For Retailers, Covid a Study in Evolution

Colorful butterfly with makeup brush as a body on blue background.

The peppered moth is a classic example of rapid evolutionary change. In the span of a human lifetime, these moths adapted their coloring to survive, evolving from white to deep grey. The change was essential to the insect’s survival, because it allowed it to blend in with surfaces that had become begrimed with coal during England’s industrial revolution.

Much like the peppered moth, retailers today are rapidly evolving in a struggle for survival, as Covid transforms the way they engage with customers. Since February there’s been a drastic decline in physical retail and a migration to digital-first consumption, with shoppers now adopting contactless payments, curb side pickups and QR code check ins. In the rush to digital commerce, retailers are trying to keep from becoming irrelevant. Unlike the peppered moth, they’ve had months, not decades, to evolve.

Will these adaptations be temporary, or will their impact be longer lasting? Jean-André Rougeot, chief executive of Sephora Americas, was recently quoted in the NY Times: “There’s a whole group of consumers that literally discovered e-commerce during this period. These people, because of Covid, started to do that, and I don’t think you can put the genie back in the bottle.” If he’s under no illusions on the impact Covid has on business, what does that mean for Sephora, a leading cosmetics retailer that has long depended on its in-store experience to drive its brand?

David Blaha, former executive with American Express and now head of the Blaha Group sees the shift in customer behavior having long-term impact. “Overall spending is down in many sectors, particularly travel, hospitality, etc. But in other sectors, spend is simply shifting from one channel to another. Retail is not dead, it’s evolving, and that means payments, and the automation that needs to support these electronic payments, is also changing rapidly. Consumers, and businesses buying from their suppliers, need digital tools and flexible payment connectivity now more than ever. And the sellers who are poised to win, are those that are leveraging predictive data and analytics to connect with and sell to their customers in totally different ways.”

What can these companies do to keep in front of customers, and even obtain new ones? One point in their favor is that Americans are comfortable trying new digital technologies. According to Forrester (quoted in The Economist): “In April nearly a fifth of American adults used digital payments for the first time.” Once established, it’s likely these consumers will continue to use digital payments.

Retailers have other digital technologies in their toolset as well. For example, QR code payments have never achieved successful rates of adoption in the US, although they are used for payments in China and Japan. That may be changing, now that they’ve become popular for contactless menus and check-ins.

Sephora’s response to the pandemic is a good example of the willingness of retailers to rapidly implement changes at a time when social distancing (and masks) have a direct impact on their bottom line. In the past, shoppers could experiment with Virtual Artist, its augmented reality tool, in Sephora’s in-store kiosks. It uses artificial intelligence to offer makeup palettes customized to each shopper’s unique features and skin color. Now Virtual Artist is available as a phone app, making the customer journey from suggestion to purchase completely seamless.

Pre-Covid, Sephora offered free shipping to members of its loyalty programs. With the pandemic, that has been expanded to all shoppers. Sephora has also augmented its loyalty programs to add additional perks such as points for cash discounts. And they’ve partnered with Klarna to offer additional payment options (such as Apple Pay, Paypal and their own Sephora credit card) as well as interest-free installment payments.

One benefit to retailers is that these new channels generate data to a far greater degree than was possible before. For example, armed with even larger quantities of information about their customers’ shopping preferences, retailers will be able to make curbside pickup a more targeted buying experience – one similar to Amazon, but even faster than a package delivery. The ability to capture data also enables retailers to experiment with new channels and receive almost immediate feedback on their viability going forward. In true evolutionary fashion, only the fittest of these will survive post-pandemic.

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