The Debate: No going back?
As consumers stayed home and took to online shopping in unprecedented numbers, the COVID-19 pandemic accelerated the pace of e-commerce exponentially in many countries. Will this period therefore transform retail forever?
The coronavirus pandemic hasn’t just changed the way we live. It’s also changed the way we buy. Online shopping has thrived, because customers have found it to be easy, convenient and – crucially – safe.
In reality, of course, e-tail was already big business, with many millions of purchases being made online every day. Indeed, the unstoppable rise of e-commerce had been felt on the main street for years, with both new and long-established names forced to close their bricks-and-mortar stores. Still, has the pandemic changed the nature of shopping again – and this time irrevocably? In this installment of The Debate, Lee Spratt, CEO, DHL eCommerce Solutions, Americas, and Jens Torchalla, partner at management consulting firm Oliver Wyman, discuss what the retail landscape will look like going forward. Is this the beginning of a shopping revolution? And, if so, which retailers will be equipped to thrive and survive in this new environment?
With the rise of e-commerce, the retail sector has evolved over the last decade to meet consumers’ changing needs. And in response to the COVID-19 pandemic, digital buying became, for many consumers, their safest and preferred option to obtain the goods and essentials they were seeking, thus fast-tracking e-commerce growth.
According to a study by McKinsey, e-commerce penetration in the U.S. jumped from 16% in 2019 to 33% in July 2020 – a decade of growth in two quarters.
The pandemic ushered in a new era for retail e-commerce, which will never return to its pre-pandemic sales levels. This is evident in U.S. consumer surveys that show that two-thirds of shoppers have tried new ways of shopping in 2020, and they plan to continue doing so.
As we hit the one-year mark of the global outbreak, many consumers have had long enough to permanently change their buying habits, allowing e-commerce to be part of their everyday lives in the future.
The COVID-19 pandemic expanded the number of active e-commerce shoppers, and lured individuals who had never shopped online before to try e-commerce for the first time during lockdowns. Occasional online shoppers also increased the frequency of and expanded their shopping into more online categories. With the experience of convenience, safety and other online shopping benefits, such as buy online and pick up in-store, shopping exclusively in brick-and-mortar stores will for many be a thing of the past.
For retailers, the pandemic forced businesses to prioritize e-commerce and place it at the top of their business agenda – making it a matter of survival. Those retailers with the greatest ability to be agile, innovate and adopt or strengthen their omnichannel approach are those who will survive in the long term. Therefore, this period will not mark the end of retail but will instead establish a retail model transformation, in which physical stores and online shopping will not be considered a separate but rather a complementary, integrated retail concept. With this new model, the role of stores and malls is likely to change. They will become centers for social interaction as well as showrooms used to market a product, while the inventory is located elsewhere.
What does a retail transformation mean for logistics? In 2020, logistics operators worldwide made significant infrastructure investments to handle the elevated number of business-to-consumer (B2C) packages. For example, in 2020, DHL eCommerce Solutions in the U.S. invested $30 million to expand key distribution centers in Atlanta and Los Angeles, adding temporary space in major markets and more automation across the U.S. network. This resulted in higher efficiency gains in processing parcels and a better delivery experience, which enables further e-commerce growth. With the growth in parcel volumes, we are likely to see delivery models evolving, too, as better inventory management and fulfillment capabilities optimize end-to-end delivery efficiency.
In summary, I believe that we have seen a fast acceleration of trends that we’ve been observing in the past years, leading to a fundamental transformation of the retail sector.
The COVID-19 pandemic triggered a surge in e-commerce, as many people bought groceries and other goods online for the first time. But will customers continue their new habits after the crisis? Or will they go back to bricks-and-mortar retail?
We think retail is changing for good. The shifts in habits have not come out of the blue but are instead accelerations of transformations that were already beginning in many segments. However, this does not mean the end of physical retail. The pandemic has shown that people want to – indeed, are desperate to – get out and consume in a sociable environment once they have the opportunity again. So, while a significant and growing share of purchases will remain in e-commerce, the retailers that thrive in the future will be those that combine digital and physical shopping in a multi-channel experience. In order to be successful, such an experience must be inspiring and fun, while also safe and efficient.
The pandemic’s impact on various retail segments has differed hugely since early 2020. Department stores and fashion retailers with physical stores, for example, have been hit extremely hard by lockdowns and restrictions. But many DIY and grocery stores have thrived: People are eating at home instead of in canteens and restaurants and buying more garden and home-leisure equipment.
A key success factor for retailers at the beginning of the pandemic was their readiness for the new era. Businesses that were prepared for increasing online baskets, and that set up digital and e-commerce ecosystems for seamless fulfilment and customer service, benefited – or, at least, slowed the bleeding of revenues.
Retailers will only thrive in the new environment if they invest in people, IT and other capabilities. Consumers will expect a greater variety of delivery and pickup options, including click-and-collect and ship-from-store fulfillment. Retailers in segments such as grocery, fashion, electronics and DIY will have to invest in their in-store experience and features such as endless aisles – in-store kiosks that let customers order products that are out of stock or not sold in-store and have them shipped to their homes. Live-shopping interfaces, which combine reviews, recommendations and digital purchases, will be increasingly important in segments such as fashion, beauty, and apparel. Customer service will need to operate across these multiple channels.
Players able to offer their customers an integrated omnichannel experience will continue to attract customers to their stores – as well as their online shops and marketplaces – even as competition grows from online conglomerates.
The necessary investments will only be possible if retailers become more efficient throughout their organizations: at headquarters, in all operations, along their supply chains, and in stores. It requires significant change in culture and management behavior to adapt to future requirements and become faster in realizing the transformation.
Published: March 2021
Images: DHL; private