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- 1. McKinsey & Company 1McKinsey & Company 1 Ninety-eight senior executives across five retail segments were surveyed. 39 16 10 14 20 Source: COVID-19 retail recovery survey - 04/06/2020 to 04/08/2020; Approximately how many stores do you operate in the USA? If your company is part of a larger parent company, please only answer for the number of stores under your banner. What type of retailer is your company? 24 26 17 33 1 to 100 101 to 400 401 to 900 > 900 Distribution of respondents by number of stores % of respondents Distribution of respondents by segment % of respondentsSegment Attributes Apparel Multi-brand and vertically integrated single-brand apparel Department stores / off-price Multi-category department stores Beauty Beauty-focused mall- and non-mall- based retailers Specialty – big box Non-mall-based specialty retailers, often with stores larger than 10,000 SFT Specialty – small box Mall-based specialty retailers, often with stores less than 10,000 SFT
- 2. McKinsey & Company 2McKinsey & Company 2 More than 80 percent of respondents indicate they are facing some level of store closures, with apparel retailers impacted most. 25% of respondents say they have closed stores because of COVID-19 but are still operating BOPIS and ship- from-store 25 18 31 30 29 20 44 76 56 60 7 60 14 13 10 21 2018 43 Department stores / off- price Overall1 Specialty - small box Apparel Beauty Specialty - big box 0 100 100 100 100 100 100 5 Open Open in certain locations Closed, with BOPIS or ship-from-storeClosed; no BOPIS or ship-from-store available Source: COVID-19 retail recovery survey - 04/06/2020 to 04/08/2020; What is the status of your stores currently? 44% of respondents indicate they have completely shut down their operations because of COVID-19. Apparel has been particularly impacted Store-closure status by segment, % of respondents Apparel stores are particularly impacted Some players in this category fall under the ‘essential’ category 1. 'Overall' values calculated as an average of segments weighted by their US market size in 2019
- 3. McKinsey & Company 3 Expectation for time to recovery to pre-COVID-19 store traffic % of respondents McKinsey & Company 3 Respondents say they expect store traffic to rebound, but not for several months. Source: COVID-19 retail recovery survey - 04/06/2020 to 04/08/2020; How much time do you think is required to ramp back pre-COVID-19 store traffic levels? 10 7 10 8 11 50 7 3522 29 44 30 7 40 49 47 30 57 1516 8 30 21 100 BeautyOverall1 66 Specialty - small box Department stores / off- price 5 Apparel Specialty - big box 100 100 100 100 100 12 to 24 monthsLess than 2 months 6 to 12 months2 to 6 months Never Less than 2 months Never 1. 'Overall' values calculated as an average of segments weighted by their US market size in 2019 Respondents from apparel and department / off-price retailers are the least optimistic about time for traffic recovery Respondents from beauty retailers are the most optimistic about time for traffic recovery
- 4. McKinsey & Company 4McKinsey & Company 4 Respondents expect the COVID-19-related shift to e-commerce to be “sticky,” with online penetration remaining 6-13 pp above pre-COVID-19 levels. Source: COVID-19 retail recovery survey - 04/06/2020 to 04/08/2020; About how much of your business pre COVID-19 was through e-commerce (including BOPIS)?; what do you think will be the new e-commerce penetration for your business? 17 26 16 20 15 21 26 39 26 29 21 31 BeautyOverall3 Specialty - big boxApparel Specialty - small boxDepartment stores / off-price Pre-COVID-19 Post-COVID-19 Pre- and post-COVID-19 online penetration, Online sales as a percentage of total sales,1,2 Biggest jump expected for apparel and department stores 1. n = 91 respondents 2. Self-reported measures of the pre-COVID-19 base case of online sales 3. 'Overall' values calculated as an average of segments weighted by their US market size in 2019
- 5. McKinsey & Company 5 Reopening plan readiness % of respondents McKinsey & Company 5 Most respondents say they are still in the process of developing the criteria for reopening stores; few have defined plans. Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; Has your team developed specific criteria for store reopening? This segment includes some ‘essential’ retailers who have not closed their stores 14 16 19 10 14 9061 76 81 80 36 10 25 8 10 50 Overall1 100 Specialty - small box Department stores / off- price Specialty - big box Apparel 100 Beauty 100 100 100 100 Plan ready In process No plan 1. 'Overall' values calculated as an average of segments weighted by their US market size in 2019 75% of respondents say they have not yet developed specific criteria for store reopening
- 6. McKinsey & Company 6 Besides regulation and infection rates, retailers are tracking several financial and operational metrics to inform store reopening. Considerations for store reopening, % of respondents ranking the consideration as the top 3 most important Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; Aside from regulation and infection rates, what are top KPIs/trends (up to 3) that you will track to determine which stores to re-open and when? 55% 44% 42% 41% 24% 21% 9% 8% 45% 42% 66% 47% 13% 24% 18% 3% 75% 56% 50% 31% 25% 13% 13% 0% 70% 50% 30% 40% 40% 20% 10% 10% 57% 43% 21% 36% 29% 21% 14% 0% 50% 30% 50% 60% 35% 15% 10% 10% 1. 'Overall' values calculated as an average of segments weighted by their US market size in 2019 Actions of 1-2 specific co-tenants Field workforce availability Store manager availability Store performance prior to COVID-19 Pre-COVID-19 e-commerce performance Actions of competitors Current e-commerce sales Financial breakeven to open store(s) Consideration Overall1 Apparel Department stores/off- price Beauty Specialty – big box Specialty – small box Workforce availability, store performance, and actions of competitors emerge as the top 3 considerations across segments
- 7. McKinsey & Company 7 Retailers are considering a range of different measures to promote customer and employee safety. Actions to ensure employee and customer safety,1 % of respondents Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What short-term actions will you take to ensure employee / customer safety when you reopen stores? Action Overall2 Apparel Department stores/off- price Beauty Specialty – Big box Specialty - Small box 90% 54% 49% 34% 24% 22% 21% 15% 14% 11% 4% 3% Limit # of customers in stores Product testing / try on only if assisted by an associate Increased store cleanings Sneeze guards / plexi-glass at checkout Mandatory distance between customers Limited fitting room availability Mandating employees wear personal protective equipment (e.g., gloves, masks) Temperature check for associates Dedicated hours for seniors and at-risk customers Fixed batch store associate scheduling No product testing / no try-on Temperature check for customers 92% 50% 74% 45% 24% 21% 29% 13% 8% 5% 8% 0% 100% 50% 31% 25% 25% 31% 19% 13% 25% 19% 6% 0% 90% 20% 30% 30% 10% 40% 10% 0% 0% 0% 0% 0% 86% 71% 36% 29% 29% 29% 21% 21% 21% 7% 7% 0% 95% 20% 40% 25% 20% 10% 15% 5% 5% 0% 0% 0% 40% of respondents from beauty retailers are considering limiting product testing Increased store cleanings and in- store customer management emerge as top safety initiatives 1. Respondents could select multiple options 2. 'Overall' values calculated as an average of segments weighted by their US market size in 2019
- 8. McKinsey & Company 8 Many respondents expect to modify returns policies and handling processes to improve customer convenience and safety. Changes in returns-management policies and processes,1 % of respondents Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What changes if any are you planning to institute around returns management? 40% 25% 19% 14% 10% 7% 4% 2% Not allowing returns on any products purchased Extending window for returns Not allowing returns on any products purchased Discarding returned products with infection risk Limiting returns to mail-only No change in return policy Limiting window for returns Cleaning / disinfecting returned products 21% 34% 32% 18% 18% 3% 5% 0% 31% 25% 38% 13% 6% 6% 6% 0% 20% 10% 50% 20% 0% 0% 0% 0% 64% 21% 7% 7% 7% 7% 0% 0% 45% 35% 20% 10% 5% 5% 5% 5% 1. Respondents could select multiple options 2. 'Overall' values calculated as an average of segments weighted by their US market size in 2019 Changes Overall2 Apparel Department stores/off- price Beauty Specialty – big box Specialty – small box30%+ of respondents from apparel and specialty small- box retailers say they are considering options for disinfecting returned products Respondents from beauty retailers indicate a preference to discard returned products with an infection risk
- 9. McKinsey & Company 9 A majority of respondents expect to initially reopen stores with reduced hours and lower staffing levels. Short-term operating-model changes,1 % of respondents 59% 55% 20% 20% 16% 16% 63% 63% 37% 34% 8% 13% 94% 75% 19% 19% 6% 13% 50% 50% 20% 30% 10% 0% 50% 43% 7% 14% 21% 21% 65% 70% 15% 15% 10% 10% Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What short-term changes in store operating model will you make when you reopen stores? Reduced hours Start with only BOPIS / ship-from-store Reduced staffing levels No change; business as usual Reduced # of open days / week Parts of the store blocked off 1. Respondents could select multiple options 2. 'Overall' values calculated as an average of segments weighted by their US market size in 2019 Operating-model changes Overall2 Apparel Department stores/off- price Beauty Specialty – big box Specialty – small box Reduced operating hours and reduced staffing levels emerge as the top 2 operating- model changes across segments
- 10. McKinsey & Company 10McKinsey & Company 10 Respondents across segments expect to reopen stores with fewer store associates. 22% Average expected reduction in the number of store associates across segments Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What was the average # of store associates / store before COVID-19?, What do you think will be the average # of store associates / store when you reopen? 1. Based on mean reported values before and after COVID-19 2. Due to survey flow, 44% of respondents answered this question 3. ‘Overall' values calculated as an average of segments weighted by their US market size in 2019 22 26 25 27 17 22 Overall3 Apparel Specialty – small box Specialty – big box BeautyDepartment stores / off-price Respondents from beauty retailers expect the most reduction and specialty big- box retailers expect the least reduction in associate count Expected reduction1 in the number of store associates post-COVID-19 % reduction in number of store associates per store2
- 11. McKinsey & Company 11 The retailers surveyed expect the need to retrain a portion of their workforce when they reopen stores. 29 26 25 10 36 30 27 16 31 20 36 50 21 18 25 30 21 1010 13 20 10 10 21 13 10 10 Overall1 0 Specialty - small box 5 0 3 0 Apparel 0 6 0 Department stores / off-price 0 0 Specialty - big box 0 0 Beauty 0 7 0 Only new hires will need training 10% to 30%Less than 10% 60% to 75%40% to 60% 75% to 90% 100% Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What % of store associates will need retraining when you reopen?, How many hours of training do you think is needed to re-onboard store associates when you re-open? Apparel retailers expect the need to retrain the highest percentage of their workforce Retailers expect 8 hours of retraining per associate on average 1. ‘Overall' values calculated as an average of segments weighted by their US market size in 2019 Need for store associate retraining % of respondents XX Average hours of training per associate 8 6 6 9 11 6
- 12. McKinsey & Company 12McKinsey & Company 12 Respondents say they are considering not reopening underperforming stores and pausing plans for new store openings. Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What actions are you considering with respect to your store network footprint? 32 53 38 50 7 40 Specialty retailer - small box Specialty retailer - big box ApparelOverall1 BeautyDepartment stores / off- price 34 37 38 50 29 15 Specialty retailer - big box Overall1 Apparel BeautyDepartment stores / off- price Specialty retailer - small box Respondents considering closing underperforming stores, % of respondents Respondents considering pausing store openings, % of respondents 1. ‘Overall' values calculated as an average of segments weighted by their US market size in 2019 32% of respondents are considering closing underperforming stores 34% of respondents are considering pausing new store opening plans
- 13. McKinsey & Company 13 While most respondents are not considering format changes due to COVID-19, apparel retailers aim to improve online integration. Long-term changes in store format,1 % of respondents Source: COVID-19 retail recovery survey – 04/06/2020 to 04/08/2020; What long-term changes in store format do you think you will see or are you planning for the store/some stores when you re-open? 13% 76% 29% 24% 13% 3% 50% 45% 5% 5% 0% 0% 69% 31% 13% 6% 6% 13% 80% 10% 10% 0% 0% 0% 71% 29% 7% 0% 0% 0% Better online integration (e.g., designated area for BOPIS) Dark stores focused on omni fulfillment Featuring 3rd party brands in store (leasing space to them) Stores converted to clearance/outlets Experiential retail (showroom only, no/low inventory) No change; business as usual 50% 45% 13% 12% 5% 2% 1. Respondents could select multiple options 2. ‘Overall' values calculated as an average of segments weighted by their US market size in 2019 Service Overall2 Apparel Department stores/off- price Beauty Specialty – big box Specialty – small box Most players in non-apparel segments do not foresee any long- term changes in store format
- 14. McKinsey does not provide legal, medical, or other regulated advice or guarantee results. These materials reflect general insight and best practice based on information currently available and do not contain all of the information needed to determine a future course of action. Such information has not been generated or independently verified by McKinsey and is inherently uncertain and subject to change. McKinsey has no obligation to update these materials and makes no representation or warranty and expressly disclaims any liability with respect thereto.