The effects of Covid-19 on retail

23.06.2020

In this article, we provide an outlook of the specific economic developments which will be of importance due to the ubiquitous coronavirus pandemic. This is not a scientific report, but our neutral and personal opinion with which we hope to be able to help and provide some food for thought in the current crisis.

The whole of Germany has been at a standstill for several months. Towns and cities have been under quarantine, while some have protested against the huge restrictions on their basic rights. Covid-19 has caused considerable restrictions in almost all areas of life due to the “lockdown” and the prohibition on human contact. Almost all local businesses, including restaurants, have been closed, gyms and sports facilities have been prohibited from opening, and trade fairs have been cancelled on a large scale, which was also the case for our own event, the International Trade Fair for Retail Promotions and Imports (IAW). But, as always, there have also been winners. And this crisis has had the same effect as all other crises: it has resulted in a change of direction. Considerable economic changes are being caused by the drastic changes to our consumer society. This means that those who take note of the right developments now and act appropriately will be in a strong position and equipped well for the future, even in this crisis.

What will the lockdown mean for retail for the next few years?

All business transactions are required to take place according to the specified guidelines, which will have a huge impact on the entire economic situation. The weeks of forced closure will cause extreme long-term damage, that much is certain. Covid-19 could also trigger an impending economic depression, which experts believe may continue for the next 3 years. The list of horror stories, with giant-sized firms being brought to their knees, is getting longer and longer. Businesses which are unable to generate enough turnover or don’t have a big enough cushion are filing for bankruptcy. Galeria Kaufhof is an example of this, with 80 of its 170 shops having been threatened with permanent closure since April.

If we turn to considering private households, an increasing number of major changes in consumer behaviour is becoming apparent every day. Many employees have been forced to partake in cost-saving measures and to accept short-time working agreements or reduced wages. To name just some key data, approximately 700,000 companies in Germany have registered for short-time work, with the number of unemployed increasing by 0.7 percentage points to reach 5.8 percent according to the Department for Employment. (As of April 2020)
This situation, combined with huge restrictions to daily life in which trips to the bakery or weekly visits to the restaurant have only become possible again very recently, has led some to make forecasts of a future that looks very dark indeed. After all, the chain of events is getting longer and more extreme every day, and we live in a globalised world.

All is not lost, however: with people only being able to travel abroad under strict conditions and the entire tourism industry being down, the behaviour of our entire society is changing. Many families are turning their attention to their own home, and are making their own four walls nicer instead of going away on a holiday. This means that house and garden products are in greater demand than ever before. Another example is the huge increase in orders for yoga mats for home use, people buying new sports shoes and the boom in drive-in cinemas because of the new coronavirus regulations. Forced and therefore predictable patterns of behaviour are emerging: after all, small-scale investments won’t come to a standstill in our consumer society, especially in Germany, and are more likely to be prevented only temporarily or delayed.

Things could change for bigger investments, however, with increased numbers of people deciding against investing in a new car for the moment or ordering a new fitted kitchen. The famous phrase “one man’s income is another one’s spending” is the basis for a cycle which can lead to considerable economic damage if the flow of money comes to a halt on a large scale. The German social welfare system has so far succeeded in cushioning this drastic slump, however, through subsidies for short-time work and economic stimulus programmes.

What is the situation for over-the-counter retail?

First of all, the economic impact is set to be huge, although things will only be really bad in certain areas, while other sectors may even benefit.
At the moment, there is a very big surplus of consumer goods, as shown by this year’s Easter, for example. As is the case every year, large numbers of businesses had prepared for increased sales over the Easter period, which came to nothing. As a result of the pandemic, huge quantities of items have gone unsold, making them into surplus items.
In addition to this, lots of seasonal goods have now become completely obsolete (holiday accessories, spring and summer collections, etc.). Despite these developments, there are very big opportunities for businesses which trade in clearance items and surplus goods to obtain cheap goods. As always, there are two sides to every coin.

The bottom line is that we are of the opinion that our society is sufficiently affluent to ensure that our subconscious consumption, especially surrounding smaller-scale investments and everyday spending habits, won’t change too much over the long term. What is clear, however, is the degree to which online retail has benefited from the shutdown in over-the-counter retail. Shares in Amazon are at an all-time high. According to some reports, Amazon is going to recruit another 175,000 new employees. (As of 17.04.2020) Walmart is reported to have hired 150,000 new employees at its branches and its fulfilment and distribution centres since March, 85% of whom are in temporary or part-time positions. Two impressive examples of the digital revolution which is advancing further forwards every day.

Over-the-counter retail must now face the turning point which has been predicted for several years, as millions of people are finding out how easy it is to order products online. This means that over-the-counter retailers must now identify the strengths that set their businesses apart from online retail and focus clearly on them to be able to stay in the market.
For example, almost nobody needs to visit a hardware shop to buy a triple adapter plug, which can be bought far more easily on websites like Amazon. Those wanting to buy a garden shed, however, will still want to be advised and to see it in the shop – and it is this trend that will determine developments over years to come.

The bottom line is that previously forgotten pursuits are gaining in popularity, sports and leisure products for home use becoming more important, goods for the house and garden are rocketing in popularity, and people are increasingly cooking at home rather than eating out. People will always want to spoil themselves, however, and it seems as though our system in Germany will be able to ensure that this situation continues on a “normal” basis, at least to a certain extent.
It is now up to us to apply our skills in understanding the needs of the customers whom we serve, and to make the right business decisions based on this understanding. In addition to this, new opportunities will emerge as long as we succeed in creating offers on the basis of the customer’s changing needs and new patterns of behaviour, for which they are willing to spend money.

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