Market Perspective

5 Reasons Why Retail Will Bounce Back in 2021

February 25, 2021
The C2FO Team

The economic fallout from COVID-19 had a devastating impact on a fragile retail market in 2020. Here are five ways retail can find its footing in 2021.

What a difference a year makes.

In early 2020, the retail industry was on a bit of a hot streak, fueled by a 4.1% holiday season boost over the previous year. The stock market was booming, consumer confidence was strong and there was reason to believe the industry could continue to expand through innovation and adapting to consumer tastes. 

Then, the pandemic happened. 

Retail took a tremendous hit last year, particularly during government-imposed lockdowns over the spring and early summer. That collapse was offset somewhat by a surprisingly strong holiday season, in which retail sales increased 8.3% over the same period in 2019. One example: Macy’s recently reported that holiday sales helped the department store chain to post its first profitable quarter in a year.  

Overall, though, 2020 was a rough year for many retailers that were already being challenged by the growing presence of e-commerce in everyone’s lives. While big-box brands like Walmart, Costco and Target generated increased revenues last year — largely due to sales of essential goods — more specialized and niche retailers suffered.  

Big-box everyday stores and e-commerce juggernaut Amazon will continue to thrive in today’s economy, said Matt Kerr, C2FO’s vice president for relationship management. “For everyone else, however, it’s a big question mark,” he said. 

How can retail bounce back from an ongoing pandemic, during which consumers have grown comfortable with — and even dependent upon — online shopping? 

Here are five keys to a possible rebound in 2021: 

1. An effective vaccine rollout

Put simply, a full recovery for traditional retailers cannot begin until some level of normalcy returns and consumers feel more comfortable going back into stores. 

The good news is that many public health experts are confident that late spring and summer will be much more like 2019 than 2020. People should be able to get out more, socialize with their friends and, hopefully, do some more shopping.

That prediction hinges on the success of the vaccine rollouts and the willingness of most Americans to be vaccinated. 

“I just think that vaccine distribution impacts specialty consumers so much because you’re not forced to go into those stores in terms of everyday goods,” Kerr said. “We’re probably to the middle of summer before people get back to their normal shopping patterns.”

Even if the public develops herd immunity to COVID-19 later this year, retailers should not expect consumers to fully return to old buying habits. Some retail brands were already struggling to engage customers before the pandemic, said Amanda Mathes, a managing director for C2FO who specializes in the retail industry.   

“For many retailers, it’s going to be about resetting and realigning to the new paradigm of retail,” she said. “It’s about defining the new normal, because the old normal is gone. It was already being challenged by large e-commerce players like Amazon long before COVID. What COVID did was step on the gas.” 

And e-commerce is only expected to grow in the coming years. A report by Grand View Research projects that e-commerce will expand by a compound annual growth rate of 14.7% between 2020 and 2027. 

2. Continued innovation 

Before 2020, retailers had made strides in leveraging technology to drive smarter growth and provide greater accessibility for consumers. Innovations like data-driven supply chains made retail verticals from apparel to grocery to luxury items much smarter in estimating supply and demand along their aisles.

However, the pandemic’s disruption to supply chains left many industries in a lurch. Retail was no exception. The early months of rising infection rates and government shutdowns were accompanied by empty store shelves, or ones filled with products that were out-of-season. For retailers to survive in the post-pandemic economy, continued investment in better and more precise inventory management will be a huge factor. 

The same goes for services like same-day grocery deliveries, curbside pick-up and, of course, e-commerce. This is because the value a customer places on their time and health, now more than ever, comes at a premium. As consumers have grown more comfortable ordering products from home, retailers must continue to invest in innovative ways to make remote shopping a more seamless experience. Consumers will no longer tolerate a clunky in-store or digital shopping experience — they’ll just move on to another retailer that can deliver what they want at the click of a button.   

E-commerce sites that are smartphone-friendly will continue to be a vital factor in 2021, especially for younger consumers. Research from Cowen shows that more than 63% of Americans ages 18 to 34 spend at least four hours a day on their phones. According to a report from Adobe, 37% of last year’s $10.8 billion in Cyber Monday transactions were conducted on mobile devices. 

Look for e-commerce and curbside pickup to continue to grow in 2021 as retailers must capitalize on a blend of digital and physical shopping.

3. Knowing customers better

For retailers to succeed at capturing consumers’ attention, they must become more adept at anticipating customers’ needs and wants. 

They’ll also need to be hyper-vigilant about what’s trending in a marketplace that is quite different from the one in 2019. For example Nordstrom, known for its massive stores and high-end retail experience, has shifted its focus to smaller format stores and its off-price Rack business to stay more consistent with today’s shopping patterns — when many people are working from home and no one needs an expensive dress for a social event. 

“If you go into Nordstrom, you can go to a kiosk and click on different looks to choose different outfits,” Mathes said. “Now those selections are things like ‘Sunday afternoon, work from home, lounge and relax.’ That’s a good example of how they are evolving with their target demographic.”

Once people start visiting stores in greater numbers, retailers will need to offer unparalleled service. Several brands already understand this. Best Buy and Amazon, for example, offer free, at-home consulting services to answer customer questions, help set up technology, and build a better understanding of their tastes and needs. Other retailers, like Nordstom, Costco and REI, have enacted return policies that are unlimited, removing hassles for consumers that change their minds on a product.

In the post-pandemic world, anything short of surprising and delighting customers with an in-store or online experience just won’t be enough, Mathes said. After all, you can always buy a sweater online from someone else. 

“I think the retailers that will come back the fastest are the ones that have the real relationships with the customers, and that it’s not just transactional,” she said.  

4. Sustainability

Much has been written about millennials and their shopping habits—and for good reason. In 2020, the full impact of millennials’ buying power was expected to peak at $1.4 trillion, according to a report from consulting firm Accenture.

One way these younger consumers are unique is that they prefer products and services that fit with their moral values and world views. Many millennials favor products and foods that are sustainable and less harmful to the environment, and retailers have picked up on this trend. In 2020, consumers were projected to spend an estimated $142 billion on sustainable fast-moving consumer goods — items like food and toiletries — up from $128 billion two years prior, according to Nielsen.

Jordan Novak, SVP of Market Innovation for C2FO, agrees that sustainable products are of growing importance for retail brands, as long as prices remain relatively close to similar, less eco-friendly products. 

“Consumers will always make their way back to rational behavior based on price, and I’d expect younger consumers to continue to prefer sustainable products as long as the prices are within reason,” he said.  

5.    Strategy over expansion 

The traditional mentality of opening as many brick-and-mortar storefronts as possible to meet consumer demands is now out the window for retail. This approach has led to some questionable decisions for many companies that chose poor locations or high rents in a short-sighted effort to drive more sales growth.

Expect retailers in 2021 to take a more measured, strategic approach to growth than in recent years. The amount of consumer data now available through online sales should enable companies to view shopping patterns and their store programs with greater depth. 

Grocers, for example, can use Instacart and other native mobile applications to analyze purchasing patterns and then correlate products that fit consumer preferences. Online advertising can follow consumers through all technology media, enabling retailers to use targeted marketing and incentives to drive more online orders. 

The pandemic and changes in consumer habits have forced many retailers to re-examine their physical footprints. In some cases, that means transforming low-performing stores into distribution centers to facilitate same-day deliveries to customers. Retail players like Walmart and Target have taken the lead in converting their retail spaces into mini distribution hubs. Other retail brands are expected to follow. 

The growth of e-commerce for many retailers should reduce the pressure to open and operate more physical locations, and allow those companies to think more strategically about how digital and brick-and-mortar can generate more sales and better branding. 

The Bottom Line 

More than anything, a recovering economy and a stronger job market will fuel a higher rate of consumer spending in 2021. At the same time, retailers are using technology to become savvier about supply chains and logistics, eliminating cost and complexity wherever they can. If you believe that most retailers are poised to bounce back in 2021, how do you, as a wholesale supplier, prepare for increased demand from your retail customers?

One way is to ensure that your company has the working capital necessary to effectively manage your inventory, serve your customers and facilitate growth. An early payment program like C2FO is an effective tool for rapidly building more cash flow and reducing the need to borrow more money from your line of credit.

Currently, more than 70% of receivables for US retailers are on the C2FO early payment platform. It’s a quick, simple way to build more capital for your business when you need it, at discounts that you choose.

To learn more about early payment with C2FO, visit https://www.c2fo.com/amer/us/en-us/for-vendors

Want to take control of your cash flow?

Early payment through C2FO can help.

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