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Spotlight: Retail could be reaching its second technology-driven tipping point.

The spectre of reopening has been waiting in the wings ever since the new coronavirus wormed its way around the world, but the last week has seen it edging closer, changing shape and scope as it comes.

When the shutters fell on retail premises in China, the UK, in the US, in Europe, and everywhere else, there was, of course, the knowledge that someday they’d have to roll back up again. Recently, though, the conversation has morphed from being about when to being about how – and maybe a little about why. And from that point of view, it appears as though retail could finally be reaching its second technology-driven tipping point as in-store shopping takes on an entirely different, darker dimension, and social commerce is pulled forward in the Western hemisphere – potentially heralding a shift in the primary sales channel for many brands.

Retail’s first technology-driven tipping point is now old enough to have been an economics and business case study for twenty years, but young enough to be fresh in the minds of a lot of consumers: eCommerce. Almost everyone reading this will remember the rush to put everything online, and the catastrophic disruption it was expected to cause. Because of a new technology – the internet – people at the time were either predicting the total death of physical shops, or denying eCommerce’s potential impact completely.

The reality, of course, fell somewhere in the middle. Amazon may have emerged as a terrifyingly dominant retail force with a CEO who could, in a few years’ time, wield as much buying power as several countries, but aside from high-profile eCommerce casualties like Sears, eCommerce largely ended up co-existing with physical retail.

But that was before brick and mortar shops were taken off the table by a global pandemic. So can we draw any reasonable parallels between then and now?

This week, JC Penney, a storied mainstay of the US department store sector, filed for bankruptcy, citing COVID-19 as a primary contributor, although it’s still trying to avoid liquidation . And just a few days later, Macy’s – whose name is basically synonymous with American department stores domestically and overseas – announced that it expects an operating loss of close to $1 billion this quarter for the same reason. Which is more profit than it made in the whole of 2019.

Commentators like to crowd around situations like these and say they saw them coming. The Interline doesn’t find this terribly productive. In an article published this week, the Wall Street Journal cited the pandemic as a catalyst for “widening the divide” between future-fit business models and outdated ones, leading us to a world where department stores and a host of other retail businesses are left behind.

The Interline feels like is too simplistic a picture for two reasons.

Firstly, while there can be little doubt that the department store concept is a relic of a different time, even young, forward-thinking brands like Cubitts, whose CEO we interviewed this week, are struggling simply because their business models are exposed to the high street. So it’s not fair to say that business models on already-shaky foundations are the only ones suffering.

Secondly, even retail’s biggest eCommerce success story (at least here in the West) predicts a buoyant future for physical retail once COVID-19 is relegated from the front pages, with Amazon reportedly considering acquiring JC Penney’s estate if the company is unable to avoid the worst outcome. And while Apple revealed that sales overall had increased even with its physical stores closed, it still forged ahead with re-opening 25 locations in the US this week – even with stringent restrictions in place.

So, just like happened around the dawn of eCommerce, people predicting a total retail apocalypse as a result of the pandemic are probably off-base. But the fundamental difference between the two situations is that today you can have a good business model and still go under if you haven’t built the right channels to keep selling in a crisis and beyond.

image: facebook

The jury is now in on what the right channels are during COVID-19: they’re online and social commerce. Adidas has seen a triple-digit increase in sales through its eCommerce storefronts since the pandemic began, and celebrity retail mangate Theo Paphitis (who owns a diverse slate of lingerie, stationery, and homewares businesses here in the UK) believes that the shift to online sales as a primary channel has accelerated by five years in the last few months.

But as we’ve established in previous weeks’ roundups, Western markets have relatively few online channels to explore compared to markets like China, where social commerce and live-streaming sales (expected to be worth close to $200 billion this year alone) have rescued businesses, and where a staggering 93% of the minor population – i.e. the next generation of shoppers – are already online.

That connectivity statistic is not something the West can hope to replicate quickly, but rapid action is still on the agenda for technology to provide new online channels, as Facebook accelerated the roll-out of its Facebook Shops platform – which may not support shoppable live streams at launch, but which stands the strongest chance of replicating the success of WeChat in the US, UK, and Europe by offering a single social commerce channel across Instagram, Facebook, and WhatsApp.

Image: facebook

At the moment, Facebook Shops will delegate payment processing and checkouts to existing services like Shopify, but nevertheless the platform presents the clearest step that Western companies have yet taken towards a second technology-driven tipping point.

Speaking to the BBC, Facebook representative Layla Amjadi said: “We want to make sure we’re moving quickly to get these tools in the hands of as many businesses wherever they are, big or small, to help them survive during this time”. Which is, however you slice it, an indication of just how inextricably linked the ideas of online shopping and future-fit retail are.

It may be scary to consider, but this is one occasion where technology companies are going to be the saviours of many retailers, simply because they can create new routes to market. And of course those will be routes the technology giants continue to own and operate afterwards, guaranteeing that social commerce and other online channels are going to hold onto their primary position once the pandemic is over.

Make no mistake: brands and retailers themselves are also going to have to change. Clarks this week announced 900 lay-offs as part of its new “made to last” reorientation strategy, and they will not be the only household name to do something like this. But while large-scale change is happening behind the scenes, there’s an even bigger, now-global, transformation happening in terms of how retail sells.