The COVID-19 pandemic has hit an immense number of businesses around the world, bringing in a devastating outlook for the global economy. Online-based businesses such as subscription services or online stores managed to survive, but can the economy survive the pandemic’s long term consequences?
To really understand what that means for businesses, big or small, we need to start from the consumer behaviour.
Whilst a lot of governments imposed measures and lockdowns, more consumers started shopping online and more often. According to new data from IBM’s U.S. Retail Index, COVID-19 forced the shift away from physical stores to online shopping by approximately 5 years. In other words, people weren’t just going online, as most physical stores were closed, they were actually buying more.
In the beginning, there was panic-buying.
As COVID-19 was officially declared a pandemic by the World Health Organisation and the news spread quickly, people responded by stocking up. They started by buying out medical supplies and masks, basic food supplies and even toilet paper! Soon, many e-commerce giants like Amazon were struggling to keep up with demand, and product prices went through the roof.
Humans respond to crises in several odd but almost predictable ways. When faced with uncertainty that increases the insecurity we have over our future, we tend to rush towards what we can to regain control of the situation.
And then it was the stay-home boredom.
The huge spike in e-commerce sales derived mainly from the second quarter of 2020, where most economies in the world suffered a series of lockdowns, setting life and economic growth on pause. People stayed at home almost all day, meaning they had to ‘exercise’ their consumeristic instincts somewhere else than physical stores. People started buying all sorts of products that they’d typically use at home for cooking, DYI, video games, workout equipment etc., whilst also spending less on products typically used outdoors such as apparel.
Department stores, as a result, saw significant declines. In the first quarter of 2020, department store sales and those from other “non-essential” retailers declined by 25%. This grew to a 75% decline in the second quarter.
But what really saw an exponential rise in e-commerce sales, was online grocery.
People were turning on online shopping not just because of convenience and availability in-store but also due to safety. Grocery stores and supermarkets remained open even during lockdown, however consumers preferred the online delivery route to avoid coming in contact with crowds.
Bankrupt retailers amid coronavirus pandemic.
Several retailers globally filed for bankruptcy in 2020 (21 in US). 17 of those retailers did so during the U.S. Lockdowns and store closures have posed extreme pressure on revenues, pushing already-struggling companies into bankruptcy. The oldest U.S. department store Lord & Taylor filed for bankruptcy in early August. In December, Debenhams, Britain’s biggest department store chain, is permanently closing its UK operations.
That changing behaviour.
One of the challenges of the retail economy is whether the online purchase behaviour will continue even after the pandemic. Initial statistics show that e-commerce is here to stay. Amazon sales showed the largest lift YoY during July and August, where restrictions were being lifted. This shows that even if people are able to shop in-store, they may not prefer it. So businesses need to ensure they ‘capture’ that need even when not in-store.
E-commerce alone isn’t enough.
We’ve seen some businesses failing to respond to the new reality, but did they all lack e-commerce stores? Debenhams did have e-commerce, but it lacked promotion (consumers need to know you have an online store available) and beating the competition of big aggregators (ASOS, Zalando) is not an easy task.
2020 has been a challenging year for the retail economy. 2021 will be a transformative one. In order to survive, a solid online presence is the bare minimum for retailers. Then advertising, promotions, online store optimisation are a few things that are fundamental for the continuity and the growth of their business.
It is not only an imperative for businesses to go digital. It is a responsibility for governments to educate and empower businesses for a sustainable economic growth. Not all businesses will be ready to go online by 2021 and governments and industry bodies need to recognise this reality. Organisations such as Facebook have run several support programmes for small businesses, but this is not enough. There needs to be collective effort from government and private initiatives for the greater good of the economy and its longevity.