Old Habits Die Hard, But Retailers Can No Longer Defer Their Omnichannel Strategies

Clive Potter, Global Head of Consumer Client Coverage, and Ishmael Mohamed, Sector Analyst for Consumer Client Coverage, at Standard Bank Group

Traditional retailers in South Africa can no longer defer their omnichannel sales strategies, with the COVID-19 pandemic having significantly accelerated the shift to online shopping.

Omnichannel retail refers to sales and consumer interactions that take place via any channel the customer chooses – whether in a physical store, or on a mobile app, social media, or website.

Due in part to the country’s strong ‘mall culture’, its relatively low population density, and logistics and connectivity challenges, South Africa’s ecommerce penetration rate remains well below those seen in more developed markets, such as the US, UK and China. This has allowed traditional retailers to largely defer their omnichannel strategies.

However, the pandemic led to a rapid change in consumer behaviours. Concerns around safety have prompted consumers to embrace ecommerce – even those who were previously reluctant to do so.

Now, more than ever, consumers are exploring, shopping and paying through digital channels.

In the US, more money was spent online in April and May this year than during the last 12 ‘cyber Mondays’ combined. In 2019, ecommerce accounted for 11% of total retail sales in the world’s largest economy. That figure jumped to 22% in April and May.

This trend was seen across all markets globally, with ecommerce sales growth of between 40% and over 100% in most markets. Unsurprisingly, IBM has reported that the pandemic has accelerated the shift to online by five years. This is an outstanding acceleration that is unlikely to slow down.

South Africa was no different, with major retailers recording strong growth across their ecommerce platforms, albeit off a low base. Online sales surged nearly 400% for some retailers.

Standard Bank’s transactional data shows that approximately 20% of all credit card spend between April and September 2020 took place online. Online spend at grocery retailers was up in excess of 80% and at general merchandise retailers it was up over 450% year on year in September.

While there was a marked deterioration in total consumer spending between March and August, some clear winners have emerged. Retailers that were better able to leverage ecommerce channels have been better placed to weather the COVID-19 storm.

In sharp contrast, footfall at shopping malls – which have long benefited from South Africa’s strong mall culture – declined dramatically. Super-regional centres have been the hardest hit, with consumers opting for quicker and quieter trips to neighborhood centres.

Recent data from SAPOA (South African Properties Owners Association) shows that trading densities at super-regional malls fell as much as 90% year on year in April. On the other hand, trading densities at neighbourhood centres have only declined by around half of that.

These trends – the shift to online, with physical retail under pressure – are not new, but have unquestionably been accelerated by the pandemic.

While ecommerce’s share of total retail in South Africa is estimated to be between 2% and 3%, many experts now believe that the country could begin to resemble other markets, such as the US and China, where ecommerce penetration is at around 20%.

But there are several structural hurdles that will limit the penetration of ecommerce, in our opinion. These include logistics and infrastructure challenges, as well as South Africa’s lower population density.

Another factor to consider is how quickly retailers can build their capabilities to serve online customers at scale.

Will old habits die hard?

Google mobility data suggests that old habits might indeed die hard, as footfall in retail and recreation centres has returned to near pre-pandemic levels. This is corroborated by mall operators, who report improved trading densities – although concerns remain around entertainment and dining areas.

Surveys suggest that millennials and ‘Gen Z’ consumers are likely to embrace ecommerce into the future, although older generations may revert to physical retail.

Globally, the ‘death of the shopping mall’ narrative has been misplaced and many stores have been redesigned – either to offer a unique destination experience or as part of a wider omnichannel strategy.

Targeting enduring trends

Supported by urbanisation, mall owners in South Africa have invested heavily in their assets in recent years to make the shopping experience more appealing, and it is reasonable to expect that malls will revert to some level of normality as people return to the office.

However, many employees will continue to work from home, and there is anecdotal evidence of urbanisation reversing somewhat thanks to remote work. At the same time, the economic toll of the COVID-19 crisis will weigh on consumer spending, and this will impact all retailers.

In this context, retailers that identify and plan for enduring trends will be best placed to win as habits change. Many traditional retailers will need to bring forward the implementation of their omnichannel strategies as e-commerce adoption accelerates on the back of Covid-19.

This will involve investments in new ways of interacting with consumers, and in enhanced logistics capabilities as direct-to-consumer sales gain traction. To ensure this is a success, new competencies will be required.

Ultimately, consumers will benefit from having more choice and convenience, or perhaps the luxury of choosing which habits will never “die”.