Evolving business models, new emphasis on purpose, rethinking costs and increased consumer power to drive change
Retail markets around the world are changing and the retail industry is evolving, while facing massive challenges as a result of the COVID-19 crisis. However, the pandemic has accelerated – rather than stopped – key underlying fundamental trends that were already influencing the sector, according to KPMG report.
In the latest Global Retail Trends 2020 report, KPMG’s network of retail sector professionals indicates that the four accelerating trends that retail executives should be watching as they rebuild their business towards the post-COVID future are: an evolving retail business model, sense of purpose moving to the forefront, a rethink of the costs of doing business and placing customer choices under the microscope.
Within mainland China and Hong Kong, the pandemic proved that shoring up customer relationships may be key to staying afloat in a post-pandemic market. For most retailers, that meant leaning strongly into online sales, proving that speaking to customers and understanding their needs has become just as important as the bottom line.
Jessie Qian, Partner, Head of Consumer and Retail for KPMG in China, says: “In the post-COVID-19 environment, consumers will place greater emphasis on both convenience and safety. During the lock-down, we have seen brands and shopping centers using Wechat Mini-programs, online social groups and live streaming videos to reach consumers through new channels without the need for foot traffic. Customer data has now become both an important and a valuable asset. Brands and retailers will aim to leverage the use of customer data to improve business efficiency and increasingly provide more targeted and personalized services.”
While many physical stores will certainly return to growth in a post-COVID world, this crisis has clearly demonstrated that online platforms are quickly becoming the shopping malls of tomorrow, with the report predicting that, over the coming year, ongoing challenges with supply, demand and business continuity will force many retail groups to rethink their business models, which should spark a new wave of innovation and competition in the industry.
The onset of COVID-19 has put businesses’ actions and their purpose under the spotlight as they retool their business models to support government response requirements. This year, the sector professionals expect retailers to focus on improving transparency, with the focus on helping society respond and recover from the current health crisis. It is also expected that leading retailers will move from having a purposeful brand promise to using their purpose as a guiding growth principle and decision-making lens.
In Hong Kong, the ongoing COVID-19 pandemic and its local resurgence has caused major disruptions for local retailers, causing many to rethink their future operating strategies. Ensuring business continuity during these turbulent times means developing a multi-faceted contingency plan. The importance of being able to manage demand fluctuation proved its worth early on in Hong Kong’s pandemic, while other major cities around the world struggled with shortages of necessities to a much higher degree. Contingency plans need to be able to predict and adapt, particularly for retailers stocking essential goods or providing essential services.
Alice Yip, Partner, Head of Consumer and Industrial Markets, Hong Kong, KPMG China, says: “COVID-19 has been a catalyst for driving change in Hong Kong’s retail landscape, and has had varying impact on different retail formats. Retailers relying on traditional brick-and-mortar stores have taken a considerable hit, while online shops are increasing their trading volumes and attracting new customers. When preparing for a post-COVID-19 environment, retailers in Hong Kong will need to revisit their business models to better connect sourcing, logistics, customer interaction and product sales both online and offline.”
The aggressive cost-containment strategies implemented in the midst of COVID-19 have shown retailers that they will need to go further if they hope to return their business to profitable growth. Retailers will increasingly need to leverage data and analytics to identify their most profitable stores, configurations and products, and based on this, make important decisions.
The COVID-19 pandemic has shifted customer expectations. Customers today care less about breadth of assortment and more about availability. The sector professionals thus predict that only two types of retailers will survive: those offering a limited yet curated selection and those offering unlimited selection. The report also expects retail leaders to think more clearly about their investments into three key areas: customer loyalty programs, customer data, and technologies aimed at making the shopping experience easier, safer and more efficient.
Anson Bailey, Partner, Head of Consumer and Retail in ASPAC at KPMG, says: “As we see changing consumer behavior, business models are evolving with the rise of platforms in Hong Kong and retailers need to move quickly as the technology is accelerating and the speed of change is relentless. Consumers have greater expectations from those online experiences in terms of unlimited selections, instant delivery, transparent pricing and more flexible payments. We are therefore going to see a greater focus and investment dollars on those e-commerce platforms.”
