On 9 March 2020, the first Italian lockdown due to the Covid crisis started. A series of governmental measures followed to limit contacts between citizens.
Actually the pandemic facilitated company transformations in the retailing sector and triggered the online business r(E)volution. The severe lockdowns forced many brands to rethink their strategy to foster customer engagement, the new role of physical stores and much more. What was the Italian market way to navigate through pandemic? What were the consumption behaviors and patterns during the Covid? What is the expected scenario for the post-pandemic Italian retail sector? How has Covid driven innovation, “forcing” companies into more digital solutions?
To answer these questions, Professor Olivier Badot, Scientific Director of the Chair and Full Professor at ESCP and Elisabeth Denner, President of the Chair and Partner at BearingPoint invited:
- Professor Isabella Maggioni, ESCP Business School
- Professor Luca Mignini, Management and Innovation, Bocconi University and former Chief Operation Officer (COO), Campbell Soup
- Rabih Hamdan, Practice lead & firm-wide innovation lead, BearingPoint Italy
The Italian retail & the pandemic
Since the first lockdown, the Italian market has been fighting against the severe restrictions, general panic and the sad reality of the sanitary chaos caused by the Covid-19. The retail market and consumers had to face challenges and adaptations made in order to overcome the lockdowns in the last year.
Italy was widely affected by the Covid-19 pandemic, one of the most impacted countries in Europe, with over 124 thousand deaths reported and 4.16 million cases at the time of writing. As the first European country to face the chaotic impact of the Covid-19 virus, Italy needed to close its doors in the first place too. Tourism, non-necessity retail, and other services were prohibited from being open, and restrictions were implemented as each new wave of the virus went out of control.
According to Statista’s recent research, the Italian market navigated the year of 2020 with considerable difficulty, with negative GDP growth, 9,9% unemployment rate with forecasted rates reaching more than 11% in the subsequent years, a considerable decrease in industrial production, especially during the first lockdowns, as well as decrease in consumption volume in the most critical product and service categories such as leisure, tourism, transportation, cars, fuel, and personal.
Besides Italy’s strong economic force on cars, electronics, and fashion products, one of the biggest drivers of Italy’s economic success is tourism and the massive amount of retail sales that come with tourists. Nevertheless, tourism activity has decreased worldwide due to lockdowns, strict quarantine rules and heightened fear. According to a report by the World Travel & Tourism Council (WTTC), Italy has been forecast to lose a total of €36.7 billion from its economy due to the drastic reduction of international travels this year. International visitor spending could drop 82% – equating to a shortfall of €100 million a day, or €700 million a week – if fast solutions to revive Italian’s economy is not taken.
While Italy’s economy is dominated by only a handful of large businesses – some of which are state-owned, a considerable part of the economy thrives thanks to over three million smalls to medium-sized enterprises – many of which are retailers and most of which are owned by families or a partnership. Some of the biggest and best-known retailers in Italy are the Benetton Group, Prada, Geox and Bottega Veneta.
Supermarkets dominate the “big four” retailers in Italy. These are Coop Italia, Conad, Esselunga and Eurospin. Those big four retailers became even more evident during the pandemic period. For instance, in fear of running out of food and toilet paper, Italian consumers engaged in a wave of panic-buying and stockpiling. Between March 9 and 15, Italy’s grocery sector witnessed a sales increase of 16.%, according to Statista.
During its nationwide first lockdown, Italy experienced significant growth in retail sales value compared with the average values of 2019. Consumers in the southern regions were the most eager to make provisions. During the first weeks of the first lockdown, the retail sales value in the south grew more than 25%. The categories that witnessed the « highest growth in online sales were grocery, which saw a 56% increase ».
Italy only came out of the first lockdown on 18 May 2020 in a partial way. Many sectors such as enter-tainment and sport remained closed with an impact on the commercial sector. At the reopening of shops, retail trade suffered greatly due to the loss of receipts related to the closure and contraction in the spending capacity of families, decrease in income, and layoffs of many workers. In addition, the businesses had to pay fixed management costs – such as rental fees – which had been postponed for the period of the lockdown. Restaurants, clothing stores, and other services are still failing to recover appropriately, given the safety distancing limitations and general challenges of the Covid-19.
During the months of the summer 2020 Italy enjoyed a period of economic recovery, especially in the catering and national tourism sector, mostly because of the preference of Italians not to travel abroad. However, the lack of foreign tourists, mainly Germans and English, resulted in negative revenues compared to 2019.
A recent study from Statista shows that the country has registered a decrease of over 40 million international tourist arrivals in the last year and that the consequences for the tourism industry are estimated to extend for a couple of years. We should then understand the impact of this emergency on households` economies and look at inflation. Consumer price inflation is expected to have fallen slightly below zero during 2020. It means that prices could decrease, but even with such a decrease, the purchasing power is not necessarily going to rise due to other factors, such as unemployment, a drop in salaries, and the fact that people will likely tend to spend less during situations of uncertainty.
According to Retail Gazette, Italy saw changes in the retail industry when the government decided to postpone seasonal sales that used to take place typically in July to August. It created an even bigger problem for the retail sector. Fashion retailers in Italy usually are inundated with international tourists, particularly those from China, United States and the United Kingdom, which the sector indeed felt their absence.
The retail industry has invested in online and digital commerce since the beginning of the lockdown in March. However, this is not something that one can perfect in a day, nor is it enough to cover all the losses they have had in traditional retail. In addition, Italian consumers are less used to buying online as the shift to online shopping was only recent. The silver lining of the pandemic was that it pushed Italy into digitisation a lot faster than expected.
According to a report from Research and Markets, banks face pressure on their earnings and asset quality due to the country's socioeconomic shock. Given the expected scale and length of the disruption to Italy’s economy, it is no surprise that crucial banking indicators will suffer. The Bank of Italy’s plans to ease the impact of Covid-19 by providing temporary relief to the recently left unemployed people. For instance, to protect consumers’ interests, the Italian government has temporarily suspended all mortgage payments and other medium and long-term debt payments. Such a strategy will help keep the number of impaired loans to a minimum, but maintaining profitability will be on lenders for many upcoming months.
Finding a way out of the pandemic
According to Nielsen, the overall confidence in Italy about economic rebound has kept relatively flat since the last Fall, following recent restrictions, and consumers are still cautious when it comes to spending and engaging in out-of-home activities. They switch brands and places to shop in search of value. Beyond Covid-19, Italians have acquired at-home alternatives to out-of-home activities; in particular, new platforms and channels of entertainment and wellness apps and habits show robust and lasting power.
Despite the current situation, consumers demonstrate new behaviour adoption that tends to be lasting throughout the following years. Nielsen reported « five significant new consumer behaviours » that can be observed:
I. Steady overall optimism
17% of consumers are optimistic about economic recovery vs 13% in November 2020. Italians are among the least optimistic about economic recovery after Covid-19, with 21% of respondents having a pessimistic expectation about the economy’s recovery, only behind France (32%) and Spain (31%). In general, Italians believe Covid-19 will have a lasting impact on the economy and show regression/fall into a lengthy recession. Even with the vaccination campaigns, Italian consumers’ confidence in their economic recovery is only partially improving. Nevertheless, 54% think the economy will be impacted for 6-12 months and will stagnate or show slow growth after that.
II. Signs of spending recovery
47% of consumers expect to splurge in 2021 to reward themselves. However, consumers expect a less pronounced income and savings reduction, which is stabilising spending. 44% of Italians had a slight decrease in their household income. Only 15% are spending more, and 44% are saving more money.
Italians are eager to return to getting together with friends (45%) and indoor dining at restaurants (36%). So far, the most prevalent activities consumers are engaging in are shopping in-person for groceries and other necessities (90%) and shopping in-person for non-necessities (64%). Using public transportation, ride-sharing services, air flights and trains are yet very slowly growing.
The product categories increasing in terms of consumption are mainly groceries, food takeout and delivery, household supplies, vitamins and OTC medicines and entertainment at home. For the year 2021, travel and dining are the categories in which Italians expect to treat themselves the most, followed by apparel, shoes and accessories, electronics, and beauty and personal care. More than 70% of splurge spending will come from money that consumers have on hand, not from reducing spending elsewhere, saving or using credit cards or any other pay later option. In general, there is an overall eagerness to spend more in several categories post-Covid-19.
Home spending is also one of the most relevant categories increasing due to Covid-19. Thirty-five per-cent of consumers have made significant life changes involving work or study, and many have renovated their homes, such as setting up a gym at home and/or a specific work-from-home space. Eight percent decided to move from their previous houses to a new city, the countryside, family houses, or bigger or smaller homes.
III. Stickiness of digital
Three digital trends consumers picked up during the pandemic are (i) online stickiness, (ii) delivery ser-vices, and (iii) at-home entertainment and digital wellness. When it comes to Online Stickiness, 92% intend to continue purchasing online post-Covid-19. Meanwhile, regarding the Delivery Services trend, 50% of consumers currently using restaurant delivery plans to continue post-Covid-19, and 45% of con-sumers currently using grocery delivery intend to continue post-Covid-19. Finally, about At-home Entertainment and Digital Wellness, 66% of consumers currently using wellness apps intend to remain using after Covid-19, and 75% of consumers currently streaming online aim to continue post-Covid-19.
Online purchasing after Covid-19 is expected to grow across almost all categories. Many categories will benefit from lasting online penetration, especially entertainment and consumer electronics. On the other hand, restaurant pickup and delivery work pretty fine for consumers now during restrictions but may not last post-Covid-19.
Working from home should be lasting for Italians after Covid-19. Fifty-seven percent of consumers expect to resume pre-pandemic habits regarding work from home. Twenty-five percent will either work only from home or do so more than before Covid-19. Only 19% affirms they intend to work outside home more often.
IV. Rebalancing of homebody economy
Twenty-nine percent of consumers have invested in new uses of their living space at home. Engagement in « normal » out-of-home activities remains low, mainly due to the ongoing and recent restrictions. Only 22% of Gen Z individuals are doing out-of-home activities, while Millenials (13%), Gen X (11%), and Baby Boomers (10%) are considerably less involved in such activities. Restrictions and vaccination coverage mainly drive such orientation to out-of-home activities. In general, 88% of people are not currently engaging in “normal” out-of-home activities because they are waiting for the ease of government restriction, vaccination coverage, and Covid-19 no longer spreading.
New entertainment and wellness habits show lasting solid power. Behaviours such as cooking regularly, online streaming, wellness apps, digital workout, online gaming and others are among the most used.
V. Evolution of loyalty
Seventy percent of consumers have changed stores, brands, or the way they shop. 85% of millennials and Gen Z have tried a new shopping behaviour, such as buying from a different brand (35%), different retailer/store/website (28%), or a new digital shopping method (23%). Furthermore, more than 70% of consumers plan to maintain such habits after the Covid-19 pandemic.
While value and convenience are top reasons for consumers to shop in new places, 22% switched for purpose-driven reasons. Value corresponds to 64% of the reasons for shopping at a new re-tailer/store/website since the beginning of the pandemic. Better prices/promotions, better value and better shipping/delivery costs gained more relevance. Purpose-driven reasons involve supporting local business, more sustainable choices, or the treatment made by companies to their employees. Buying quality and organic products also raised in relevance in consumer decision, reaching 30% of consumers.
The « new normal » in the Italian retail
As Italy succeeds against the Covid-19 storm, further changes will be prevalent, including emotional relaxation as people get used to new ways of living and working. Accordingly, people will also maintain habits they have adopted during the crisis. Retailers, then, will need to identify those « sticky » behaviors that are genuine shifts in consumers. For example, engaging with shoppers in different ways as older consumers learn to shop online and decide that it is much more convenient.
Further challenges for retailers and brands will be finding the right balance between being competitively priced to encourage footfall and offering value to price-conscious shoppers while at the same time minimising the inevitable impact that might have on the supply chain.
Health and hygiene now affect what we eat, drink and the way we keep fit. Out-of-home consumption is being replaced by delivery and, as restrictions lift, we will continue to, at a certain level, eat and socialise at home with a smaller close friends and family. Shoppers will choose store payments at a distance and self-service, while online shopping and a more immersive digital experience will provide fewer of us going in-store to interact with retailers and brands.
Italy’s reconstruction post-Covid is also dependent on companies’ collective support and governmental injections. For instance, the lower house of Parliament Mario Draghi presented recently the €248 billion European Union aid for the « The National Plan of Recovery and Resilience (PNRR) ». Cushman & Wakefield shared that 40% of the financial resources will address ‘green projects’, 27% digital projects, and 40% will attend the historically under-performing southern part of the country with solid attention to gender inclusion and support for young people. The whole plan is an investment for the future and the new generations. The plan will decide the fate and the credibility of the country. The Recovery Plan’s financial support will be focused on three main objectives:
(i) Short term: to repair the economic and social damage caused by the pandemic;
(ii) Medium - long term: to face some weaknesses that have impacted Italy’s economy and society for decades with particular emphasis on the territorial gap (North / South), gender inequality, weak productivity growth, and low investment in human and physical capital;
(iii) Across these two main objectives, the plan aims to boost a complete ecological transition.
For companies, one year after the first lockdown in Italy, the resilience and adaptation should also have several learnings and an even more adaptive system to face the following challenges of the new normal. According to Retail Brew, brands known for their “Made in Italy” tags are more prepared to further governmental restrictions, and that is due to the successive need to adapt to the previous lockdowns. Companies are now ready to face the challenges by:
- New shipping routes: one of the first moves was shifting to other types of shipping, such as boating, airing, and so on;
- Local hires: finding locals to build teams showed how a strong working relationship could positi-vely impact the business;
- Flying out: having a global mindset and meet the international demand for new product catego-ries;
- Staying put: retaining production 100% in Italy as a sign to maintain the tag « Made in Italy » and loyalty to the local workshops—often multi-generational artisanal family businesses.
With the « old normal » going away and the « new normal » coming in, habits as social distancing and avoiding crowded places are now a feature of our lives. As a result, we choose to shop in local and smaller stores and work from home more regularly. All of us must get ready for this new normal. By drawing on lessons from the Italian market, retailers and manufacturers can understand what the future might look like in a challenging and uncertain period.
Conclusion
As Italy was the first country to be affected by the Covid-19 pandemic, the country had the chance to learn a lot from the ongoing, fast-changing and challenging reality of the pandemic. One of the main threats to the Italian economy was the decrease of over 40 million international tourist arrivals in the last year and the considerable consumption of consumer goods and services closely related to the touristic activity.
Nevertheless, the Italian retail sector keeps reinventing itself with creativity. As Italian consumers wait for vaccines coverage and the reduction of the Covid-19 spreading, they already present predictions and actual behaviours that seem to be lasting in the next couple of years. Italian consumers are demonstrating (i) steady overall optimism towards country economic rebound; (ii) signs of spending recovery, as they start to see the light at the end of the tunnel; (iii) stickiness of digital consumption, once the digital invaded our lives; (iv) rebalancing of homebody economy, to adapt to the restrictions and new ways of life; and (v) evolution of loyalty, with many demonstrations of consumers switching from different brands/stores/way of shopping.
The recovery of Italy’s economy is planned to take place through the combined efforts of government and companies. With the National Recovery Plan and companies’ adjustments to better face the pandemic, the country can have higher chances to fight the challenging scenario which the whole world is facing, enhance the local economy and avoid possible economic inflations and other related issues.
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