5 Predictions for Canadian Retail in 2021.

Despite the recent arrival of the vaccine for the COVID-19 pandemic, HRC Retail Advisory in a report expects the first half of 2021 to be a continuation of 2020’s acceleration toward digital and omni-channel, as most shoppers remain at home.

“Despite that, we anticipate pent-up demand to be unleashed in late 2021, bringing relief to some of the retail sectors that have struggled since the industry was thrown into turmoil last spring,” said Antony Karabus and Farla Efros, CEO and President respectively of Toronto and Chicago-based strategic advisory firm HRC Retail Advisory.

Karabus said, “2020 was a year of mass chaos, which descended upon retailers with virtually zero warning. This brought significant opportunity for those in all facets of home, home improvement, backyard, pet, food, exercise, and other sectors that previously had only experienced modest growth rates. Retailers in these sectors that invested in robust store fulfillment of digital orders and digital capabilities ended 2020 with decent results, despite the pandemic.”

“2021 is likely to be a good year for retail, with increased consumer spending in the back half of the year due to pent-up demand in categories that suffered the biggest declines in 2020. Spending will also likely see an increase as many consumers will have additional savings, due to a lack of spending on discretionary items in 2020.”

Here are the top five predictions for retail in 2021 from the team at HRC Retail Advisory:

Retail Will Experience Two Different Calendar Halves

While the first half of 2021 will see a continuation of 2020’s spending patterns on home and backyard categories, exercise equipment, food, and comfort and active apparel, we expect that the second half of 2021 will see the unleashing of pent-up demand for entertainment, eating out, travel, work and dressy apparel for special occasions, and other discretionary categories that have been hardest hit by the pandemic in 2020.

“Because the lockdowns are being driven to a large extent by the hospitals being overwhelmed across the country — as the higher risk populations get vaccinated, that slowly but surely will reduce pressure on the hospitals and their ICU’s,” said Karabus and Efros. “At some point they’re going to loosen the reins on lockdowns and an increasing percent of the population is going to be vaccinated.

“We’re assuming that gradually, starting in the second quarter, we’ll have less restrictions on society which means people will be able to shop in retail again the way they did in late 2020 with some restrictions. By the third quarter and the fourth quarter, especially by the fourth quarter, we believe that it will be a lot closer to business as usual and normal life.”

Karabus and Efros say that many sectors of retail have really suffered through the pandemic such as apparel, department stores, and luxury. Those will see the benefit of pent-up demand in the second half of 2021.

Digital Will Continue to Dominate as Consumers’ New Shopping Habits Are Reinforced

The shift from stores to e-commerce will continue to accelerate in 2021. The decline in store traffic will also continue, but begin to reverse by Q3 of 2021. Over the past year, digital and omni-channel grew to become 50 percent or more of some retailers’ sales, and the need to create and enhance these capabilities — whether it means investing in processes, tools, or talent — will remain a critical priority in 2021.

“Even though we see a slow and gradual return back to normal life, we believe that habits have been developed and people are now accustomed to shopping online,” said the HRC Advisory’s leaders. “Over the last 10 years, online has been incrementally growing year over year as a percentage of total retail sales. And it has had a massive acceleration because of the pandemic. We do not see the same upward acceleration but rather a continuation of the shift from physical stores to online but not at the accelerated pace we saw last year.”

Karabus and Efros added that omnichannel is going to be a more critical part as well of that online experience.

“A lot of people are down on retail. We’re not down on retail. We’re down on retail done poorly,” they said.

Retailers Will Need to Strategically Build on Their Category Strengths

By expanding into relevant, adjacent categories, retailers can increase share of consumers’ wallets. The success of pharmacy and dollar sectors’ expansion into food and consumables is a great example of capitalizing on traffic and consumer brand trust. Other potential opportunities for success include categories such as household cleaners and other replenishable categories that are considered “essential”.

“The epitome of who has done it really well is Walmart, Costco, Indigo and Canadian Tire. They sell a lot of adjacent categories and succeed at it based on the trust of the consumer in their brands,” said Karabus.

Additional Bankruptcies Are Likely in Discretionary Sectors That Have Suffered in 2020

Retailers with weak balance sheets and declining sales will remain at risk. As such, HRC expects that landlords may make additional acquisitions of troubled retailers to avoid loss of tenant income, as evidenced with their purchases of JCPenney, Forever 21, and Aeropostale.

“I don’t think it will accelerate but we think tons of small mom and pop retailers will go away because they don’t have the access to financing that the bigger, more sophisticated retailers have. But if you consider the bigger retailers that have filed for bankruptcy in the last 12 months – Aldo, Reitman’s, Laura, Le Chateau, Henry’s, MEC and a few others, at the end of the day, few of the CCAA filings were really surprising,” said Karabus and Efros.

“Many of the retailers that filed had not invested most effectively to transform their business to the right place given the new world. They used bankruptcy as an opportunity to close hundreds of stores that should have been closed earlier.”

The Store Role, Processes, and Customer Experience Must Be Redefined

Given the continued reduction in store traffic and growing customer expectations for more seamless in-store experiences, retailers must focus on improving the shopping experience. Doing so will help increase conversion rates and transaction value, and enable them to capitalize on their foot traffic. To effectively compete, retailers must find the right balance in their stores of serving walk-in traffic and fulfilling digital orders in stores.

“Retailers need to think about their business over the next five years and not over the next month and they need to say where is the consumer going and if the consumer is going to continue buying online at a greater rate year after year they need to ask themselves how they are going to service their consumer in the best possible way,” said the HRC leaders.

“You’ve got to find the right combination of closing stores where the mall doesn’t have a future, where the market doesn’t have a future, and keeping stores open while repurposing them as dual purposes where they serve the customer coming in the door and they also serve as micro fulfillment centres.”

Source Retail Insider. Click here to read a full story