can shift the shopper’s loyalty to a competitor. In a sense, inventory availability is the new Net Promoter Score.

Labor will be the biggest issue of 2022

New coronavirus variants indicate that the pandemic is far from over. A full brick-and-mortar return will require a complete rethinking of retail staffing models. On the one hand, holiday hiring proved difficult this year and new state policies on minimum wage put even more tension on labor costs. On the other hand, the shopper’s embrace of new store pickup options and stress throughout the supply chain requires more labor to achieve even minimal service levels. Some of the balancing act can be managed through investment in automation, but the current lack of staffing needs to be addressed.

Retailers who recognize the growing retail labor crisis are revising their operating models to account for the newer roles within a store that support digital and are creating strategies for balancing rising staffing costs with expected service models necessary to achieve revenue targets. They are also investing again in retail training to develop the next generation of store managers and corporate executives by rethinking their full-time/part-time mixes and offering education as a hiring benefit.

While the signs indicate that shoppers are returning to stores, it will be up to retailers and shopping center operators to embrace their demands for new and consistent shopping experiences. Without a strong inventory foundation, new store pickup options could create more headaches for store teams and without a reassessment of store and distribution center labor roles, executing store pickup options will have inconsistent results at best. In either scenario, consumers will be turned off as their loyalty shifts elsewhere.