Executive Summary

Navigating a new norm

Most state governments have mandated that their residents quarantine in an effort to curb the spread of COVID-19. While these policies have been well-intended to keep citizens safe, they have not been without consequence. As it pertains to retail, every sector has been impacted differently. Nearly 25% of retailers and restaurants tracked by the S&P are rated with a 50% chance of defaulting on their debts1. In contrast, the S&P 500’s Retail-Wholesale sector gained 18% over the past month2. As reigns of restriction begin to loosen in the coming months, it won’t mean an immediate panacea for all retailers who are allowed to reopen. Most will have to adapt strategies to overcome phased re-openings with occupancy limits, mass avoidance of public places, and consumer economic strife for months, if not years, to come.

Online sales accounted for less than 20% of total retail sales in 2019(3). Online return rates average 30%, while in-store purchases are returned only 10% of the time. With more sales being driven to digital channels in this recent environment, the penetration of eCommerce is sure to rise and with it, a wave of returns will flood retailers who are already struggling to navigate this rapidly changing state of affairs.

What does it all mean?

For better or worse, one outcome is clear: Retail will never be the same. This study aims to explore COVID-19’s immediate business impact, through an industry-focused lens, and offer strategies for retailers to thrive in a post-pandemic world.

BUSINESS IMPACT

Some retailers are surviving

Lifeless malls, canceled orders, furloughed employees, defaulted debt payments and looming bankruptcies— just some debris along the path of destruction that Coronavirus will leave behind. Sure, some retailers were already in trouble with 2,187 store closures announced before the pandemic began, but according to estimates, an additional 15,000 locations could shut down this year(4).

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• JCPenney, Sears and Kmart – These retailers were already exploring restructuring options as they fought to save the business. As a result of the current crisis, the parent company confirmed it skipped an interest payment on its debt, and it may be filing for bankruptcy in the coming weeks.
• Neiman Marcus – Neiman Marcus, which includes Bergdorf Goodman stores, furloughed most of its 14,000 employees. The chain was already planning for bankruptcy.
• David’s Bridal – Couples worldwide have been forced to cancel or delay their big days. Additionally, many have less money to spend once they do reschedule. That has led David’s Bridal to reduce its expenses, capital expenditures and inventory commitments.
• Nordstrom – Widely known as the most stable department store, Nordstrom has canceled several orders, executives are forgoing base salaries, and reportedly some vendors are not getting paid.

Some retail giants have been forced to make tough decisions Many retailers have worked tirelessly to redirect sales from stores to apps and websites, to accommodate customers by offering curbside pick-up. Retailers who had been lagging in their digital innovation have been forced to evolve as the pandemic accelerates the need for multi-channel purchasing opportunities.

While others are thriving

Home improvement stores, supermarkets and pharmacies that have received the coveted designation as “essential” are open and thriving. These critical brick-and-mortar stores are capitalizing on a moment in time when customers are home and in need of their goods and services.

Consumer demand for a diverse range of products has contributed to this impressive growth, however these retailers also deserve credit for responding to this crisis with a strong eCommerce presence, secure supply chain, meaningful marketing content, and enhanced delivery services

• Amazon – Amazon announced that plans to hire 175,000 employees in fulfillment and delivery. That’s an increase of 75,000 from its initial pledge in March.
• Instacart – This little-known grocery delivery service acquired a 300% increase in demand year-over-year, sparking a pledge to hire 300,000 full-service-shopper contract workers over the next three months.
• Walmart – Sparked by an unprecedented demand online and in stores, Walmart announced plans to hire 150,000 new supply-chain and retail associates. In fact, Walmart is so eager to hire, the company is giving verbal offers by phone following online assessments only.
• Lowe’s – A critical home hardware chain, Lowe’s is hiring 30,000 employees to meet the rising demand created by the coronavirus. Along with Lowe’s, Home Depot and Ace Hardware are experiencing similar growth.

These companies have demonstrated that they understand the value of looking at the scope of their business holistically. They continue to focus on their customers and invest in partnerships that can help them tackle both sides of the supply chain. These partners provide retailers a way to offload returns and seasonal goods that missed their sales window (due to COVID-19 related closures) and allow for the opportunity to utilize their finite amount of warehouse space strategically. By clearing out these unwanted items, they can make room for valuable, in-demand essentials and maintain a stable flow.

WHAT HAPPENS NEXT?

The state of returns

A recent Coresight survey suggests that this digital evolution may be a lasting one, as 4 in 10 people expect to switch from stores to eCommerce for retail purchases (10). With eCommerce return rates at 30%, a wave of returns will flood the supply chains of retailers across America.

• 2019 – Online sales accounted for 14% of total retail sales (3)
• 2020 – Some projections estimate that eCommerce sales will soar to +20% of TRS as a result of COVID-19 (3)

The growing number of eCommerce purchases coupled with the reopening of returns counters across the country, means that retailers will need to prepare for an onslaught of returns. Based on goTRG’s preliminary data, we project that returns numbers will be 4X the volume of Black Friday. Beyond the traditional challenges that returns present to retailers, COVID-19 will add additional complexities to the process, further illustrating the need to partner with companies who are expert at managing returns and can pivot quickly to address this new set of issues.

Supply chain

As States allow brick and mortar stores to reopen their doors, and returns counters begin to accept items once again, the reverse supply chain will be overflowing with returned and unwanted products. Beyond normal stressors that excessive returns put on a retailer’s supply chain infrastructure, COVID-19-related purchases will create additional complexities and require stores to reconsider their usual item dispositions. Retailers will be forced to accept out-of-season items, as a result of being closed, while also having to deal with a surplus of seasonal merchandise that didn’t get sold. These unprecedented circumstances leave retailers with no obvious disposition path, and many will be forced to liquidate this merchandise for pennies on the dollar.

Additionally, unexpected items such as sewing machines, have been flying off shelves as DIYers fashion face masks to wear and to sell. Based on sales data that goTRG collects from our retail clients, sewing machine sales were up 300% in March and April. Inevitably, more sales of this niche product will lead to more returns. While the process for refurbishing common products like electronics is well-documented, the restoration requirements for sewing machines (and other items that have seen their 15-minutes of fame during this pandemic) is likely an unfamiliar one. Smart retailers will need to utilize an intelligent strategy to help manage seasonal and unusual returns from all categories in order to make the smartest disposition decisions and recover as much profit as possible.

reCommerce

In a period of mass unemployment, people are looking for deals. Based on that goTRG’s data suggests  secondary ecommerce marketplaces may play a greater role in retail in the post COVID-19 era. For consumers looking to purchase discounted items, or out-of-work professionals in need of new revenue streams, secondary marketplaces provide an outlet to buy or sell.

Concerns of sanitization and quality are paramount for both buyers and sellers, as the previous environment and ownership of these items are unknown. Extra precautions will likely need to be taken, knowing that the Coronavirus germs can live on surfaces for several days. It is imperative to understand the proper sanitization required for each category type, from steaming to sterilizing, and to take a disciplined approach for documenting the process in order to boost consumer confidence.

As secondary marketplaces continue to gain popularity, it will require guidance, oversight and regulation by the government and other established associations in order to monitor the quality of refurbishment. With proper oversight, secondary marketplaces offer a lucrative opportunity for retailers who can find partners to divert returns to these channels, instead of trying to manage the headache on their own.

Customer Loyalty

COVID-19-related returns will certainly leave lasting impact on the retail sector. One way retailers can offset these losses is to double down on their customer engagement efforts, as 95% of shoppers say a positive returns experience builds loyalty (12). To accommodate customers who have been sheltering in place, many retailers have adjusted return windows to ease customers concerns about getting their money back. Many retailers have also enhanced communications efforts to help adjust expectations for problems like the length of processing refunds, or time in transit, as they attempt to function with limited resources and furloughed staff. For the best omnichannel communicators, this pandemic will likely be an opportunity for them to forge stronger bonds with their existing customers and attract new evangelists to their brand who are seeking transparency and authenticity.

Conclusion

Returns has been a growing industry for the past decade. We are already seeing the impact of COVID-19 on retailers across the globe. The result will propel innovation in returns management and loyalty efforts.
A comprehensive returns strategy that addresses the challenges posed by COVID-19 will be paramount in a year when retailers must fight for relevance. Brand power is increasingly moving toward companies that can a manage the customer experience with intelligent marketing tools, reliable supply chains, and unmatched customer connection. Many companies will struggle to survive this slow slog, but those who can pivot in this new retail climate will be part of the next evolution in the industry.

Appendix:

1 “Coronavirus Finishes the Retail Reckoning That Amazon Started,” WSJ, 2020
2 “Lowe’s (LOW) Gains As Market Dips: What You Should Know,” NASDAQ, 2020
3 “US eCommerce sales grow 14.9% in 2019,” Digital Commerce 360, 2020
4 “15K stores could permanently close in 2020, Coresight says,” Retail Dive, 2020.
5 “COVID-19 Impact,” U.S. Department of Labor, 2020
6 “Can these 10 retailers avoid permanent store closings amid coronavirus pandemic?,” USA Today, 2020.
7 “Pretty Catastrophic’ Month for Retailers, and Now a Race to Survive,” NY Times, 2020.
8 “Walmart plans to hire 50,000 additional employees as demand continues during the pandemic,” CNBC, 2020
9 “RBC Capital Markets,” 2020
10 “Coronavirus Insights: US Survey Update—Shoppers’ Post-Lockdown Expectations Sound Alarm Bells for Retail,” Coresight Research, 2020
11 “Coronavirus lives for hours in air particles and days on surfaces, new US study shows,”CNBC, 2020
12 “Making Returns a Competitive Advantage,” Narvar, 2017

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