What now for retailers?

Consumers say they want to buy in-person but have grown used to delivery convenience

Friday, May 7, 2021, Vol. 45, No. 19
By Joe Morris

When Tennessee communities shuttered in March 2020, small businesses with a model that relies on heavy in-person traffic – restaurants, retail stores, etc. – were hit particularly hard. Now some of them are cautiously pursuing more normal operations and putting into place the hard lessons learned over the last 13 months.

First, the devastation.

Even with some federal financial support, including the Paycheck Protection program, many failed. By December 2020, the National Restaurant Association was reporting that 110,000 eateries, or one in six nationwide, had permanently closed or shuttered for the long term.

Retail is harder to track since it’s often a catch-all term, but the Federal Reserve recently reported that businesses providing personal services could account for as many as 100,000 more closures between March 2020 and March 2021 than historical levels.

Like their counterparts elsewhere, Tennessee restaurateurs and their retail counterparts that survived had to quickly find new ways of connecting consumers with their products. What they learned should help them get back on their feet quicker, and be more prepared for another worst-case scenario, says Stephanie Noble, Proffitt’s Professor of Marketing and William B. Stokely Faculty Research Fellow at the University of Tennessee’s Haslam College of Business.

“There was already a major shift to online shopping in the retail landscape prior to the pandemic, and it just continued,” Noble says. “Smaller retailers may not have been ready, and those who survived were able to get an online presence going. That has enabled them to think about how they can raise their visibility, how they can tie into other local merchants and become better known in the community.

“They also relied on their local chambers of commerce and other business partnerships to help get the word out about them through public messaging and advertising campaigns.”

Now, she adds, businesses will need to find ways to blend their new operational strategies with in-person consumer interactions. Restaurants and retailers are learning to thread the needle between old and new operational strategies.

“People want to go into a store and touch things, to look around,” Noble adds. “They want that store, or restaurant, atmosphere, so they are going to come back. At the same time, they have gotten used to curbside, that easy interaction. I have grocery delivery now, and it will be very hard for them to get me back in the store, for instance.

“And if I can get clothing sent to me to try on, I may continue to do that. Everything from inventory to supply chain is going to be affected as businesses navigate how to rebuild in-person and also keep the online business going.”

Retail’s online move hastened

Retailers also took a more focused approach to what they were selling and how they could get it into the hands of customers. A closed storefront meant that the loading dock out back got busy, something that’s likely to remain a part of operations even as foot traffic is possible again, says Sam Davidson, co-founder and CEO of Batch Nashville, which started in 2013 selling locally made products via a subscription box. It opened a physical presence in the Nashville Farmers’ Market in 2014.

“Right before the pandemic, we were really excited about what 2020 was going to look like for us,” Davidson says. “We were going to expand our retail concept into other cities. Then our first casualty was our Nashville store, which produced half our annual non-Q4 revenue. And we’d just bought a lot of springtime stuff, so we were ready for all those tourists that never came.”

After a brief “panic mode” period, Davidson says the staff moved all product to their warehouse and began offering online discounts. Online had been about 20% of annual revenues, and so the goal was to build that.

The effort also kept retail staff employed, since they could handle packing and shipping chores. There was also some new marketing, such as the creation of work-from-home care packages and other creations that reflected the times. Still, the future was far from certain.

“It was really scary, and the other co-founders and I thought this might be it,” Davidson acknowledges. “We eventually turned a corner in two ways: One, we were able to develop a lot of new customers and up our corporate sales online, and we grew our base of customers outside Nashville in a big way.

“We never had to shut our warehouse down, because we were deemed an essential business since we were packaging and selling food items. We began to get a lot of calls from companies, and we ramped up virtual gift events. Our team hustled, and we connected with a lot of folks who wanted to support a small business whose mission was to save other small businesses.”

Batch eventually ended 2020 with 25% growth through doubling corporate sales and tripling its online sales. The company added a staff position, even though the retail store is permanently gone.

“I guess if there’s a takeaway, it was that if you’re a leader you had to communicate that you were uncertain, too,” Davidson says. “Just like everyone else, it was our first pandemic. And it was hard to tell people that we didn’t know if they would have a job after the next two weeks, but at least we were telling them what was going on.

“And we discovered how important it is to build your network before you need it – because last year we really needed it.

“The people we have met in other businesses over the last eight years, the business organizations like the chamber and the convention and visitors team, the more than 400 businesses whose products we sell. We all had to help each other, and that meant relying on those partnerships and making new ones,” he adds.

“There’s still a lot of uncertainty, but we’re coming out on more solid footing because we used that community, we are a part of and spent the time building up.”

Supply chain, sanitized clothes

Non-food retailers also found ways to adapt. Now the trick will be to ensure that inventory will flow smoothly so newly reopened storefronts have the stock they need, says Scott Schimmel, who, along with wife Lisa Sorensen, own Bliss Home furniture stores in Knoxville, Nashville and Louisville, and women’s boutique and gift shop Bliss & Tori Mason Shoes on Gay Street in Knoxville.

“Our concepts are pretty different, so the way we are getting back to normal is not the same, either,” Schimmel says. “The clothing stores are coming back a little faster due to supply chain issues for larger goods, like furniture. With the boutiques, we were totally shut down for two months, and then when we reopened, we couldn’t use our dressing rooms. So, it’s been slow to come back there, but it’s been an ongoing process that has evolved.”

For example, a sanitizing machine was purchased to clean clothes once customers were allowed to try them on again. That’s still in use but has been scaled back some from the days when everything was taken off-site for sanitizing. Even so, it’s now part of the stores’ landscape and will factor into how goods are cared for.

“We were also way behind on our e-commerce,” Schimmel adds. “We had a presence, but it wasn’t very impressive. So, we put a lot of time and energy into a temporary site and are about to relaunch our main site for the clothing stores after relaunching the furniture store main site in March.

“The pandemic showed us just how far behind we were, and that gave us the impetus to spend the money, time and energy to making sure our websites were much better.”

Now Bliss, which began in 2003 as a “catch-all” kind of store, as Schimmel describes it, and eventually morphed into its two current iterations, is staring at the rest of 2021 to see what’s around the corner.

“The supply chain issue is going to take along time to resolve, and this year will be tough – but not as tough as last year,” he says. “It’s not going to be easy for a while, but I’m hoping by 2022 we can look back at all this from a place that’s a lot more normal.”

Cocktail truck, working outside

In any other usage, being kicked to the curb would be a bad thing.

For restaurateurs in 2020, however, it was a lifeline to stay open while their indoor spaces were closed or vasty diminished.

Curbside pickup, along with online ordering, third-party delivery services and other ways to connect food to consumers, were all on the table, says Demetrios Klonaris, whose family has been operating restaurants in Knoxville for more than 20 years and now operates Spaces In The City, a hub for its Café4, Kefi, Vida, The Vault, The Square Room, The Press Room and City Catering.

“We’ve got three restaurants, a bar and two venues, so it’s a combination of factors that we’ve had to deal with,” says Klonaris, vice president of operations. “We had a lot of unknowns during that first month when we were completely shut down, and then we had to look at each space differently once we could operate again.”

For instance, the downtown restaurants really couldn’t leverage curbside since there was little to no foot traffic. Instead, deep cleaning and remodeling took place, the projects Klonaris says “you don’t normally get to do when you are up and running.

“And then there was the advent of the cocktail truck.

“We were still struggling even when carryout was possible, and then our local and state government were very helpful with some new regulations, such as allowing the outside sales of alcohol,” he explains. “We came up with the idea of a cocktail truck, because at Kefi we do craft cocktails on draft. We worked with local partners to acquire bottles from distilleries that couldn’t move their inventory, and we bottled drinks.

“We’d post on social media to let neighborhoods know we were headed their way, and then we’d park at a clubhouse or other site and distribute food and drinks that way.”

By leveraging the strengths of the restaurants, bars and catering sites, they were able to keep them all going, or at least viable, over the following months. Moving ahead, things like online menus are definitely here to stay, Klonaris says, as well as the resumption of traditional, in-person service.

“We’re going to make it easy for our guests, whatever that looks like,” he says. “People are a little more willing to order in now, and we’re ready for that. For those that want to come out for a special occasion, that’s available, too.

“We’ve learned to operate leaner in the last year, and also how to adapt and change our processes and procedures so we’re not inhibiting ourselves if we have to deal with the unexpected. Now we have new streams of revenue, which will help us as we regain steam and continue to grow our businesses.”

Chattanooga incubator rolls on

Certainly, more established restaurants were able, in some cases, to pivot to a new operating model. But what about those entrepreneurs who’d just opened their doors, or were otherwise in the fledgling state, when March 2020 hit?

They faced some unique challenges, says Mia Littlejohn, one of the co-founders of the Proof Bar & Incubator, a multifaceted site that offers a restaurant residency program for concept testing, an incubator for entrepreneurs in the food/beverage space and a cocktail bar, in Chattanooga.

Proof did a hard shutdown for two months, then resumed patio operations last spring. At the same time, it continued to work with those in its incubator space so they could keep as much momentum going as possible, Littlejohn says.

“I think we’re a little bit ahead of the curve in Tennessee in terms of fully reopening, and we’re seeing everyone come back from their various shutdowns as they adjust for capacity and try to bring furloughed staff back,” she adds.

As for trends, she says that third-party delivery and curbside pickup are “baked in” now to most any restaurant model. What that’s doing is giving them more options, and allowing them to ramp up areas of sales, such as whole-family meals and catering, that might not have been on the literal table before.

“There’s always been a lot of flexibility in the restaurant industry, and I think for some models that have really struggled to sustain, or who have not had the runway to weather the shutdowns, they just couldn’t adapt,” Littlejohn says. “If you relied on a downtown office crowd for lunch, and all those people began working from home, it was hard to stay open. We saw a lot of pain points created that people were not able to overcome.”

At the same time, she points out, when a restaurant would close, there was often someone ready to take that space. That has proven true in Knoxville and Nashville as well, say local officials, which bodes well for the overall industry.

“We saw people go ahead and open their space in spite of the pandemic,” Littlejohn notes. “The fast-casual sector had its challenges, as well as fine dining, event catering, venues … no one approached it the same. But we saw continued interest in all those areas, and now we’ll see how they do as reopening continues.”

‘The employee pool’

One problem that that has carried over from pre-pandemic days? Staffing issues. While unemployment numbers are far higher than they were just over a year ago, it’s still a battle to find and keep qualified food-service personnel in the state’s urban markets. That, and securing funding to get the doors back open, or opened in the first place.

“People who had been working in the industry found work elsewhere when they lost their job, or got furloughed,” Littlejohn says. “Some of those people may come back, but a lot of them are going to stay in that new career. The employee pool will come back, but if restaurants get busy really quickly, they are going to struggle with that issue.”

One benefit will be the new processes that many restaurants put in place that allow them to do more, or at least as much, with fewer staff, adds Tim Moore, director of communications at Proof.

“The successful ones figured out how to change their service model to have less staff and still handle volume, and they are probably going to keep those changes,” Moore says. For instance, they may have limited table service and expanded counter service. It’s about how to operate leaner.”

The challenges are many and the unknowns significant for all small businesses, not just those focused on food service and retail sales. Even so, those two have been hit possibly the hardest, and also have proven to be the most resilient in many ways. Can that keep going? It’ll depend on many things, not the least of which is that most mercurial of things, entrepreneurial spirit, Littlejohn says.

“When you look at the food and beverage sector in 2020, you see a group of people who got as many curveballs thrown at them as you can imagine,” she says. “Everyone was forced to reevaluate why they are in business, why they are excited about what they do. That’s letting them emerge stronger and clearer on why they do the work they do.

“People learned how to adapt, innovate and adjust to a lot of variables they could never have anticipated. I think that’s why this sector will come out stronger and better and create a better guest experience.”