The changing face of retail

THE RETAIL TRADE is among the hardest hit industries in this COVID crisis. The bloodbath has cut across all sectors — from clothing to food, appliances to motor vehicles, electronics to gasoline. No sector is spared except for those relating to health, sanitation, and wellness.

I originally intended to paint a picture, through numbers, of how bleak the situation is in the Philippines. Unfortunately, up-to-date statistics on retail are still unavailable. Luckily, I was able to access the retail stats of the United States. While American statistics may not reflect the exact situation here at home, certainly, the trends are the same.

The month of March registered the steepest drop in American retail sales in recent history. The numbers speak for themselves.

Clothing and fashion accessories plunged by 50.5%; Furniture and home furnishings by 26.8%; Food and drinks by 26.5%; Motor vehicles and spare parts by 25.6%; Sporting goods, music and books by 23.3%; Gasoline and diesel by 17.2%; and Electronics and gadgets by 15.2%.

Note that America went into lockdown in the last week of March, unlike the Philippines whose lockdown started 10 days before. Hence, it is safe to say that the drop in retail sales in the Philippines is more severe.

We expect a further nosedive in the months of April and May for both countries.

Retailers are fighting for their lives. As of mid April, 70% of merchants reported not having enough capital to survive the lockdown should it last for more than one quarter. Meanwhile, 23% said that they only have enough capital to last one month of business stoppage. Last month, several iconic American retailers had already filed for bankruptcy including Neiman Marcus, J. Crew, JC Penny, GNC, Debenhams, Sears, and K-Mart, among others. Add to this thousands of small- and medium-sized retailers who were forced to permanently close their doors. More bankruptcies are expected in the months to come.

In the Philippines, we have not heard of any medium- or large-scale retailer going out of business yet. We can be sure, however, that there will be hundreds of retail and food brands either merging or permanently closing in the weeks to come.

According to American retail consultant Karen Gibbs, the majority of retailers who declared bankruptcies last March were those who cater to the middle income market. Retailers who cater to middle-income earners like JC Penny and J. Crew have been slowly eased-out by ultra high-end retailers like Bergdorf Goodman, Bloomingdales, and fashion house boutiques at the top and Walmart and Target in the bottom.

This has been happening for the last five year. In other words, middle-market retailers were already losing market share and accruing losses since 2015.

In addition, Ms. Gibbs says that the department store model is fast becoming a relic of the past. Consumers today prefer to purchase goods from retailers who specialize in a particular category. For instance, consumers are more inclined to shop at Decathlon for sporting goods and Best Buy for electronics, not at Sears.

Another development is that the COVID-19 crisis has pushed e-commerce to the mainstream. E-commerce comprised 16% of the retail market in 2019 but is seen to grow exponentially, post-COVID-19. Improvements in logistics and reliability of transactions have made e-commerce more convenient for the greater majority.

The COVID-19 crisis has permanently changed consumer preferences too. Whereas during pre-COVID-19 years, consumers preferred mass-produced products with a good balance of quality and affordability, in the post-COVID-19 world, consumers prefer products that are sustainable for the planet and/or healthier for the body.

Price is no longer the highest consideration for a purchase as sustainability and quality are. These trends are true worldwide.

This presents tremendous opportunities for Filipino artisans who manufacture garments, fashion accessories, toys, gifts and houseware, and food. As we move forward, Filipino manufacturers need not compete with China in the price game anymore. They now have a fair chance of attracting wholesalers and direct customers on the back of good design, ethical production practices, handmade craftsmanship, and the use of organic indigenous materials. Market preferences have finally shifted in favor of Filipino producers.

The shift in trends could not come at a better time. With thousands of small- and medium-sized shop owners, restaurateurs, and distributors losing their businesses, a shift in business focus towards manufacturing artisanal products for export is now a viable option. The Department of Trade and Industry, through its export promotions agency CITEM, should capitalize on this and encourage more entrepreneurs to pivot.

It augurs well for the economy as it hastens our evolution from being a consumer driven economy to one that is production lead.

For those tapping the export market, another emerging trend, says Ms. Gibbs, is a preference for purpose-driven products. In other words, a product should not only serve the purpose it was made for but also a socio-civic or environmental purpose as well. For example, handcrafted furniture should not only be well designed, impeccably handcrafted, and sturdy — they should also use wood from a sustainable tree farm that supports a community of indigenous people.

In the post-COVID-19 world, communicating the purpose of a company, with clarity, is just as important as the design, utility, and price of a product. Further, innovation by way of design, raw materials, and versatility will set Philippine-made products apart from those made in Vietnam or Thailand.

The COVID-19 crisis is a game-changer in that it displaced thousands of food and dry good retailers. But it comes with a silver lining. It gives specialty stores and boutiques the shot-in-the-arm that they need, it has made e-commerce hit the mainstream, and spawned a new demand for purpose-driven products. All these are good opportunities for entrepreneurs looking to pivot.

Andrew J. Masigan is an economist