How retailers can meet new customer expectations

The savviest retailers have spent years creating omnichannel strategies that blend physical and online channels to engage consumers in the
channel of their choosing. COVID-19’s impact on customer behavior has reshuffled the deck. In-person interaction has dramatically changed
or been supplanted by digital engagement, and early indications suggest that much of this shift may endure in the long term. E-commerce sales in apparel, department stores, and beauty products have increased by nearly ten percentage points, on average, since the onset of the pandemic. In grocery, e-commerce penetration, which has risen from 2 to 3 percent before the crisis to 8 to 10 percent during its peak, is expected to settle at twice the previous “normal” level, 5 to 7 percent, by year’s end.

Looking forward, we believe retailers should focus on five actions to build more resilience in their customer experience and to emerge even stronger in the recovery.

1. Double down on digital

COVID-19 has dramatically and suddenly shifted more customer traffic to digital channels. Consider that online sales, which increased at a 14 percent compound annual growth rate (CAGR) over the past four years, grew by 25 percent in a two-week period in March 2020—led by grocery purchases.The profound impact of the pandemic on consumer shopping habits has increased the urgency for retailers to expand their digital presence quickly.

Dial up the acquisition engine and drive traffic to digital assets. Retailers can partially offset diminished foot traffic in physical stores by boosting investments in online acquisition. This effort will require them to reallocate funds from offline media to digital channels. With more investment in online marketing, winners are adapting their strategies to account for shifts in consumer behavior. These adaptations include paying closer attention to paid search (for example, looking at not just keyword performance but also consumer intent) and improving the “shoppability” of social channels (for example, through featured products and clickable content on Instagram).

Launch or diversify delivery mechanisms. COVID-19 has heightened the importance of safe delivery modes, including curbside pickup and aggregator delivery: around 22 percent of US consumers are using delivery services more than they were before the crisis. Retailers have scrambled to launch services to meet this demand. One retailer that aligned speed and consumer expectations was Panera. In just two weeks, the company conceived, developed, and launched a grocery-delivery service that enables customers to order entrees from the core business and add groceries to a unified online cart. And when the company’s cafes began to close in response to stay- at-home orders, Panera moved quickly to launch curbside ordering and pickup within two weeks.

Retailers are also reassessing store formats to support third-party delivery services. One grocer is creating “speed zones” near the front of the store and stocking them with the most popular items to enable delivery companies to accelerate pick, pack, and delivery of orders.

Partner across retail to enhance convenience. Many retailers have explored strategic partnerships to enhance convenience for customers and boost sales. These ecosystems can be quite powerful, allowing retailers to gain access to new capabilities and extend their brand reach to new customers in new places. Footwear retailer DSW, for example, has partnered with grocery chain Hy-Vee to offer products through the grocer’s extensive network of physical locations. Such arrangements give retailers access to new shopping occasions and new customers, and can extend one retailer’s brand halo to its partners.

3. Transform store operations and win on ‘SafeX’

The pandemic has hobbled traditional store operations, with physical distancing and a new preference for self-service altering the formula for customer experience. The priority for many customers today is to get in and out of a store as quickly and safely as possible—if they choose to go in at all (Exhibit 4). Providing safe(r) experiences, SafeX, will be critical to alleviating customers’ anxieties and enabling a return to in-person interactions. In China, for example, 65 percent of consumers indicated that they expect to care more about product safety after COVID-19 than prior to COVID-19.8 Retailers must implement policies and processes to enable safe distances, sanitize surfaces and products, and communicate proactively, clearly, and empathetically.

Beyond managing the SafeX considerations
that are currently top of mind, retailers need to dramatically reduce costs and improve operational efficiency in their stores to offset revenues that are increasingly shifting to online channels.9 Done properly, this effort will help companies enhance customer experience and safety while trimming operating expenses. 

Retailers can start by establishing a set of service and experience elements that are nonnegotiable. New safety requirements for both customers and associates will be a core part of these nonnegotiables and could include no-contact payment methods or cleaning and employee- hygiene processes. The workforce will need to be redirected from less-relevant activities to priority areas. Many of the opportunities can be captured quickly by changing store hours, improving scheduling, and altering the mix of full- and part-time employees. Some retailers have started to move certain elements of the experience outside of the store (for example, returns in the parking lot), given limits on customers per square foot in stores. A structured effort focused on addressing new operational needs and implementing leaner practices can yield labor efficiencies of 5 to 15 percent.

For retailers that have closed stores during the pandemic, the reopening process offers an opportunity to establish new models. First and foremost, physical-distancing requirements will likely constrain the number of employees who can be in stores at the same time. These limitations could force retailers to prioritize activities such as opening and closing processes, checkout, restocking, and e-commerce fulfillment. Store reopenings will also offer retailers an opportunity to fundamentally change how core processes are carried out and implement best practices.

In addition, as retailers reformulate their customer experience, they should bring customers into the design process to share feedback as ideas develop, ensure new offerings are meeting actual needs, and de-risk initiatives along the way. Qualitative feedback can be gathered through online tools or in-person concept sprints so ideas can be assessed and iteratively improved.

By adopting agile practices alongside the generation of real-time consumer insights, retailers can more quickly recalibrate their business model and offerings to meet consumer expectations.11 Retailers need to raise their metabolic rate—that is, the speed at which they process information and develop new offerings. The speed at which some retailers have been able to stand up new omnichannel models (for example, launching a new delivery business in three weeks) shows what a truly agile operating model can unleash. A rapid approach to tests and trials can enable retailers to launch offerings at scale more quickly and avoid losing share in the face of shifting consumer behavior. Senior leaders must empower junior colleagues to make decisions rapidly.

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Retailers have much ground to cover, and time is of the essence. They should start by establishing a North Star to guide their aspirations for customer experience, with clear objectives across each of the five actions described above. A cross-functional team should take the lead in assessing the starting point, quickly developing the path forward, and driving implementation.

The next normal is still taking shape, and customer expectations will continue to shift in response. Retailers that focus on customer experience and respond with agility and innovation in their omnichannel experience will fare better and strengthen their ties to customers.