The World Health Organization has acknowledged the coronavirus, or COVID-19, a pandemic. It’s an uncertain time with many unknowns, and while we don’t have all the answers, we would like to share what we do know and offer some guidance for our customers and other small businesses which will be experiencing shifts in their business.
This pandemic affects the health of the public and it’s also impacting the economy. As per Google, “since the primary week of February, search interest in coronavirus increased by +260% globally.” While spikes in search trends are common during events of this scale, there have also been surges in traffic for related products and topics as an immediate response to the pandemic.
We have been watching the news closely, and we’ve responded by taking the action to form remote work the default for all employees. However, we’ve taken all steps to make sure minimal disruption to our operations and our customers. While we’ll leave the medical advice to medical and public health experts—and would urge you to do the same—we looked to our in-house agency experts to supply more information about what actions you’ll absorb your online advertising accounts now.
How are Google and Facebook responding to COVID-19?
In addition to creating it easier for people to find out more about symptoms, vaccine information, and travel advisories, Google is removing any content on YouTube that claims to stop the coronavirus in situ of seeking medical treatment and is additionally blocking all ads capitalizing on the coronavirus. Similarly, Facebook is obstructing anyone running ads to take advantage of things.
E-commerce after Pandemic
Since March 2020, the COVID-19 pandemic has wedged almost all features of our daily lives. Zoom meetings have replaced room gatherings. Kids attend classes from kitchen tables. Family movie nights are likely to involve a first-run film streamed to a television, not a visit to the local cinema.
The retail sector certainly has felt the upheaval of the pandemic. But despite what some might imagine, not all of the news is bad. Retailers have found new ways to attach with and serve, customers, particularly through e-commerce. Retail sales numbers for Q3 and Q4 2020 prove that customers are willing to spend both online and in stores — but their expectations for the shopping experience have changed.
In order to stay pace with this new reality of retail shopping (which isn’t getting to revert back to pre-pandemic norms even when COVID-19 is in check), retailers must specialize in exploiting the in-store experience for customers, consolidation online retail offerings and being mindful of rising costs associated with operating a brick-and-mortar store.
Retail Trends Demonstrate Huge Online Growth, Positive Signs for In-Person Sales
To be clear, e-commerce was here to remain long before COVID-19 entered our collective vocabulary. In 2019, online sales made up 16 percent of total retail sales, up from 7.6 percent in 2013. Statistics show a comparatively steady increase in e-commerce’s share of retails sales from 2013 until 2019.
But the expansion in retail sales hasn’t come entirely at the expense of brick-and-mortar retail. In fact, in-store retail reached an all-time quarterly high of $1.259 trillion in Q3 2020, rebounding 14.5% after a shaky Q2. Customers still want the immediacy and in-person experience of physical retail shops. However, they need to interact with these shops in a different way, which involves a blended approach that mixes aspects of online and in-person retail. In-store retail reached an all-time quarterly high of $1.259 trillion in Q3 2020, rebounding 14.5% after a shaky Q2.
Blended Approach Critical in Evolving Retail Economy
No doubt, online retail has played an enormous role keep the U.S. economy from suffering even greater damage during the pandemic. Stay-at-home orders and consumer concerns about exposure to the virus led people to order goods online and have them shipped to their homes with increased frequency.
Online retail still doesn’t completely satisfy most consumers, though. A 2018 study reported 90% of surveyed shoppers stated high shipping fees and residential delivery lasting quite two days would deter a web purchase.
Amazon (the nation’s second largest retailer behind only Walmart) cracked the code with its Prime service, offering free shipping and a two-day (or faster) turnaround. Not surprisingly, Amazon saw tremendous sales growth in 2020. Other national retailers, including Walmart and Target, have poured resources into strengthening their online shipping services.
Omni-channel marketing — which mixes the strengths of online and in-person retail — offers opportunities for brick-and-mortar retailers to serve customers in this new environment of increased comfort with web shopping. For instance, customers buy items online, then devour their product either within the store or, even more conveniently, curbside in their cars.
The market shift in retail poses tremendous challenges to small retailers: challenges that COVID-19 exacerbated. Engaging in e-commerce is quite simply fixing an internet site and expecting orders. Omni-channel marketing is difficult for little retailers owing to the prices related to fixing such an operation. Such costs include:
• E-commerce software. Retailers must either found out their own system for online purchases or pay a third-party vendor (such as Shopify) to assist process orders.
• Sales tax accounting. A 2018 Supreme Court decision made e-sales subject to state sales taxes. Large, national retailers have the resources to sort out tax obligations on a state-by-state basis. But small businesses likely got to employ third-party software options to trace state sales taxes.
• Search engine optimization (SEO). Businesses got to be ready to get customers’ attention on internet searches for key terms, and getting this coveted placement costs money.
Legal and Business Challenges Facing Brick-and-Mortar Retailers
But BOPIS raises significant business and legal issues. Lease provisions are often a complication for retail landlords within the current environment. For instance, if an anchor store leaves, other retailers within the shopping mall could also be ready to trigger lower rent or maybe lease termination rights. Also, if rent is predicated on a percentage of retail sales, are BOPIS sales included therein total and, if so, how?
Retailers face their own set of legal and business challenges. Repurposing malls and large box stores as delivery points could also be limited by applicable restrictive covenants. Also, restrictive covenants may limit rights to use common space for deliveries to consumers. These issues should be addressed up front because it is in the best interests of both retailers and the retail landlord to stay customers satisfied.
Many brick-and-mortar retailer costs are fixed and don’t depend upon pedestrian traffic or sales. These fixed costs include such items as base rent, insurance, enterprise software (needed to run the business, manage payroll, etc.), common area maintenance (CAM), and ad valorem property taxes. These costs haven’t decreased as a result of COVID-19.
The latter cost is often particularly problematic. Ad valorem property taxes typically are supported store rent, not its profitability. Unfortunately for many retailers, current land tax bills are supported by a January 1 2020 valuation date—before the pandemic became a factor- and thus are irrelevant for current land tax bills.
Municipal revenues have declined 21 percent during the pandemic, while municipal expenses increased 17 percent. It doesn’t take an economist to understand those two trend lines are unsustainable for city budgets and certain will mean deep cuts in municipal services, significant increases in property taxes—or both. And usually, only property owners, not tenants, may challenge land tax valuations. It is vital that retail property owners and their tenants work together to resolve these challenges.
Key Considerations for Retail within the COVID-19 Era
Retail trends still evolve, but the country’s embrace of e-commerce seems permanent. So retailers got to prepare to satisfy customer demand, both now and within the post-pandemic future. Some items to consider:
1) Create value within the in-store experience. Customers aren’t able to hand over in-person retail, but stores must give them incentives to buy. Confine mind that today’s customer values convenience.
2) Omni-channel marketing is here to remain. So search for ways to marry online and in-store offerings. The aforementioned BOPIS model, for instance, combines the convenience of e-commerce with the immediacy of in-store shopping.
3) Concentrate to lease provisions. Especially, keep an in depth eye on BOPIS rights, rent considerations (i.e. are their thresholds for triggering automatic rent reductions/lease escapes?), and taxes.
4) Seek to scale back occupancy costs inherent in bricks and mortar retail (e.g., ad valorem taxes). The great news for retailers is that we are during a buyer’s marketplace for commercial land space. Stores should work with their landlords on ways to scale back the fixed costs of doing business.
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