Covid-19 as an Outside Context Problem for physical retail stores
An Outside Context Problem was the sort of thing most civilizations encountered just once, and which they tended to encounter rather in the same way a sentence encountered a full stop — Excession, by Iain M. Banks
An Outside Context Problem (OCP) is something that is unexpected, game-changing, and often fatal to those encountering it. Since the conception of the phrase, it has been applied in fields varying from political science to medicine to history. There are plenty of examples from the real world, of varying importance and relevance.
The most obvious historical example would probably be the European colonists, such as Pizarro, as they landed in the Americas. They represented a true Outside Context Problem to the South and Central Americans, one which completely upended their cultures and civilizations. The Europeans brought guns, and more importantly, novel diseases, neither of which the indigenous cultures had any defence against. The contest between the two opposing forces was intensely one-sided, akin to the proverbial unstoppable force instead encountering a fully movable object. The rest is, as they say, history.
Another, more recent, and maybe more relevant, OCP would be the internet and its effects on journalism. Before the internet, the primary, and uncontested, source of written journalism was newspapers; however, the internet has ‘democratised’ the ability to write stories and articles, and a whole host of ‘alternative media’ are now competing with traditional media houses (the irony of this story being written on Medium is not lost on the author).
In 1990, no one foresaw just how major an impact the internet would have on journalism, and as a result, media companies were slow to adapt. This is understandable, as the internet represents an Outside Context Problem, and thus is hard, or impossible, to prepare for ahead of time.
There have been a few previous examples related to written works, most notably the printing press democratising books (something most readers are familiar with and thus doesn’t warrant further elaboration), and the introduction of Freedom of the Press in Denmark in the 18th century leading to a massive number of low-quality, often derogatory and inflammatory, pamphlets and semi-newspapers being spread so widely that the government had to implement some restrictions to curb the development. Today, the line between blogs and news publications are blurred, and many such sites, such as the Gateway Pundit (Wikipedia) and Infowars (Wikipedia), are effectively inflammatory and derogatory conspiracy blogs masqueraded as news (this development mirrors the historical Danish one, as does the more recent calls for stricter regulation of fake news and conspiracy theories)
This has had a profound impact on the entire sector. Earlier dominant news publications are often struggling, and many have been forced out of business. To counter this, most newspapers have added an online version, and many have moved away from a subscription model entirely, instead being funded mostly or entirely by ads; ads are also the way many alternative media sites are being funded.
Another way that journalism has adapted has been by clickbait headlines, attempting to hook people by a sensational headline in order to get them to click the article (thereby generating ad revenue), often accompanied by a paywall. Some news sources, such as the largest Swedish newspaper, Aftonbladet, use clickbait headlines, and then paywall the articles when they reach a certain popularity threshold. Whether or not this is a positive adaptation, or even one sustainable in the long term, remains to be seen, but as the following paragraph shows, the ad-based approach isn’t necessarily going to be successful.
For news companies, the issue of social media is very much an existential one; today, a majority of people get their news from social media, which often then removes the revenue for the news source, instead transferring it to the social media companies. For a company that has adapted to the loss of subscription revenue by adopting an ad-based funding model, this obviously presents something of a problem. As a result, there have been legislative efforts across the world (notable examples being Australia and France), to force social media companies to compensate news companies, as governments try to protect their respective countries’ news and media businesses. As you might expect, social media companies react to said efforts with much teeth-grinding and threats, but in the end they still tend to adapt rather than withdraw from the market.
The above description is by no means exhaustive, and does not fully capture the situation, but it should give you an understanding of what an OCP could look like in the business sector.
In the same way, the Covid-19 pandemic has been an OCP for physical retail stores; as customers have stopped frequenting physical stores, either due to enforced lockdowns, due to personal choice because of the risk of infection, or both, a large number of stores have been forced to close, many permanently.
Of those closures, a disproportionate amount has been businesses without an online sales channel. This makes a basic kind of sense: customers may be unable or averse to going to physical stores, but still retain their needs and demands (to some extent, at least; while demand for funeral attires are up and demand for party clothes are down, people still need clothes to wear). Thus, they turn to online shopping to fill those needs, best illustrated by the fact that online stores such as Amazon have seen a massive increase in sales during the pandemic.
Now, the shift from physical to online sales had been ongoing for more than a decade already, so ascribing the entirety of the shift to the pandemic would not be accurate (Amazon wasn’t started in 2020, after all); the pandemic merely accelerated a shift already underway. The difference between that earlier, gradual, and more balanced, development and the effect of the Covid-19 pandemic, is that the latter abruptly and permanently, changed the market, meaning that many of those businesses who didn’t have a well-developed online sales channel by the time the pandemic hit (and some didn’t even have one at all) encountered something of a full stop.
One of the things making the pandemic into an OCP is the fact that, while an increased digitisation was foreseeable by all, and while everyone knew that pandemics can and do happen occasionally (though rarely), no one expected one in 2020, and virtually no one (except disaster event planners in various government agencies, and probably quite a few risk vampires, that is, insurance analysts) expected one to hit as hard as Covid-19 did.
In the various other, recent, pandemic scares (such as the Swine Flu, SARS, and MERS), the world didn’t shut down in this way, commerce didn’t collapse (though in one case it already somewhat had because of the 2008 financial crisis still affecting the world in 2009). This probably contributed, in part, to the complacency many felt at the start of the pandemic — What should have meant that businesses were all prepared for a pandemic, instead resulted in many not expecting one at all. Thus, the severity of Covid-19 as an Outside Context Problem is greater than it could have been.
This shift, like the change in how we consume, and engage with, journalism, is unlikely to go away, if for no other reason than that it had been going on for a long time before Covid-19 hit. Moreover, habits are hard to break, and while going to a physical store location has its benefits (such as being able to try on clothes before purchasing, instead of having to send them back if they don’t fit), it is often not enough to counter the convenience of being able to buy things without having to leave home. Humans, despite their industrious capacity unequalled by any other species on Earth, are still often both lazy and exertion-averse.
As countries have begun opening up, retail sales have recovered (a small grace not enjoyed by all the businesses that have closed permanently already), though only partially and varying by sector.
Interestingly, even in countries such as Sweden, where there has been no mandated lockdown in the manner employed by most countries and where stores have generally been kept open (with some limits on the number of customers allowed in store at any one time, and with quite a lot of people frustratedly yelling at others to keep their distance), online sales have grown massively by almost every metric, in terms of types of goods purchased, in terms of amount purchased, in terms of groups shopping online, and in terms of the number of people shopping online.
In Sweden in July 2020 (link in Swedish), online sales were up 45% compared to July 2019. In December 2020, online sales were up 50% compared to December 2019; additionally, the share of people buying food online in December 2020 was 24%, double the number in 2019.
Similarly, the UK, which saw extremely heavy lockdowns compared to Sweden (including hefty fines for private citizens), began opening up in April. Instantly and as expected, physical retail sales were up, and online sales went down; the online share of retail sales fell from 34.7% (ons.gov.uk) to 30% between March and April. That may seem like a big drop, but in April 2019, the share of online sales was 18.7%.
Seemingly, having an online sales channel during the pandemic would have been beneficial, and in many cases, a necessity. Of course, a company can adapt, creating an online store if it didn’t have one already, or upgrading the one they have if it was outdated or underperforming. However, creating an online sales channel can be very time-consuming, especially if the business sells a wide range of different items, and even more so if done without simplifying tools like Woocommerce, Shopify, Magento, or any of the other options available, such as Google Shop, Facebook, Instagram, and Pinterest Shops, and so on. There is also the option of selling through Amazon and similar services. Doing so removes the problem of having to deal with packaging and delivery; another way of solving the problem of not having the infrastructure to deal with suddenly selling online is using a third-party logistics provider, thereby outsourcing the entire process.
The advantage of creating, or upgrading, an online sales channel is not merely resilience in the face of this specific pandemic, or any similar event, but also a way of creating an advantage over businesses slower, or worse, at digitising, as well as a way of reaching new customers (nationally, even globally if the products sold allow for it), thereby increasing profits.
Lastly, another way the pandemic has acted as an OCP for physical store retailers, is that people have been spending considerably more time on social media. If the business does not have an online sales channel, it is much more difficult to take advantage of that, given that social media marketing, and advertising in particular, is much less effective at driving sales at a physical store location (even if customers, like the Swedish masses, are still allowed to go there) than it is at driving sales in an online store.
Physical store-only businesses that, pre-pandemic, did just fine with regular marketing (aggressively canvassing newspapers, sending out newsletters, advertising on TV, and for those most desperate or old-fashioned, on radio) driving customers to their physical stores, now suddenly not only faced a dropoff in customers, but also a distinct disadvantage at reaching new (and existing) customers.
My advice going forwards for businesses is to plan for unexpected, sudden, and brutal market changes. Try to imagine OCPs, both sector-specific and market-wide ones, and how to mitigate them. How would the business handle a disaster that knocked out the production in any given country? Does the business have backup suppliers ready? Alternative delivery routes, methods, or delivery companies? Are there plans and deals in place for sudden worker shortfalls? Any substitutes for important raw materials being outlawed because they’re suddenly deemed too carcinogenic?
Most importantly, what’s the plan for dealing with something entirely unexpected? What processes are in place for reacting to it? Who has the responsibility of overseeing it? Does the business have a way of identifying potential dangers? Is management open to hearing that something will go very badly, or does it ignore such warnings?
Lastly, I leave you with a few examples of coming and possible scenarios that any decently-sized company should be planning for. They may not be likely (especially not the last one!) and one might not be able to fully plan for every event, but by the virtue of its nature, an Outside Context Problem is most dangerous specifically because it is outside the context one is planning or prepared for; minimising the amount of things one cannot contextualise, then, minimises the events one cannot plan for, or adapt to.
Of the challenges I’d advise you to at least think of, and consider, the most obvious one is climate change, which will be (and already is) creating problems across the world. Draughts will be more common, impacting a lot of sectors (making cotton for clothes more expensive, reducing the availability of certain types of food), working outdoors will be more difficult due to the heat, and so on. Other challenges would be sudden civil wars or wars of aggression, terror attacks, or the obviously very unlikely and downright preposterous event of a large share of world trade being halted by a single giant ship blocking off a major trade route by accident.
Expect the unexpected; contextualise the uncontextualised. Prepare. Adapt. Overcome.
Odenetheus Bellander,
Key Account Manager and Business Analyst at iMarketing AB, a Swedish firm specialising in digital marketing and e-commerce
