South Africa’s retail sector is in crisis mode. It’s been hit hard by the Covid-19 lockdown and the subsequent economic impact, with significant drops in volume across the board. This year’s fourth quarter will be more important than ever. Most retailers will be in the red as financial relief tapers off and landlords ask for back rents, so those end-of-year sales will be critical for the survival of some retailers, and for the resurgence back to profitability of others.
When it comes to jobs, retail is a big employer, particularly of vulnerable people. Old Mutual has a number of clients in the sector, and we know how concerned they are about the welfare of their staff. Through the Covid-19 crisis, almost every retailer had plans in place for providing PPE, regular testing and appropriate cleaning of work areas.
We have also seen a flood of requests from clients asking us to help them understand how to apply for UIF and temporary government relief. Companies and store owners realise that they have to take care of their staff financially. Some retailers have temporarily reduced their pension fund contributions or not paid pension fund contributions at all, with the thinking being that if they can reduce their payroll cost they will be able to keep as many people as possible paid – and employed. Importantly, they have kept paying their risk cover (death, disability, etc).
The trend towards e-commerce will continue. The retailers that succeed will be those who don’t see it merely as a short-term measure, but who can continue to deploy e-commerce sales after the lockdown has ended. Consumer behaviour will not change overnight, and there will still be people who avoid crowded shopping malls.
At the start of the national lockdown there was fear around the supply chains and retailers had to coordinate among one another, making sure that there was enough stock across geographical areas. So you would have competing retailers sharing merchandise, even though they are competitors. This kind of collaboration has been frowned upon in the past, but township spaza shops have been doing it for years. Bigger retailers are now realising that it’s in their best interests if the competitor at the other end of the mall continues to operate. If they were to close down, you will lose foot traffic. It’s about thinking about the whole system, and keeping things going.
For any agile business and brand with decisive and authentic leadership, the opportunity for innovation and new products and services to assist their customers during these challenging times are boundless. As Safaricom’s Sylvia Mulinge said, ‘For any business that has an entrepreneurial streak, chaos and crisis are friends.’ She is of the opinion that they provide an opportunity to reimagine what’s possible, your business models and the reason you exist.
Many processes in organisations have had to be accelerated; digital transformation being the most obvious; along with work from home and online customer service. As borders closed and manufacturing halted, many retailers and brands were faced with supply chain disruption. I recently attended a webinar where Pep’s Chief Marketing Executive Beyers van der Merwe said: ‘The name of our digital transformation officer is Corona.’ Many companies can say the same.
Based on the above, I believe these three will be among the key trends and shifts in retail that will dominate the next 18 months.
Purpose before profit
Lockdown forced radical consumer behaviour change and has led to the acceleration of digital transformation the world over. No business, brand or person will be unchanged by these events.
All brands, but especially financial services and retailers, need to take care of their consumers, meet their needs, and help them through these challenging and stressful times. Give them discounts, deals, vouchers, cash back; help them deal with the destruction of the normal rituals of life from birthday parties to work socialising to funerals. Consumers – and employees – are going through the most challenging times of their lives. They need empathy, not a hard sales pitch; understanding, not policing.
Consumer behaviour will not revert to ‘normal’
Pandemics act like a pressure cooker – a phrase I am borrowing from Lynne Gordon of Kantar Insights Management – and radically alter consumer behaviour, turning their focus to what is most important: safety and security. Brands need to alter their strategies accordingly. Consumers are downtrading to own-label brands and even changing categories to save money. Value for money will be a key consideration in the months to come as our shattered economy rebuilds.
Local sourcing will boost the economy
Retail is now a function, not fun. Shopping is no longer retail therapy, and malls are no longer destinations for family entertainment – and won’t be for a long time. Shopper marketers will have to find other ways to capture consumer attention than in store.
One way is by exploring cross-branding opportunities, like including free product samples in online delivery baskets; or collaborating with one of the innovative at-home cooking services that have sprung up.
With the global supply chain disrupted, retailers will have to look closer to home for raw materials and finished goods – a boon for local producers and entrepreneurs. Foschini, for example, is showcasing local ranges produced by women; Pick n Pay has put a ‘Made in South Africa’ sticker on its locally sourced goods.
The next 18 months will be extremely painful as Covid-19 reaches its peak. Now is a time for empathy from brands towards their consumers and organisations towards their employees. This is an opportunity to build brand loyalty and social capital among consumers with authentic and extraordinary leadership.
The opinions and views expressed by the industry experts are their own and do not necessarily reflect those of Old Mutual.
See the latest Intelligence Report for the retail sector compiled by Old Mutual Corporate.