Things won't go back to 'normal' for retailers, says BDO Canada

The impacts of the Covid-19 pandemic on the retail industry will likely extend beyond the end of the health crisis, according to a recent insight article from BDO Canada. That means retailers will have to adapt to lingering changes in consumer behaviour, or almost certainly perish.

“There is still much uncertainty, but our best guess is that the financial, operational, regulatory, and psychological effects of the coronavirus pandemic will linger well past the social distancing and isolation phases to define a new normal for retail,” the accounting and consulting firm stated.

One well-known effect is a distinct flight to e-commerce channels as consumers avoid physical locations because of health concerns or because stores are closed by government restrictions. The pandemic is likely to permanently boost e-commerce sales, with grocery, prepared foods and pharmacies being candidates for increased e-commerce.

Meanwhile, the Covid-19 pandemic will accelerate the previously initiated retailer apocalypse driven by e-commerce companies like Amazon. Department stores and apparel retailers are particularly susceptible to closure and consolidation in the coming months and years. Bankruptcies this year already include companies such as Brooks Brothers, J. Crew, JCPenney, Sears, K-Mart, and Nieman Marcus.

The pandemic, however, has brought new pain to the restaurant and gym sectors, which have been impacted by rolling closures and customer avoidance. With a new round of closures in Ontario and Quebec due to a second wave of Covid-19, the restaurant industry is increasingly looking like something that will simply cease to be financially viable – outside of take-out-focused franchise giants such as Tim Horton’s, Domino’s, and McDonald’s.

In the US, this year’s restaurant chain bankruptcies already include Le Pain Quotidien, Souplantation, Ruby Tuesday, California Pizza Kitchen, and Sizzler. Gym bankruptcies include 24-Hour Fitness and Gold’s Gym.

The crisis does, however, provide cash-rich retailers the opportunity to buy inventory, locations, and competitors at a discount, according to BDO.

According to BDO, retailers will have to adapt in numerous ways to altered consumer preferences and behaviours. The retail experience will have to emphasize safety and distancing for the foreseeable future. That means more e-commerce and pick-up/curbside options, as well as more self check-outs. Rearranged store layouts and increased availability of sanitizer stations are also important.

Though layoffs will continue, Canada will still be a service-based economy. For the remaining workforce, retailers should expect to see a move to increased flexibility on shifts, more sick leave, and an increase in wages.

On the merchandise planning front, BDO expects increased demand for value brands in staple products and services, as well as for electronics and devices that support home-based transactions and experiences – including computers, TVs, tablets, and video game consoles. Health, wellness, and personal safety products will continue to see heightened demand as well.