Part 4 of our “COVID Impact on Industry” series dives into the data on the pandemic’s impact on the Retail sector and looks at what’s next for the industry.
The retail industry saw uneven wins and losses during the COVID-19 pandemic. Many retailers experienced a steep decline in revenue due to the drop in foot traffic and in-person sales. Those that pivoted to online sales were able to capitalize on the increased interest in e-commerce, and some subsectors even saw growth because of pandemic-related consumer behavior changes.
While the general take-away of 2020 might be that it “wasn’t great for retail,” what exactly did it mean for the industry? What did we learn from it? And what can we expect from the year ahead? Let’s take a look.
The retail sector experienced a seismic shift due to the COVID-19 pandemic. An overwhelming 84% of consumers reported changing their behavior because of the pandemic, according to Statista’s April 2021 report “Coronavirus: impact on the retail landscape in the U.S.” For many retail businesses, this led to new financial challenges, but there were some bright spots with a handful of subsectors benefiting from pandemic-related shifts in consumer behavior.
Statista’s report provides sobering data. Brick-and-mortar businesses saw the sharpest decline of all retail subsectors with a 96.4% decrease in foot traffic to physical stores. While forced closures and changes in consumer behavior explain why we saw such a sharp drop-off when it comes to in-person shopping, the decrease is nevertheless staggering.
Leisure-and-travel businesses saw a decrease of 60% in 2020 compared to the same period in 2019. This is likely connected to the decline in recreational and business travel precipitated by the pandemic. The Statista report tells us that clothing retailers were similarly hit, with that subsector seeing a drop of 14.9%.
Changes in consumer spending led to negative effects for other retailers as well. As many people opted to stay home, following safety guidelines, gasoline sales decreased (-11%) as of June 2020. Also as of last June, as per the Statista report, the following retail categories had experienced a sharp decline in business: jewelry, accessories, footwear, consumer electronics, skincare/makeup, pet care services, and fitness/wellness.
The negative economic effects of the coronavirus pandemic were devastating for the vast majority of American small businesses. Yet even for the hardest-hit subsectors, there is reason to be optimistic. Consumer spending, which sharply declined at the beginning of the pandemic, loosened up as people adapted to “the new normal.” As vaccinations continue to become more accessible, consumers are returning to behaviors that they had abandoned last spring.
There were some bright spots for retail businesses in the pandemic. Some subsectors experienced a boom caused by greater numbers of people staying at home. Online business boomed, ostensibly fueled by pandemic-related safety concerns.
Consumers purchased more groceries (+34.8%) and over-the-counter medications (46%) online, according to the Statista report cited above. Home improvement-related products also saw a boost. From December 2020 to January 2021, furniture store sales increased by 12%.
Curbside pickup and online shopping were the two major changes many retailers adopted during the pandemic. Retail giants like Target and Walmart were well positioned to adopt these changes. Amazon, which experienced a boom from the shift to delivery, saw their profits increase by a jaw-dropping 220%.
While smaller retailers didn’t have the infrastructure or large-scale technological capabilities of Target, Walmart, and Amazon in place, many adopted similar practices in smaller ways. Mom and pop shops offered curbside pickup, and many small businesses turned to e-commerce platforms like Shopify to sell their products online.
The Paycheck Protection Program (PPP) provided economic support to help struggling businesses weather the unanticipated downturn. More than 450,000 retail trade businesses secured a financial safety net through the potentially forgivable loan program. While the extra working capital provided some with the financial safety net they needed, the program faced challenges, including over half the PPP funds going to just 5% of applicants (the larger companies), loan sizes being too small to fully support the hardest-hit businesses, and ever-changing guidance leading to confusion (for both lenders and borrowers).
It is no overstatement to say that 2020 changed consumer behavior. Some of the impacts on industry will likely be temporary. Gasoline sales, for example, will likely rise again once people feel comfortable enough to start moving around more freely. Other behaviors may be more long-lasting. Curbside pickup and e-commerce seem more likely to hold as retail trends. Even as many people feel comfortable dropping (some) safety precautions, there will be others who either won’t want or be able to do so. Maintaining these contactless, or contact-reduced, shopping options broaden the consumer base merchants will be able to serve in the years ahead.
Strategic partnerships took on sudden importance in the early days of the pandemic, with many small business owners quickly working to forge partnerships that would help keep their businesses afloat. Going forward, these partnerships will be important to helping businesses recover quickly, access new audiences, and protect themselves—especially if we should experience 2020-style closures again.
Retail is predicted to grow by 6.5-8.2% in 2021, according to the annual forecast from the National Retail Federation (NRF). Online sales are expected to take the majority of these gains with a projected growth between 18% and 23%, but the spread of vaccinations and the relaxing of pandemic safety guidelines will likely mean good news for brick-and-mortar businesses as well.
Predicting safety restrictions and industry numbers has become about as tricky as weather forecasts. A month or so ago, many experts predicted that mask guidelines might remain in effect for a year or more. Now, the CDC has updated its guidance for vaccinated individuals, stating that they no longer need to wear masks or practice social distancing, in general.
The removal of the mask guidelines for vaccinated individuals will be good news for many retailers, as consumers will likely feel more comfortable returning to pre-pandemic behaviors like in-store browsing, but it could also lead to more complicated decisions for retailers. With the new guidance, the CDC has effectively abdicated the responsibility for determining how to address safety measures for individuals who are not vaccinated, leaving it up to local governments and individual businesses.
This will likely lead to a bumpy adoption of the safety measures—with some choosing to release mask mandates and others opting to maintain face-covering-related guidance. It may also make incidents of mask-related customer complaints more likely and trickier to navigate for retail employees (as they will no longer be able to point to CDC guidelines as the impetus for mask requirements).
In a broader sense, these recent changes illustrate the ever-changing landscape that small businesses must contend with. Over the past year, predictions for the pandemic and “what the future will look like” have changed every couple of months. The vaccination rollout has exceeded most expectations in terms of pace and has given many retailers a reason to be optimistic.
What impact it will have on the retail industry remains to be seen. If there’s one trend from 2020 that appears certain to continue in 2021, it’s that we can expect the reality of the pandemic and the required/recommended safety measures to continue to change.
Enjoyed this article? Check out the rest of our COVID Impact on Industry series: