Retail and covid-19: what now? [Commentary]
France's GDP is expected to fall by 20% in the second quarter, and household consumption fell by a historic 17.9% in March. The storm we are experiencing has considerably upset the consumption habits of the French and shaken up traditional trade. The sector in France has 685,900 companies (retail and wholesale) and represents 2.7 million jobs in 2017 (INSEE data). Already very weakened by the yellow waistcoat crisis and the latest strikes against pension reform, the sector is taking a hit.
In addition to the closure of so-called "non-essential" shops during the lockdown, the health crisis has accelerated the fall in the number of shoppers in hypermarkets where the French used to make a significant proportion of their purchases. This disaffection largely benefited local supermarkets, which recorded a 12.3% increase in turnover in April, compared with a 6.8% drop in hypermarkets (Banque de France data). The technological advance of the companies was decisive during this period. At theCasino group, for example, theMonoprix.fr website has seen a 900% increase in the number of registered users, and drive-through and home delivery have risen from 7% to 10% of sales volume! In just a few days, for the 25% of customers who were already digital, the refocusing on online was a smooth process.
A necessary shift towards new services
In addition to this redistribution of food market shares, the period of confinement has forced some retailers to digitise their model at full speed and develop alternative "contactless" distribution channels. This is reflected in the adoption of drive-through, home delivery and the massive development of click & collect. These practices have spread to other sectors such asDIY(Castorama, Leroy-Merlin), home equipment(Darty,Boulanger,But) or even toys(King Jouet). Other companies have adapted their model to this exceptional situation, notably the restaurant sector through the use of delivery platforms such as Uber Eats or Deliveroo. As a result, it is estimated that 10% of the French population will have used these digital channels at least once during the lockdown period. Post-Covid, one of the objectives for retailers will be to retain these new customers as many of them will return to their usual shops.
It is important to stress that e-commerce will have undoubtedly enabled many retailers to limit the impact of the closure of their physical shops. Playing the Cassandra by announcing the end of the offline is nonsense. According to FEVAD surveys and studies, the online sales sites of brands that also have shops are recording an average growth rate of more than 50%, unlike the average turnover of pure-players, which is down by 1% over one year.
Covid or the trend accelerator effect
The fact remains that this crisis will act as an accelerator of the difficulties faced by certain brands already weakened by the consequences of the 2007 subprime crisis and the latest social movements. Retailers such as CAMAIEU, ALINEA, LA HALLE and ANDRE are currently in suspension of payments. The misfortune of some makes the happiness of others because we are going to see in the next few months a phenomenon of concentration never seen before in the world of French distribution.
As far as the reopening of shops in France is concerned, the outlying commercial areas are the driving force, with average performances of +50% at constant perimeter for certain brands, and a significant increase in the number of stores.This is in contrast to shopping centres and town centres, which are down 5% and 10% respectively. Paris, without its tourists, is at -30%.
Post-Covid, the recovery of activity will be accompanied by an acceleration of the digitalisation of distribution networks: generalisation of home delivery and click & collect, massive deployment of drives and lockers. But this presupposes optimisation of the supply chain, which should be facilitated by warehouse automation. In China, the online shopping platform JD.com opened in 2017 a 40,000 sqm fully automated logistics platform capable of preparing more than 200,000 packages per day with only 4 employees.
Bringing goods closer together
Bringing storage or preparation centres closer to consumers is a major challenge for retailers, as same-day delivery is expected to become standard in the very near future. The development of this local logistics will require innovative solutions such as the creation of mixed-use buildings integrating an urban logistics component within an office building, for example. The concepts of "dark store" and "dark kitchen", which are places dedicated solely to delivery, will also develop.
The pandemic impact will redefine the very notion of commerce by accelerating the offline-to-online convergence that is already a reality in China. Through contactless payment, the traceability of quality products at the best price and the emergence of new services, the shopping experience is constantly evolving. The shop is also becoming a logistical centre for local delivery to customers.
Hard hit by the crisis, independent retailers should also make their digital revolution. This is perhaps a necessary convergence to save their model.
Expert opinion - LSA