How Retail Is Wearing the Pandemic

And what companies must do now to survive

Aug 18, 2020

SMITH BRAIN TRUST  Few sectors of the economy have been as resilient as retail during the coronavirus pandemic.

The latest indicators show retail sales rising for a third-straight month in July, climbing at a strong but slower pace, even amid high unemployment, the continued spread of the deadly pandemic and decisions across the country to cancel in-person schooling.

The gains haven’t been universal, says Maryland Smith’s Jie Zhang. Stay-at-home orders sapped store traffic, hobbling some brands, and a subsequent economic slowdown depressed many consumers’ capacity for spending. Retailers with strong e-commerce operations fared far better than their physical-store-dependent counterparts.

Hundreds of brick-and-mortar stores closed their doors for good and several major brands – from Lord & Taylor to Brooks Brothers to GNC – filed for bankruptcy protection. And analysts predict more to come, as the pandemic further widens the gulf between companies that have a strong omni-channel position, and companies that don’t.

“Looking ahead, the COVID-19 pandemic will have had a profound impact on the retail industry,” says Zhang, professor of marketing and the Harvey Sanders Fellow of Retail Management at the University of Maryland’s Robert H. Smith School of Business.

“The silver lining is that the pandemic will serve as a catalyst to force many retailers to accelerate their innovation and technology adoptions.”

From a consumer standpoint, the pandemic sparked a surge in online shopping and home delivery service needs. That included, Zhang says, a big expansion of product categories that had been purchased primarily in brick-and-mortar shopping environments. Trapped at home, people shopped online for stuff they had hardly bought online before, such as fresh food and home and personal care products. The pandemic has also driven up online spending on toys, games, technology products for at-home working and learning, and even home improvement products.

“The spending pattern also has shifted toward essential products and there was a major decrease in non-essential products,” she says. “Especially on purchases like apparel, footwear, jewelry, and luxury products.”

Successful retailers shifted their product assortments in kind, and responded to the shift in demand of services, too. As consumers shied away from in-person consultations and interactions, those brands increased their capacity for virtual consultations, faster deliveries and hassle-free returns for online orders.

This week, Walmart, Target, Home Depot, Lowes, Kohl’s, TJMaxx parent TJX Companies, L Brands and Ross Stores will release quarterly earnings results, shedding more light on how the sector is holding up.

The pandemic is still with us. So how should retailers adapt now, to the changes and challenges brought by the COVID-19 era?

Zhang says there are good strategies out there.

Bulk up on e-commerce capabilities: This includes shifting some store-based employees to online divisions, such as call centers, fulfillment centers and delivery crews.

Simplify what you sell: This is already happening in some places, she says. Retailers must re-examine their assortment decisions, eliminate slow-moving items and give priority to high-demand products.

Improve your supply chain: Find ways to modify and enhance the supply chain process. Zhang says. She suggests converting some stores into fulfillment centers for online orders, for example, or reducing dependence on international suppliers and enhancing relationships with domestic and local suppliers.



About the Expert(s)

Jie Zhang is a Professor of Marketing and the Harvey Sanders Fellow of Retail Management at the Robert H. Smith School of Business at the University of Maryland. She received her Ph.D. in marketing from the Kellogg School of Management at NorthwesternUniversity. She was a faculty member at the Ross School of Business at the University of Michigan prior to joining the Smith School. Her general research interest is to apply advanced econometric and statistical models to study consumer purchase behaviors and retail strategies.

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