The coronavirus has decimated retail in the U.S. With thousands of jobs furloughed and millions of Americans filing for unemployment benefits, consumers are understandably limiting their purchases to food and basic household staples. The Wisconsin School of Business sat down with Hart Posen, a professor of management and human resources and an expert on business strategy, to hear his perspective on the state of retail and how firms are faring in this turbulent new frontier.
In short, Posen observes that:
- Retailers have been affected differently by the pandemic. Making generalizations in this context is a mistake.
- Amazon, Kohl’s, and Wisconsin’s Kwik Trip are examples of companies well-positioned to survive the crisis.
- Others such as Sears, Kmart, and JCPenney will likely disappear from the retail landscape.
- Ordering groceries online may be a lasting trend post-pandemic for Americans.
- For many firms, the pandemic has forced a new creativity, flexibility, and innovation.
He shares additional insights in the Q&A to follow.
WSB: How have retail businesses been impacted by the pandemic?
Hart Posen: Well, first of all, I think generalizations are troubling in this context. Different sectors of retail have been affected differently by this. If we look at the most recent Census data from March, fashion and accessories, for example, are down more than 50%, and food and beverage—primarily grocery sales—are up, because that’s the one thing we cannot stop doing. We’re actually purchasing more because we are stocking up. So talking about retail as if it’s one big thing is a mistake. There’s a whole range in between.
WSB: Knowing what we know now, is there any way they could have prepared for what was to come?
HP: What could a furniture store do to prepare? What could a fashion retailer do to prepare? It’s ridiculous to say ‘the Gap should have prepared for this by doing X.’ They could prepare a little bit but they’d be preparing at the margin—nothing they could do would meaningfully protect them from the fallout from COVID-19.
Maybe a different type of question that is interesting is not what could a furniture or fashion retailer do to prepare, and not even what can they do to recover, but who’s going to gain from this and who’s going to lose?
Even in mid-March, it was hard to imagine a large-scale shutdown of the U.S. economy, so I think it would have been very hard to predict these specific patterns that result when people are simply not leaving their homes. For these kinds of systemic problems, we need a systemic intervention. The U.S. was less well prepared than other countries; we have often underinvested in the things that are a public good. No single industry or state can fully prepare alone. We need to rely on the federal government because there are market failures that we’re observing and we’re paying a huge price.
WSB: Going back to your question of which firms stand to gain from this crisis, whom do you see as the retail survivors?
HP: Obviously, Amazon is a big winner, because it is the only company, even above Walmart, that has the kind of national physical infrastructure to deal with this pandemic as well as a very resilient, strong digital infrastructure. Amazon is clearly a massive leader.
In a regional context, a firm like Kwik Trip bridges an interesting gap. They aren’t full service online grocery delivery, but they fill that “I need one or two things from the store” need for households.
COVID-19 will expedite the end of companies like Sears, Kmart, and JCPenney, wounded animals we’ve been watching die for more than a decade. They have to go. Another example is the furniture industry—it has not been particularly innovative. Regional chains have done a very poor job of being omni-channel players. Anyone fringe in that industry will be knocked out by all this. Other than companies like Wayfair and IKEA, there will be some real shakeups going on.
I also think some other firms will continue to benefit. Kohl’s is a prime example of a company that will suffer a lot of short term pain, but will ultimately benefit from the sweeping away of their dying competitors. That doesn’t change the basic challenges of competing in an omni-channel world, but they’re getting increasingly good at it.
WSB: There are numerous “when this is all over” articles in the media about how the nation will be different post-pandemic. Will consumer behavior change after this?
HP: Do I think it will change America? No, I don’t. If it’s about how much do we save versus how much do we spend on frivolous things like $5 lattes, I don’t see any reason it will change because habits are so ingrained.
I believe there will be some shifts. People have been talking about the change in grocery retailing since the late ‘90s, and I think we may finally see movement there. Consumers who’d never really bought groceries online before are now doing it because it’s the safest choice or at least puts someone else at risk, which is really what happens—a low-wage worker.
WSB: Do you think there will be some positive aspects or developments emerging from this COVID-19 time?
HP: Companies are showing that they can develop products remarkably fast when called upon to do so. There has been a lot of innovation and imitation. Look at what has happened to Zoom. It is remarkable how quickly Google and others have updated their products in a matter of weeks to make them more usable for these kinds of interactions.
I also think that some firms are going to figure out new opportunities, seeing things that they did not see before as opportunities. One thing this crisis has shown is the payoff to being flexible. It takes being able to respond quickly. In Madison, for example, Exact Sciences announced that it will transform some of its DNA testing technology in order to carry out coronavirus testing. This is very interesting. I don’t know what the current uncertainty will produce, but it’s causing companies to look differently at what they do.
Hart Posen is a professor in the Department of Management and Human Resources and the Richard G. and Julie J. Diermeier Professor in Business at the Wisconsin School of Business.