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COVID-19: Is It the Endgame for Brick and Mortar Retailers?

COVID-19: Is It the Endgame for Brick and Mortar Retailers?
July 30, 2020


COVID-19 is a one-of-a-kind phenomenon in the past 100 years, as far as the human race is concerned. None of us dreamt of such a disease in our lifetime or its impact on a global scale. The disease has fundamentally changed our lifestyle in a very short period. There is little doubt the pain and tragedy the Covid-19 pandemic has brought to the world, however as a technologist I am also amazed at the acceleration which it has brought to the evolution and adoption of change. This could be an excellent opportunity for the retail industry, which is witnessing some fundamental changes in its operations. In such circumstances, the story around brick and mortar vs. multichannel retail becomes relevant.

The Story

In the early 2000s, the world thought that using digital channels to provide services will be the new norm. Private equities and investors poured in cash, expecting the consumers to switch from physical to digital as soon as possible. This led to the dot-com bubble, which soon burst, and several firms fell victim. What went wrong is the pace of change. Consumers were not ready to make the switch at that speed. The switch needed to happen at an evolutionary pace and is still underway. Now, COVID-19 has disrupted this digital evolution, and I believe it will naturally accelerate the change. Let's take a more in-depth look at some of the segments in the retail industry and how COVID-19 has impacted them.


Online grocery sales grew 33% in 2020 as shopping habits shift permanently, consumers tell Mintel - April 2020

This segment had lower single-digit growth for a long time, especially for the UK-based large retailers. The large players invested heavily in technology to offer slotted delivery at home, pick locations on the way to and from work, click and collect retail, and mobile applications, among others. All these investments were expensive as digitization had to extensively communicate to the back-end legacy, which was there for decades. It was a tough fight for these giants as unlike the brick and mortar stores, pure-play online grocers were born in the new digital age and had shiny technology.

As these technology investments were underway, the German discounters disrupted the UK market with simple, cheap, and high-quality merchandise, emerging as major players in the core retail sector. The large grocers struggled to gain market share or increase profits. For them, COVID-19 has been an enormous opportunity. For the first time, a large chunk of the population switched to their online model of operations. As restaurants, pubs, and hospitality groups closed operations, the grocers became the source of spending from home. The critical point is the accelerated switch to online retail from brick and mortar.

Fashion Retailers and Department Stores:

In the UK during Covid-19, these shops were classified as non-essential and were only allowed to function online. Most of the brick and mortar retailers in this segment were already struggling to compete with the pure-play online shops. On top of this, COVID-19 demanded an indefinite shut down of stores. The future of smaller as well as more significant players is under question. Will this be an end to the brick and mortar retail sector? Probably not!

Some of the retailers, even the large ones, invoked the Company Voluntary Arrangement (CVA) process that avoided rental payments to landlords. A great lifeline at this time of need. Some of the large retailers such as Next, shut their entire operations including online, for some time, leaving consumers with very limited choice. While other retailers, like Debenhams, continued their online operations seizing the opportunity presented and recognising the need consumers would have. People who never bought online were forced to place orders as three months is quite a long time under lockdown without any new clothes, especially for kids. The much-awaited switch to online accelerated as a result of Covid-19.

Other Specialty Retailers/Luxury:

If you walk across Oxford Street in London or Champs-Élysées in Paris, you will not fail to notice the luxury retailers and designer showrooms that relied on high street stores for a very long time. Per the nature of the business, the segment demanded physical interaction to create the exclusivity they offered. Except for some of the more significant players like Burberry, the individual players relied mainly on store visits for exclusivity and the luxury experience. Selling products via Amazon would commoditize them and probably not justify their segment. However, does this opinion still hold true? Has COVID-19 forced these players to think of a luxury marketplace that offers high-end experience via digital channels? It is undoubtedly a thought that should be considered. Again, this thought has to be attributed to COVID-19.

The Future for Retailers and Technologists

I can see that the above changes in consumer behavior and the acceleration in changes due to COVID-19 will bring further investments to digital channels. In my opinion, some of these are:

  1. Microservices and Integration

    The brick and mortar stores are full of legacy. While some of the larger players made the switch ten years ago, most of them retained and developed siloed websites/mobile applications that may not scale as fast as the pure-play retailers. Microservices and integration to the front office will be the solution that will connect the legacy to the shiny front-end mobile applications. This will help the traditional retailers scale online channels on par with the pure-play. The speed-to-market factor is going to increase significantly in new capabilities. If some of the retailers were holding their investment for the right moment, the moment has arrived.

  2. E-Commerce Transformation

    For a typical brick and mortar retailer, online sources contribute around 20% of the overall revenue. This trend has not changed much, except for some of the early movers like Argos. Argos fundamentally transformed their e-commerce capability from the core and changed delivery management, search, and infrastructure to compete against pure-plays. Ten years ago, this was expected to be the trend among all the large players, but investments had surprisingly been slow. Post-COVID-19, e-commerce transformation/investment is going to increase significantly. We are already witnessing this from those wishing to grab the first-mover advantage. This trend is also seeing backward integration with manufacturers and consumer product organizations.

  3. Organizational Change

    Are the retailers ready to adapt to organizational change? Do these players know how to use social media to the advantage of their organizations? Do they have the capacity to develop technological capabilities at the pace to compete with pure-plays? At HCL, we are one of the key players in transforming traditional project-based organizations to product-based organizations.

All the online players follow a product-centric approach, i.e., the search function of a retail website is run by a bunch of full-stack technology experts who develop and support the feature. They are product experts who fully understand the business outcome and the technology to drive their product group growth. Now, traditional retail players are adopting this organizational change to improve the speed of delivery, develop a business-oriented outlook, and quality of the product developed. COVID-19 will undoubtedly accelerate this organizational change.

Finally, COVID-19 may have caused an economic disruption for a short period, but the retailers that approach this phase as an opportunity are only going to benefit from the change in consumer behavior toward technology and the adoption of services offered via digital channels.