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    April 2, 2020
    8 minute read

    A Pivotal Moment for the Digital Shelf: Part 1

    by: Christian Hassold

    For too long, ecommerce budgets have been spread thin, forcing ecommerce leaders to make tactical investments that cannot scale. In my years of working with these leaders, I have found this is often the case because ecommerce operations are set up under the premise of "let's see how fast we can grow ecommerce sales with a limited budget."

    Economist Milton Friedman once said real change comes from a moment of crisis, whether it is real or perceived. This is a moment where consumer behaviour is likely to change ecommerce and retail dramatically.

    "Only a crisis — actual or perceived — produces real change."

    — Milton Friedman

    If there is a positive outcome of this crisis, it should be that ecommerce gets the investment it deserves to drive better consumer engagement and protect brand equity. We are already hearing that C-suite leadership at progressive brands are asking their ecommerce leaders to shrink three-year plans into one-year plans.

    I am concerned, however, because we also see some brands cutting staff and budgets at a time that is almost certainly as significant as the introduction of ecommerce in the late '90s. It is from this perspective that we wanted to share the opportunity this moment presents for brands and why now — more than ever — is the time to lean into ecommerce.

    How This Crisis Could Change Consumers and Ecommerce

    Before this crisis started, ecommerce penetration of retail in Europe was high, estimated at 63% in 2019. Penetration varied by country, the highest being 87% in the United Kingdom, followed by 79% in Germany and 70% in France, according to data from Eurostat. 

    Following the ongoing COVID-19 crisis, a recent Ipsos Mori poll found that 31% of consumers in Italy and 18% in the UK would spend more online because of coronavirus, while Astound Commerce has reported ecommerce sales surging by 129% across the UK and Europe. Of course, consumers are persuaded to shop online because going outside is risky, or their retailer of choice is closed.

    The real question: What lasting impact will this crisis have on ecommerce?

    In speaking with industry leaders, I have gathered that there are two opposing views on how this moment in time will impact ecommerce over the long term:

    • Outcome A, lasting ecommerce impact: Consumers who had previously not experienced online shopping will become “digital converts” that take preference for buying online when convenience wins over experience.
    • Outcome B, limited ecommerce impact: Due to poor experiences like stock shortages and delivery delays, consumers who were forced to shop online will be happy to return to shopping in stores when shelter-in-place restrictions are lifted.

    Given the variables that underpin these views, I thought it would be interesting to dive into the rationale behind these two potential outcomes.

    Potential Outcome A: Lasting Ecommerce Impact

    The argument that this crisis will have a lasting impact on consumer shopping behaviour is rooted in two ideas. First, by the time lockdown recommendations are lifted, many consumers will have adapted to relying on ecommerce. If this crisis had been a one- or two-day event, it would be hard to take that position, but this will likely be a multi-month long event for millions globally.

    Second, prior objections for not shopping online were due to a combination of perceived risks around trust, convenience, and speed. To be sure, a crisis where certain goods and services are in high demand probably put all of those things at risk, but we have ample evidence that people are enduring these perceived risks.

    Recent data from Nielsen showed a 14% increase in grocery ecommerce in the UK as a result of the crisis, for example. This data focuses on supermarkets and does not take into account the sharp rise in recipe box demand or the number of consumers that have resorted to buying directly from brand websites when their retailer of choice was out of stock. I have heard plenty of anecdotes to that effect.

    Potential Outcome B: Limited Ecommerce Impact

    The arguments that posture the current ecommerce surge as a short-lived event have been supported by two theories.

    First, the myriad of delays, stockouts, and price gouging that have been a recurring element of the online shopping experience during these past few weeks is a deterrent. If a consumer was already hesitant to shop online, dealing with product-availability issues and long delivery wait times is not going to encourage a consumer to return to that experience.

    The second idea is that after being locked down in a house for many weeks, consumers will increase their preference for brick-and-mortar experiences just to get out of the house. 

    Challenges for Potential Ecommerce Outcomes

    While these theories are relatable and solid arguments on the surface, three facts challenge their durability:

    1. Despite the challenges with supply shortages and delivery delays, Italy’s Supermercado24 grocery delivery service saw order volume up 164%, according to data from Kooomo. 
    2. Social distancing rules have limited store capacity, resulting in long wait times to shop in a physical store. Not to mention the many people who fear virus exposure and would rather wait a week for an online delivery window than go to a supermarket, pushing online grocery delivery services to expand their workforces.
    3. When lockdown recommendations are lifted, it is almost certain people will be conditioned to avoid crowded places for weeks or months after this crisis subsides.

    Other factors that play into favour with the “lasting impact” argument. Consider the broad set of categories that are largely convenience-over-experience purchases, such as toys and games, consumer electronics, and sporting goods. While each of these categories is at least 20% penetrated online (and double that figure for consumer electronics), plenty of retailers make big business focusing on these categories.

    But what happens to those retail loyalties when a catalyst event forces numerous retail chains and many thousands of brick-and-mortar shops to close for at least six weeks? It seems reasonable to project that a meaningful base of consumers will have developed new loyalties that drive future behaviour toward online shopping.

    What ‘Lasting Impact’ Means for Brands

    The outcome of what consumers are experiencing today requires that brands act with urgency to speed investments in ecommerce to protect their brand and position for future growth. Even if one is not convinced that this moment is a catalyst event,  it would be terribly risky not to evaluate possible investments now.

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