The Disruption to Businesses
It is no secret that the world of e-commerce changed significantly with the advent of the COVID-19 pandemic. The disruption to business has been severe, especially in the retail segments of grocery, quick service restaurants, and home goods. With employees becoming front-line workers, supply chains, and inventory disruption, a major shift in consumer behavior from in-store to online shopping — all this has upset business operations as we knew them.
The result has been a major change in operating costs and margins for retailers. While demand has been up for lower-margin products; many higher-margin products have seen lower sales. Companies with physical sites have experienced higher than normal labor costs in the form of requiring additional employees to screen customers, installing protection barriers at checkout aisles, and keeping all surfaces consistently clean. Many also have had to pay a COVID premium to workers who are afraid to go to work. Supply chain disruptions further skewed costs and margins, putting pressure on profitability.
Businesses responded with triage tactics to meet these challenges, including offering curbside pickup, improving their online presence, and even launching how-to videos to help consumers navigate the new digital normal. There were also attempts to capitalize on the trends with home goods by launching DIY videos, improved chat capabilities to allow for online customer support and sales, and deep discounts on many items while scrambling to keep other items in stock. Despite these tactics, profits for many continued to erode as the ‘new normal’ grew.
However, the silver lining of this storm is that e-commerce grew immensely. According to McKinsey, 10 years of e-commerce adoption was compressed into three months. Those companies that had already built a digital infrastructure were poised to capitalize on the disruption. Consider the unprecedented growth in e-commerce from few companies:
- Walmart’s e-commerce sales surged by 97% in Q2’20
- Target acquired 10 million new online customers in 1H’20
- Wingstop grew sales by 64% through its digital channel
- Amazon’s Q2 North America revenue increased by 43% due fueled by a tripling of online grocery sales.
We can all agree that this is good news all things considered and analysts assure us that online shopping will continue to grow past the pandemic. According to Refinitiv, a global provider of financial market data and infrastructure, e-commerce sales are forecast to account for just over 15% of all retail sales in the fourth quarter of last year, according to Refinitiv, and the share is likely to reach nearly 17% by the end of this year. Traditional brick-and-mortar retailers have taken heed and are ramping up their digital presence by offering more robust online shopping experiences as well.
It’s helpful to remember that this phenomenon is more than an acceleration of e-commerce growth, it’s really a major shift in consumer behavior that was in early adoption prior to the pandemic. After all, consumers have been prioritizing convenience and personalization for years. The explosion of digital transactions in such a short time has fueled these demands exponentially.
In our next installment, we will explore consumer reactions to the pandemic. Meanwhile, watch the webinar on Winning the E-Commerce Race to hear about retail and e-commerce lessons learned during the pandemic.