2020 was a polarizing year for retail. The COVID-19 pandemic meant that categories like grocery, consumables, and household essentials performed extraordinarily well while sales of apparel and some big-ticket and discretionary items fell precipitously. Many categories and retailers fell in between but still exhibited volatility as shopper tastes and inventory availability washed over the country in waves.
As strange as 2020 has been, 2021 also promises to be a year filled with uncertain factors that can affect the trajectory of retail growth. These factors include the development, distribution, and popularity of a vaccine; the extent of any future government stimulus; a transitioning presidential administration; and, of course, the general stickiness of online and offline shopping behaviors established because of COVID-19.
These factors may create trends that leave a lasting impact over the next five-year forecasting period. Walmart has noted how the economic harm that COVID-19 has inflicted has been somewhat delayed due to the government stimulus and eviction moratoriums. If no further stimulus occurs, some retailers won’t be able to sustain hugely positive results. While we expect delayed recessionary impacts to the US economy in 2021, retail may be less affected than in previous recessions, especially for consumables. Yet there are still vulnerabilities. Discounters may feel the pinch as their lower-income shoppers stand to lose more than the average shopper.
COVID-19 not only introduced new factors into our forecasts, but also served to accelerate long-term shifts that were already occurring. These include a drop in new store openings in favor of remodels, shifting growth opportunities in grocery, and the ongoing rise of ecommerce. Even as store sales rose for many consumables-oriented channels, new openings stalled. We forecast that brick-and-mortar growth will continue, but increasingly come from the productivity and sales growth of existing stores rather than new ones. The remodels touted by drugstores, Target, Walmart, and others play a big role in driving this growth. There are exceptions. Clubs and discounters continue to expand as they find they are underpenetrated in some US geographies.
Grocery was a big winner in 2020. Preparing food at home and the need for stock-up/pantry-filling trips for traditionally center-store grocery items boosted not only supermarkets, but also, to a lesser extent, clubs, discounters, and mass retailers. Some of this behavior will remain in 2021, but we expect it to moderate as restaurants and other businesses re-establish themselves post-COVID.
The biggest legacy of the grocery explosion will be the accelerated development and acceptance of online grocery and delivery platforms such as Walmart+, Instacart, and the curbside pickup and delivery services of numerous retailers. A focus on health and wellness adds another dimension to grocery’s surge as shoppers remain conscious of food health and safety.
Ecommerce: How high can it go?
Perhaps the biggest forecasting conundrum is the trajectory of ecommerce growth. At Kantar, we anticipate that 2020’s unprecedented ecommerce surge represents a sea change in shopper routines that will leave online shopping at a permanently higher level in 2021 and beyond. While some of the current online shopping volume will shift (and is already shifting) back to brick-and-mortar, it is unlikely to return to a level approaching the pre-pandemic normal.
Furthermore, we expect additional online growth in the coming years as many retailers have invested significantly in delivery and store pickup platforms that will continue to entice further online use and growth. Retailers will find they have the operational scale and sales volume to advance their ecommerce initiatives several years in advance.
However, 2021 may prove to be a unique year for ecommerce platforms that must anniversary record growth and use enabled by (hopefully) temporary circumstances. We expect a sharp deceleration in growth for these platforms in the immediate aftermath of COVID-19 though growth will still be exceptionally high over the combined total of 2020 and 2021. On the brick-and-mortar front, we expect many physical banners to see lower growth in 2021 relative not only to 2020 but also to their pre-pandemic average as they face difficult year-over-year comparisons and as many shoppers experience mounting economic challenges. Some banners will likely see outright declines in 2021 that offset their recent gains.
Channel trends to monitor
Other 2020 trends bear watching into 2021 and beyond. Home improvement spending is up but may be more vulnerable in some areas as projects wind down. Office and home décor spending is strong as shoppers spend more time at home, yet a recession could hurt this trend. We predict many of these trends will be short term and that spending will revert to previous levels in the coming years, though ecommerce growth for these categories will remain strong. Apparel retailers are focusing more online where they can continue to find growth. As social distancing relaxes, the growth of retailer services will play an important role in how retailers can attract shoppers and find growth. Department stores, convenience, and even mass retailers are well positioned here.
For the most part, channels that were well positioned before the pandemic are still in a strong position, and some are even stronger than before. Grocery, discounters, club, online, and many mass retailers and category specialists had value propositions and offers that spoke to shopper needs. Apparel and department stores were hit hard by the pandemic, but many of the hardest-hit retailers in these channels were already underperforming other retailers. The coming years pose distinct challenges of their own, and not all banners, retailers, and channels, will be equally equipped to handle them.
Retail IQ clients can review the assumptions behind our forecast and access the detailed channel rollups here. We also invite you to attend the Retail Insights Conference to dive into forecast implications for your retailer or channel of choice.