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November 12, 2020

How retailers are fending off Amazon this Christmas

The prospect of a Christmas lockdown looms over much of the northern hemisphere. Retailers are scrambling to prepare for a digital Christmas.

By Laurie Clarke

The prospect of a Christmas lockdown looms over much of the northern hemisphere. For retailers, the most profitable time of the year hangs in the balance, while Amazon circles above. Will the patter of footfall become a clatter of clicks? Brands are scrambling to prepare for a digital Christmas.

retailers christmas lockdown

The way it was. Customers shop at a mall on 1 December 2015 in Berlin, Germany. (Photo by Adam Berry/Getty Images)

The coronavirus pandemic has hit the retail industry hard. In the UK a national lockdown in March saw non-essential shops closed for two-and-a-half months. The Office for National Statistics (ONS) found the amount of goods sold plunge by 18.1% in April – a record decrease. In August, when shops had largely reopened in the UK, footfall in non-food stores was still down 34.8% on the previous year, according to the British Retail Consortium (BRC). 

This contrasts with an increase in online sales during the same period. According to the ONS, online retail spending rose from 20% to almost 30% of the total consumer spend in July. For the three month period June-August, online sales growth was up almost 50% year-on-year.

However, a winter lockdown holds far more destructive potential than the first. According to the BRC, 70% of Christmas shopping is generally done in person. November alone typically counts £32bn in sales, most of which is spent in stores. That proportion will tumble dramatically this year.  

The cost of Christmas in lockdown

The coronavirus pandemic is already affecting seasonal shopping. The Christmas shopping profile is typically divided between the “preppers” who start shopping early and the “last-minuters”, who account for a late swell in the weeks just before the big day itself. This year, that profile is expected to shift earlier and flatten out. 

BRC research shows that 26% of people said that they began Christmas shopping in September. A period that charted the strongest month for sales since 2009, and although the figures aren’t released yet, director of insight at BRC Kyle Monk, says that October was similarly buoyant. Amazon CEO Jeff Bezos also said people were already shopping for Christmas in September – one reason the company’s profit nearly tripled to $6.3bn in the third quarter.

In an increasingly digital world, Amazon poses an existential threat to high street and online retailers. By June, the trillion-dollar company doubled its profits during the pandemic. Its third-quarter report showed that revenue soared 37% to a record $96.2bn. To meet intense demand, the company announced plans to hire 7,000 permanent staff and 20,000 temporary workers in the UK alone in preparation for the festive period, as well as building two new fulfilment centres. 

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Amazon is well-placed for a digital Christmas – it’s been delivering them for years. But retailers that typically sell more in stores are being forced to get creative. “The problem that gets retailers is that it forces even more demand on an online supply chain that was never built to cope with this volume over a sustained period of time,” says Tom Enright, VP in Supply Chain Research for the retail industry at Gartner.

“Online capacity is finite in a sense,” says Monk. “You can only ship so many boxes, only so many trucks can sit in the depot. So the cubic capacity issue is that it requires building more warehouse housing, which just isn’t available at the moment.” 

Empty stores, known as ‘dark stores’, are a key part of high street retailers’ arsenal during lockdown. Stores might be closed to customers, but companies are repurposing them to help meet gaps in the online business. 

“The technological challenge… is how do you surface that stock in a meaningful way?” says Monk, noting that historically, given that stock rooms in physical stores are not well inventoried, it’s been “far easier to find a white shirt that was 200 miles away in a warehouse in the middle of nowhere, versus one that was 20m down the road in a local store”. 

But Monk points out that companies have now had six months “to optimise those storerooms and surface that content online”. Using empty stores in this way can take pressure off distribution networks by support local deliveries.

It can also help with one of the most effective and simple solutions to pandemic shopping – curbside collection. In the UK, DIY retailer B&Q was especially effective at adopting this strategy, quickly transforming car parks into pick-up points for customers, says Monk. In the US, there has been far more innovation on this front by malls, he says. Multi-store pick-up collections let customers pick up from a range of outlets at once. 

Premium chocolate retailer Hotel Chocolat was another company that adapted quickly to lockdown, says Monk. Typically nestled on expensive high streets between designer brands, the company set up an out of town retail park location during the pandemic. “It doesn’t really sit with their brand messaging, but it instantly became their highest turnover store,” he explains.

Avon’s digital response to lockdown

Every retailer, whatever its usual business model, has had to adapt. Personal care and beauty retailer Avon typically relies on its network of five million representatives to sell its products directly to their contacts in person. At the dawn of the pandemic, 95% of the company’s business still operated in this way. “That became almost impossible during lockdown,” says chief information and digital officer at Avon International, Nick Burton. 

For the past couple of years, the company has built up its website and e-commerce channels – where online customers who have had no face-to-face contact with a rep can still buy products as normal. Avon has adapted the website for its business model too, allowing reps to customise their own personal “store” within it. Here, reps can choose to personalise the product ranges, showcasing items they endorse. Reps can direct customers to their personal “stores”, and collect the commission.

“The fact that we have that capability was obviously key to the lockdown and is going to be key to Christmas,” says Burton. He adds that lockdown “probably moved us forward two to three years in terms of our digitalisation journey – that sort of shift happened within a few months”. 

The company has also helped boost reps’ reach on social media. Physical networks are jeopardised by lockdown, and digital networks are now far more important. He says that Avon created an app which simplifies the process of reps sharing product recommendations and promotions on social media platforms. 

Retailer M&S has also noted 1.5 million new downloads of its app since the relaunch of its Sparks loyalty scheme in July.  

Lockdowns have not only disrupted retail outlets: the need for social distancing within warehouses and fulfilment centres has also required technological innovation. This year, online grocery retailer Ocado purchased two companies to boost its “robotic manipulation capabilities”: San Francisco-based Kindred Systems for $262m and Las Vegas-based robotic arm designer Haddington Dynamics for $25m.

Already at the forefront of warehouse optimisation, the investment will see the firm slice a further annual £7m in “picking costs” (i.e. human staff) off its overheads. Ocado’s market value has doubled this year to more than £19bn, making it one of the victors of the pandemic. 

Other retailers have also ramped up reliance on technology during this period. In preparation for its “most digital Christmas ever”, M&S set up two new “Autobagger” machines, nicknamed Percy and Penny, at one of its sites. The alliterative duo can pack 2,000 items every hour and are powered by 100% renewable energy.

Enright says another thing companies should do to weather the pandemic is collaborate. “Virtually every retailer has got the same kind of processes and steps through their supply chain – they’re moving boxes through warehouses and stores and vehicles,” says Enright. Despite this, they tend to operate independently of one another. 

Although some of these companies are competitors, many aren’t. “There’s a lot of companies that have spare capacity at different points in time in the year, in warehousing, stores, and transportation,” says Enright. 

Some companies have teamed up. Waitrose ended its partnership with Ocado this year, starting a new one with M&S in September. It represents M&S’s first significant foray into home delivery for its food and groceries, alongside clothes and homeware. M&S spent £750m to buy a 50% stake of Ocado’s retail arm. Analysts say it could be effective in translating M&S’s physical shoppers into digital ones. 

To better compete with Amazon, Walmart partnered with Shopify this year. The 1,200 companies that use Shopify’s technology to sell online will be able to offer products on Walmart’s US marketplace by the end of the year. 

Early on in the pandemic, the UK government relaxed some rules around competition meaning that supermarkets could trade delivery slots. Enright points out that the pandemic isn’t the only driver for this kind of innovation. It’s also a question of sustainability – meaning customers could be receptive to the concept beyond the pandemic. Retailers pooling resources and drawing on shared, centralised infrastructure could be something we see more of.  

Despite companies’ best efforts, a winter lockdown undeniably holds “a very deep potential downside” for retailers, says Monk. “Christmas is the quarter that gets people usually out of the red and into the black. There is a risk that if those sales are lost, and they don’t happen before Christmas, they just won’t happen at all.” 

Retailers without a reputation for online sales are likely to suffer more. Enright says he believes at present this shouldn’t be as much of an issue. “But as things get closer… into the second or third week of December, I do think that consumers may say, ‘Which is the option that’s got the least risk associated with it?’.”

Enright says that “the fear of ordering too late and not receiving products on time” could drive more people towards Amazon as Christmas inches nearer. 

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