COVID-19 Will Drive a Paradigm Shift in Consumer Spending
April 14, 2020
Focus Area—Canadian Economics
Even before COVID-19, there was a clear divide in performance between physical retailers and e-commerce. Online sales were experiencing double-digit growth while sales at bricks and mortar stores were at a standstill. In the current environment, developing an online presence for physical retailers has moved from a need-to-do to a matter of survival. This is not a short-term imperative. With consumers now learning new behaviours and habits, social distancing will drive a shift in buying patterns that will outlast the COVID-19 crisis.
Physical retailers are acting quickly in the face of an unprecedented challenge. Off-the-shelf technology solutions, such as Amazon Marketplace or Shopify, is one way they can quickly develop an online presence. As well, many are starting with curbside pickup options to meet local needs when established delivery services are experiencing surging demand. Their focus generally starts with a few high-volume products and gradually expands. Establishing digital inventory and supply chain management systems can speed up this process, particularly in a world where many traditional supply chains have been disrupted.
Restaurants are also getting into the act. Many restaurants are using platforms like Uber Eats or Skip the Dishes to service their customers during these challenging times. However, grocery store sales have surged at the expense of restaurants. People are preparing far more meals at home, as dine-in restaurants have shuttered and skyrocketing unemployment is leaving people with less money to spend on take out. A rising number of restaurants are responding by developing websites that allow them to sell grocery items. “Grocerants” are becoming far more common.
Canadian consumers are well positioned to take advantage of these new web-based offerings. We are among the heaviest users of online content in the world, but our e-commerce spending as a share of retail sales has lagged global averages. Canada’s widely dispersed population is commonly cited for this odd situation, but the current crisis will drive a paradigm shift in online selling.
The capacity being built now will improve with time as businesses test what works and what doesn’t—but it won’t be mothballed. The “Amazon effect” trained consumers to expect a breadth of products available at their fingertips with lightning-fast fulfillment and delivery. The COVID effect will also ingrain new habits. The proverbial genie is out of the bottle and there is no going back.
As with any disruption, some will benefit from this change, while others will either emerge diminished or not at all. Retailers who cannot adapt quickly enough will clearly suffer. So too will providers of retail space, unless they are able to become an integral part of an improved hybrid electronic/physical shopping experience.
Clearly the technology platforms that enable e-commerce will be beneficiaries, but others will also profit. These could include delivery companies, as well as retailers that successfully create hybrid delivery models. Manufacturers and service providers that can build direct relationships with their customers, effectively cutting out the middleman, may also be unexpected winners.
The keys to success will include basics such as an easy-to-use website, cheap (or free) and timely shipping and pickup options, and good return policies. Things that set online retailers apart may include product suggestion algorithms, immersive experiences, and environmentally sustainable features or options.
Retailers have been feeling the pressure to move to the virtual marketplace for years. COVID-19 could be the crucible through which the next era of Canadian retail will be created.