COVID-19 is the BEST Thing to Happen to Retail
It’s a deathwatch for retailers. In just the last few weeks, we lost J. Crew, Neiman Marcus, and J.C. Penney. The National Retail Federation estimates seven million retail jobs could be lost due to the pandemic. So what word would you use to describe the effects of the COVID-19 crisis on the retail industry right now? It’s okay to use a thesaurus if you need to: Catastrophic? Calamitous? Malefic? Mortiferous? Really, really bad? Take your pick.
While we’ve all been reading headlines about the “retail apocalypse” for years, it looks like the Four Horsemen have finally arrived. It’s particularly tragic because retail is an incredibly important sector of our economy. Consumer spending constitutes two-thirds of the GDP. The retail industry employs 52 million Americans and generated nearly $4 trillion in revenue last year.
But wait, not so fast. I honestly think that COVID-19 is the best thing to happen to the retail industry.
I know, I know. “Tien, you’ve gone crazy,” you are thinking. “That’s it, I am unsubscribing to this weekly newsletter about subscriptions.” To which I say: Look, I know it’s bad, but we all know the hero’s journey has to go through Hades before rebirth can happen. And now that we’ve passed through the fire, the path to redemption is ahead.
In fact, if you know where to look, many retailers are actually thriving right now. In the latest Fortune 500 list, 40 retail brands actually went up in the rankings. And brick and mortar retail is far from dead. Did you know that Walmart makes twice as much money as Amazon? No wonder Jeff Bezos is expanding into grocery stores.
That’s why I read this New York Times profile of Patagonia with such great interest. Patagonia (which did $800 million in revenue last year) was one of the first retailers to close, and might be one of the last to open. While every other retailer is rushing to open stores, get their cash registers ringing again to stave off the Grim Reaper, Patagonia says they can afford to be cautious. That doesn’t mean it has stopped reaching out to its customers, though. They’ve taken the environmental activism and community gathering aspects of their stores and moved them online with stories like “What You Can Do From Home.”
What I see in Patagonia points to how a healthier, more resilient retail industry can rise from the ashes of the apocalypse, a phoenix from the flames. And the first and most important step out of the ashes is to start with the consumer. We’ve gone from a nation of people traveling elsewhere to consume things, to a nation of people consuming things when and wherever they want (and that’s increasingly at home). Retailers need to go to them, not the other way around.
Once you start with that mindset, you need to do three things:
First, flip the script and make your online presence matter more than your physical stores. The new retail imperative is to establish a digital identity as your main point of contact. Over two-thirds of Starbucks customers use its app, which now accounts for over 17% of the company’s orders. They opened their first pick-up only store in 2019, and a broader rollout is happening this year.
Second, physical stores are still important, but use those physical stores as showrooms, distribution centers, and drop-off locations. Target, for example, realized that while Amazon has around 180 distribution centers in the U.S., it could turn all 1,900 of its stores into fulfillment centers. Last quarter its stores fulfilled nearly 80% of its digital sales, and the company fulfilled more online orders during an average day in April than it did on Cyber Monday. Its stock has jumped 74% over the last year.
Third, build real membership models that provide actual value, not bogus reward points. And stop discounting yourself to death. If anything, your customers should be paying you to join your membership program, not the other way around. Where did Jeff Bezos get the idea for Amazon Prime? From Costco. Real membership models allow retailers to re-imagine their businesses as recurring services, as opposed to an accumulation of transactions.
As Patagonia CEO Rose Marcario says, “the shape of retail will change.” People will be more reliant on e-commerce and “the return to walk-in retail will be slow.” Note that Patagonia also benefits from a legendary membership model.
The old way of retail has been dying for years, and COVID-19 finally pushed it off a cliff. But a more resilient retail industry is shaping up right in front of our eyes. The future of retail is already here, it’s just hiding in plain sight.
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.