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The Myths and Realities of Retail’s New Normal

As the Omicron variant sweeps across the world, retailers are reckoning with an inescapable reality: Covid-19 is here to stay. BoF outlines the fundamental facts that should inform the industry’s next moves.
Inside Reformation's Austin store.
Inside Reformation's Austin store. (Reformation)

When vaccines rolled out more than a year ago, many were optimistic that the pandemic’s end was near. But multiple variants and thousands of breakthrough cases later, retailers are beginning to accept an inescapable reality: Covid-19 is here to stay.

The new normal can be seen in the growing number of stores that devote precious floor space to fulfiling online orders. Or the way many retailers now rush out new styles, knowing customers who ditched their lockdown sweatpants for cocktail dresses might flip back as soon as the next variant emerges. Or the unpredictable shortages along the supply chain that leave shelves empty and orders delayed.

Retailers haven’t figured everything out, and in a Covid-19 world, there will always be new hurdles to overcome. The most successful businesses will be the most agile.

“Covid-19 will be part of our lives now, so the conversation needs to be, how do we live with this reality in a safe and thoughtful way?” said Hali Borenstein, chief executive of direct-to-consumer brand Reformation. “How do we keep teams safe? How do we stay productive and make our businesses more robust and more flexible than ever?”

Below, BoF outlines the fundamental facts that the industry must address in 2022 and onward, along with some sticky misconceptions about retail’s future.

Myth: Consumers now prefer the digital shopping experience

Reality: Customers expect convenience, whether they’re shopping online, offline or in a combination of the two

Early in the pandemic, retailers went all-in on e-commerce, as shoppers shifted their spending online in record numbers.

The pandemic’s online boom is now over. In the third quarter of 2021, online retail sales accounted for 12.4 percent of total retail sales in the US, down from 16 percent in 2020, its peak, according to Census Bureau data.

Rather than investing in a fully digital experience, many companies now prioritise flexibility between catering to the online and offline customer.

Even digital-native brands now understand that most shopping journeys today incorporate elements of both online and brick-and-mortar retail. Hundreds of retailers have opened stores in 2021, and a new generation of aspiring retail giants, including Warby Parker and Allbirds, see new stores as the path to scale.

Those stores look different than they did in 2019. More retailers allow customers to return online purchases in stores, offer curbside pickup or have turned stockrooms into miniature e-commerce fulfilment centres.

Consumers have also come to expect the ease and efficiency of e-commerce in stores, too.

At the majority of Reformation’s two dozen stores, shoppers can head straight to a television-sized touch screen where they can pick out pieces to try on in the dressing room. From there, customers can request additional sizes on an iPad, with selected pieces shipped straight to their homes.

“The demand for convenience and speed is [higher] than ever,” Borenstein said. “What Covid did for us was that it made us realise we needed to advance our technology.”

On the flip side, consumers are also looking for the level of service they’d receive in stores when shopping online. A growing number of services enable sales associates to handle online customer service while working on the shop floor.

Myth: The worst of the supply chain crisis is over

Reality: Sporadic disruptions will persist for the foreseeable future

Long lines of container ships outside major ports are an image closely associated with the new, post-pandemic world. Those queues persist, though the cost of shipping containers full of shirts and shoes across the ocean has begun to drop. Retail executives are offering up a more optimistic forecast for their supply chains.

The supply chain issues that left shelves empty and caused logistics costs to soar are far from resolved, however. Factories across Asia have mostly reopened after the Delta variant forced widespread shutdowns. But they face labour shortages and may close again if infection rates rise. Closer to home, many brands are struggling to keep stores and warehouses fully staffed.

Analysts say it will be at least another six months until retailers see any indication of a return to normal, and even then, managing supply chains and logistics will remain a costly and competitive endeavour.

“If you think the pandemic will be a rolling annual issue, which it looks like it will be, there will be some possibilities that places like Vietnam, Bangladesh and China will have chronic supply-chain issues,” said Dylan Carden, retail analyst at William Blair.

Revolve navigates pandemic-related delays and shortages by working with a wide range of suppliers and manufacturers. With more than 1,000 third-party suppliers, “we’re able to shift [goods] around, in and out of [certain locations] and pull those levers when needed,” said Revolve co-chief executive Michael Mente. “With the crazy disruptions across the board, ultimately having diversity there gives us defensive insurance and firepower.”

Revolve offers free two-day shipping anywhere in the US — and one-day service in certain areas of the West Coast. It handles logistics in-house rather than hiring an outside firm, and when one regional carrier becomes overwhelmed, Revolve’s team knows how to quickly shift that load to another.

Myth: Discount culture is over

Reality: Deep promotions could re-emerge

Between the supply chain snarls and a booming economy, the fashion industry can barely keep up with demand. That’s allowed many brands to raise prices and end a decade of ever-widening discounts. In November, average apparel prices were up 5 percent compared to the year prior, according to the US Bureau of Labor Statistics. Some fashion retailers, such as American Eagle Outfitters, reported late last year that average selling prices rose in the double digits from a year earlier.

But analysts across the board are sceptical that the industry can resist returning to its old, promotion-heavy ways. To offset supply chain delays, some brands have ordered extra inventory. If demand falls short of expectations, as it inevitably will at some point, then markdowns will quickly reappear.

“What’s of concern is that when one guy invests in more inventory and does something wrong, they’ll put stuff on sale,” said Janet Kloppenburg, the retail analyst behind JJK Research Associates. “Eventually, inventory levels will [accumulate] and that will make promotional wars come back.”

Myth: Athleisure forever

Reality: Anything goes

Sweatpants and leggings were the fashion champions of the pandemic, but consumers have moved onto dressier — and sexier — categories. While active and loungewear are still critical offerings, retailers say today’s best-selling items are novel and eclectic, portending a future where individual style is more relevant than fads. Novelty and speed are critical.

“It sounds like everything is trending right now,” said Katie Thomas, who leads the Kearney Consumer Institute, an internal think tank at consulting firm Kearney.

Revolve has seen increased diversity in trends in the past two years. The retailer initially buys a broad range of styles in smaller quantities, so it can react to new fads and avoid overcommitting to items whose appeal proves to be short-lived.

“We’re seeing going-out leather pants and corset tops and bodycon dresses, but at the same time we’re seeing cooler-weather comfy, lounging cardigans and earthy tones,” Menke said.

Reformation’s Borenstein predicts that trends will come and go faster than ever, driven by heightened social-media activity among consumers during the pandemic. The brand saw demand shift from loungewear and active to sweaters and dresses in the last six months. By the end of 2021, sales of dresses were up more than 100 percent year-over-year, according to Borenstein.

“People are just more digitally savvy, looking at Instagram and TikTok,” where something can instantly go viral and demand subsequently spikes and then drops, she said. “There’s a bigger celebration of individualism now and that will allow for more creativity and breadth of styles.”

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