Will supermarkets be the only survivors of brick-and-mortar retail once the pandemic ends?

Will supermarkets be the only survivors of brick-and-mortar retail once the pandemic ends?

The LexisNexis student associate team are a creative bunch. The 2020/21 team has been challenged like no other group previously, and they've adapted magnificently – coming up with new and interesting ways to encourage student engagement and interaction at their universities. Here we share how the LexisNexis student associate at Queen Mary University of London partnered with the Queen Mary Commercial Awareness Society to create a competition with a difference. You can check out the winning work below!

The society worked with the LexisNexis student associate to develop an essay writing competition aimed at encouraging students to engage with their peers and develop their commercial awareness skills. Despite the disruptions caused by COVID-19, students were eager to participate in preparation workshops, talks and mock assessment centres throughout the competition. Entrants were tasked with writing a short essay on one of several topics covering current events and which would allow entrants to showcase their commercial awareness.

The winning essay was written by Suhani Ishwarchand Mangal, a first-year LLB student. Suhani explored the future of brick-and-mortar retail in a post-pandemic environment and you can read her winning work below.

Will supermarkets be the only survivors of brick-and-mortar retail once the pandemic ends?

Brick-and-mortar retail stores, a term that arose after the proliferation of e-commerce, refers to traditional street-side businesses that offer products and services to customers in person. From its birth in the 1980s, e-commerce has seen ever-increasing growth, raising concerns about the sustainability of the brick-and-mortar business model. This spur of disruptive innovation reinvented the retail market.

Several brick-and-mortar retailers created an online presence to gain benefits of both business models, constructing the hybrid model of ‘brick-and-click’ retailers. Walmart, known mainly for its physical spaces, has become one of the largest e-commerce platforms in the US. Similarly, online retailers have ventured into physical retail presence to realise the advantages of traditional retail. Amazon opened its first physical bookstore in Seattle in 2015, a chain of convenience stores Amazon Go across the US, and acquired grocer Whole Foods for $13.7 billion in 2017.

How has this been impacted by the pandemic?

The transition to omnichannel retailing was well underway before the pandemic; however, it has now been accelerated. The most significant impact of the pandemic and lockdown on the global economy is soaring unemployment and a decrease in consumer’s discretionary income. Its impact on the retail sector has been strikingly different between essential and luxury retail. A decline in footfall and purchasing power resulted in a huge economic setback for brick-and-mortar luxury retail such as apparel, beauty, and shoe stores. On the other hand, restrictions on hospitality sector, panic buying and working from home boosted sales in supermarkets. Tesco, the UK’s biggest supermarket chain, recorded a 7.2% increase in sales last quarter, the fastest rise in decades. Sainsbury's, the second in market share, reported sales increase by 8.6%. However, this does not translate to more profits. 

Costs of ensuring that the premises are covid-compliant and staff absences decreased profit margins even for supermarkets. But switching from physical to online sales took the biggest toll on profitability. Due to fierce competition, businesses subsidised online delivery fees to gain market share. That was feasible when the internet was a small sales channel, growing steadily. The steep increase in online sales had a negative impact. A 2020 study by Bain & Co. found that although physical sales had an operating margin of 2-4%, online deliveries typically lost money. Businesses know they must increase online delivery charges, but the fear of losing market share has stopped everyone from making the first move. 

Looking to the future

There is no doubt supermarkets will survive the pandemic. But they will not operate as mere brick-and-mortar retailers and instead will adopt a dual model where e-commerce constitutes most of their sales. A structural change is afoot. To achieve omnichannel profitability, supermarkets will need to remodel supply chains for decreasing delivery costs and time. Moreover, the presence of drive-through stores, automated payment, and buy online pick-up in store (BOPIS) services are likely to increase. 

Supermarkets will not be the ‘only’ brick-and-mortar retailers that will survive post-pandemic. Luxury retail such as apparel and jewellery stores will rebound (albeit with a larger e-commerce channel). Even after the pandemic, stores will give businesses a competitive edge. Customers appreciate human interaction, instant gratification of their purchase and the ability to try products. For omnichannel retailers, in-store sales are the most profitable channel due to higher unplanned purchases, and lower distribution and return costs. Moreover, certain retailers which provide services, such as hair salons, gas stations and repair shops, will continue to operate as brick-and-mortar models since they have no viable online alternatives. Hence, despite a temporary downturn, they will rebound as consumer confidence increases with time. 

Retailers which will not survive post pandemic are the ones which were strained before the pandemic itself as a result of not strengthening e-commerce at the pace of their competitors. JCPenney and Debenhams, department store chains whose financial struggles pre-date the pandemic, filed for bankruptcy in 2020. It is clear that in a period of uncertainty and changing consumer behaviours, retailers that invest in increasing their online presence and adapt, rather than close, their brick-and-mortar spaces to become truly omnichannel will be best placed to survive the pandemic.

 

 

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About the author:
Suhani is a first year law student at Queen Mary University London, with an interest in commercial law. Outside studies, she enjoys playing piano, blogging and reading about world history.