Coronavirus and the Future of Ecommerce
It’s no secret that the world is facing a severe global health crisis thanks to the coronavirus (COVID-19) outbreak. It has not only become a public health pandemic, but it’s also having a critical impact on global supply chains, and markets worldwide have been on a rollercoaster as a result of what economic impact it may have.
As the coronavirus continues to gain traction in the U.S., there have already been considerable consumer behavior changes. Self and mandatory quarantines, along with emerging consumer worry about public places, will provide opportunities for ecommerce businesses to thrive over the next few months and potentially permanently.
As consumers turn to digital options to avoid physical shopping environments, the behavior change may impact longer-term habits. For instance, we are all keenly aware of the modern shift in holiday shopping behavior when ecommerce sales rise sharply compared to the rest of the calendar year. Therefore, it is highly likely that we will see similar shopping patterns possibly lead to a “step-change,” one in which consumers will not return to previous behaviors.
Let’s discuss what a post-pandemic ecommerce shopping environment will look like and the best ways to revise your business model for success.
How Covid-19 Affected Consumer Shopping Habits
Due to quarantines, ecommerce sales in specific categories like consumer product goods, grocery, and staple items, have already seen marked increases, and Amazon Prime has already noted significant increases in membership along with sales within these categories. Grocery delivery is also seeing a boost. In Target’s recent investor call, the company discussed new ways for people to shop with pick-up, drive-up, and delivery to cater to their new customer habits. All of which could potentially be the foundation for the ecommerce step-change that the internet promised 20 years ago.
Studies show that consumer behavior is influenced by environmental, economic, and sociological factors, all three of which are evident with the current COVID-19 crisis.
According to data analysis from Quantum Metric, coronavirus is driving U.S. consumers online. Ecommerce retailers based in the U.S. experienced a 52% growth rate in online spending during the fifth to eighth weeks of 2020 (the period when the virus began rapidly spreading outside of Asia) compared to the same weeks of 2019. According to Quantum Metric, consumers may have increased their online shopping because their local stores have run out of stock due to delayed shipments, stockpile items, avoid busy public places, or take advantage of direct shipping options bulk purchases. Once consumers have become familiar and comfortable in the ecommerce space, they are likely to continue to make future purchases in this same manner.
Tamara Gaffney, VP of strategy for Quantum Metric, posted to her blog, “Without a doubt, the digital retail experiences customers have been having these past few weeks, good or bad, will have a lasting impact on (retailers’) ability to build much-needed loyalty into their consumer-base.”
Consumer habits are hard to change, but when events such as this happen on such a large scale, it forces the market to change. This is a change that consumer marketing has been preparing for since the birth of the internet. Still, it may have just taken a cataclysmic event to unleash the true latent potential of ecommerce, and it would seem the restraints may have been broken forever by Covid-19.
Fortune favors the Bold for Retail-Rebuilding Post COVID-19
The longer Covid-19 persists, the faster online sales are being driven online permanently, thus cementing the long-awaited ‘ecommerce revolution’ once and for all.
The ongoing pandemic has swiftly brought on unprecedented social and economic change on a global scale. Many business sectors, including travel, hospitality, and nonessential retail, came to a screeching halt throughout March and April. While still, other industries have seen unprecedented demand. Consumer packaged goods, food and beverage delivery, educational software, health and wellness, and video conferencing software have increased 10-fold.
However, many categories are still in flux. Take fashion as an example. Those brands that sell heavily in wholesale and retail channels have been a transformative experience, leaving many in crisis. Other brands heavily focused on ecommerce and direct-to-consumer have seen expectantly strong results. The reality is that most of these brands have some mix of retail and online sales.
COVID-19 Ecommerce Statistics
A closer analysis of marketing and ecommerce sales across 24 brands shows precise results:
- Brands that have restricted their marketing spend (greater than 40%), whether out of caution or necessity for cost-cutting in the face of the loss of sales, are seeing their online DTC sales struggle (-40% vs. the same period a year ago).
- Those who maintained their marketing spend have seen online sales weather the storm after the initial dip in sales seen at the crisis’s onset.
- Those that aggressively pushed forward with marketing and promotions are seeing unprecedented year-over-year sales growth.
Faced with precipitously falling sales the first two weeks of March, many brands had no choice but to cut their ad spend by about 50 percent, according to analytics firm MediaRadar. But not all brands took this approach. Those in categories like streaming, virtual conferencing, and food delivery took an aggressive approach, as expected. But a few retailers such as Muck Brands and Karen Kane have doubled down on direct-to-consumer.
With the assistance of Nogin, both brands have come out swinging. They leaned heavily into promotions relying on A.I. consumer profiles driven by the Nogin ecommerce platform. In doing so, Muck US has seen over 120% growth, well ahead of projections for 2020, while Karen Kane has been booming at 160%. Relying on the enterprise ecommerce solutions, both marginally increased marketing to get their message out, first to customers and eventually to prospects based on overwhelming response. Both brands have found a silver lining in this challenging environment.
Many might be surprised by this outcome, but they really shouldn’t be after looking at the data. According to a study in The Economist, consumer discretionary spending is down by more than 50%. However, consumers are still shopping online; the inability to spend on things like travel, restaurants, and childcare and reduced costs for things like necessary transportation mean that there is still strong discretionary spending on ecommerce beyond essential goods. Throw in the fantastic discounts being offered all over the place, and it makes sense why, outside of a dip in mid-March, overall, nonessential ecommerce has fared well.
Adjusting Your Ecommerce Shopping Strategy
Depending on the chosen strategy, individual brands are seeing wildly different outcomes. While overhead for brick and mortar, such as rent and payroll for sales associates, is the cost of doing business in the retail world, digital advertising on Instagram, AdWords, and Facebook (among others) is the price of doing business online. While brands that have pulled back on marketing may conclude that online demand is soft, it is hardly the case. The brands that are fighting for it are taking the share of wallet.
Brands with both large retail and wholesale presence face difficult choices. They know cutting back on marketing will harm the bottom line. Many brands are opting to save their resources for a few months awaiting for stores to reopen. Although this seems to be a logical move facing a significant sales channel’s closure, people’s timeline to return to retail shopping is very much still in limbo.
As states and retail commerce begin to open back up, consumer fears may still slow the return of retail. The longer consumers remain hesitant to return to brick and mortar establishments, the more likely it is we will finally realize the commerce capabilities the internet has promised since the first “.com” boom of the 1990s.
Despite toilet paper hoarding and panic buying, many consumers are trying online purchases for the first time; others increase online purchases because it is the only option. Either way, through the sentinel event effect, simple psychology tells us that many of these short-term consumer behaviors will lead to a permanent shift. And although some of this behavior will stick, and with states gradually re-opening retail, the presumption is that a return to normalcy is just around the corner.
Everyday sociology, however, tells us that although retail stores will open, the expected rush of customers in June might never come. As we have already seen in states like Georgia, stores could likely re-open to a flood of week-one returns and very lukewarm subsequent traffic. It may take a long time or even a vaccine before consumers fully return, if they do at all, to some semblance of their pre-pandemic shopping behavior.
In the face of such uncertainty, decision-making can be strategically challenging. Moreover, rushing blindly into the digital world is not the right move for any brand. But taking the time to hone your messaging and getting your ducks in a row to define your re-opening promotional strategy is crucial. This is your opportunity to define your strategy with the specific goal of building your online sales channel.
Right now, you have the opportunity to redefine your brand. Take this opportunity to design market tests that validate your online marketing efforts. Begin to develop testing strategies to weigh your promotional successes, however incremental they may be. Dive in to rebuild your ideal customer profile and scale into new markets, and “always be testing.”
Hone in on what messaging strategies, based on observable data, can effectively drive online purchasing behavior. Utilize this time to determine your cost of acquisition effectively, and figure out what makes sense for your business to spend. Transform your brand digitally to meet your target audience. The longer you wait for normalcy to return, the more likely you will be to wake up six months from now with multiple under-performing sales channels.
Retail Shopping Trends Post Pandemic
Tens of thousands of retailers have closed their doors to help stop the spread of the coronavirus across the country, either by choice or through government mandate, and according to industry experts, they may not be rushing to revert to the old days of retail anytime soon.
On its face, things do not look well for retailers. The widening pandemic could permanently shutter more than 15,000 stores across the U.S. While some stores begin to re-open in accordance with eased limitations in some states, nonessential retail largely remains closed for the foreseeable future. Moreover, more than two-thirds of America remain on stay-at-home orders.
E-commerce has seen a noticeable uptick. However, analysts are skeptical that it will make up for sales lost due to store closures. In an interview with Retail Dive, Doug Stephens said that luxury brands that hadn’t yet fully embraced ecommerce would be one of the biggest-hit sectors and that fear of viral contagion could also hurt the resale market.
The re-opening of retail couldn’t come sooner.
According to Retail Dive, department stores only have about five to eight months of liquidity before a cash crunch becomes a risk factor. Companies such as J.C. Penney, Macy’s, and Kohl’s have reported only about 5-8 months of available cash, while analysts have pegged Nordstrom to have about a full year. Therefore, with physical locations likely to remain shuttered for a while longer, the pandemic has many retailers in a tough spot.
But that’s only the half of it. Just because stores are being given the green light to re-open in many places, consumers seem to be less than eager to return to traditional physical shopping. Surveys show that consumers continue to have lingering fears of infection, with two-thirds of respondents telling the Washington Post they wouldn’t feel safe going into a retail clothing store.
Moreover, a survey from Fluent found that only 34% of respondents were even comfortable with governors lifting stay-at-home restrictions. Ethan Rose, EVP at Nogin, was previously interviewed as saying, “the longer this pandemic lasts, the more fear and uncertainty will necessitate an evolution in the consumer processes.”
Bob sat down with the executive staff of Nogin this week to get their insights as to what the future of retail holds when things attempt to “return to normal”
Here are some of their most insightful thoughts on the issue:
We Won’t Return to Any Sort of Normal Without a Vaccine
Jan Nugent, CEO at Nogin: As we know, sheltering in place was meant to slow the virus, not cure it. And as we move back to somewhat normal life, there has to be an understanding that, in essence, nothing has changed. Without a vaccine, businesses cannot guarantee the safety of their employees, vendors, and customers; but some precautions, like facemasks and daily testing, can be made to limit exposure.
But as simple as that sounds, this is an unprecedented time (unless you were alive in 1918). However we proceed, it must be with caution. Facemasks and wide-spread daily testing will be the norm. Distancing availability, fewer people per space, and hospitals will have to be equipped to handle the increased caseload.
Understanding Your Customers’ Needs
Rikke Alderson, Chief Growth Officer: Now more than ever, truly understanding your customers’ needs will be paramount to current and ongoing success for businesses.
Brands need to understand that most society is now working in a completely different environment from just a few months ago.
In that time, shopping patterns have drastically evolved, necessitating a shift in strategy by virtually everyone. For example, shopping habits seem to have shifted regarding the traditional role of seasons. We are already seeing up-tics in footwear, loungewear, athleisure, and negative flows within formal wear or cocktail fancy attire, which are relatively abnormal buying patterns for this time of year.
As such, the opportunity to leverage search engine query volumes correlative to fashion and apparel will be super edifying around what consumers are looking to purchase today versus last year at the same time. Moreover, once stores begin to reopen, with the initial phase of curbside pick-up versus browsing and the like, we expect stores to see greater clarity from the consumer on what they are looking for versus opportunistic buying.
Public Safety Comes First
Kurt Lohse, SVP: Nonessential stores should only reopen after the Coronavirus transmission rates have dropped to federal, state, and local safety regulation levels and when it is safe for workers and customers to interact. Active measures should be taken to provide 6′ distances during work hours, and protective masks and gloves should be required until an effective vaccine is made available.
Retailers and shoppers alike may adopt protective gear for some time. The three most significant changes I see relate to additional space becoming a requirement to maintain 6′ distance guidelines, limited in-store customer volume control, and added extra cleaning measures to be taken regularly to ensure virus-free surface transmissions.
Companies Should Focus on Their Operations and Digital Footprints
Henry Henderson, Logistics & Supply Chain Executive: Due to the struggles keeping up with demand amidst consumers’ anxiety and protecting front-line sales associates, it’s impossible to pin down a date when things may even resemble returning to normal in the retail world. So until we have a definitive answer as to when people will be back in stores, brands and companies should be focusing their operations and go-to-market strategies around digital fulfillment.
In the absence of in-person experiences, consumers focus on the essentials, and the transition to digital fulfillment has been swift. This crisis has highlighted the absolute need for last-mile connectivity, apart from reimagining traditional single-carrier dependency models and centralized warehousing. In effect, this translates to creating micro-fulfillment centers leveraging the omnichannel capabilities of the store. If nothing else, we see the importance of agility and connectivity being the fundamentals your brand will need in the new normal.
Leave It to the Scientists
Geoff VanHaeren, CTO: As we are already seeing, the opening is being done on a state-by-state basis, as data presents itself. This is key; all decisions surrounding states’ opening needs to be based upon science and empirical data. Of course, people are getting stir-crazy and can make their own decisions, but this needs to be handled from a top-down approach.
Consumer feelings can not be what directs the opening of society. I don’t have experience with infectious diseases, so I am not qualified to respond to “when” questions. What I do know is that the virus doesn’t care about people’s feelings. I will leave those decisions to scientists.