The retail sector needs to be prepared for the two ecommerce waves that are coming so their businesses can survive the coronavirus challenges and be ready for revival on the other side.
eCommerce will play a critical role for the retail sector as we respond to the coronavirus (COVID-19) challenges and will drive lasting change to consumer behaviours. Even prior to the current environment, Australia’s retailers were primed for ecommerce to grow rapidly in 2020. The sector can expect to see two sequential waves of accelerated ecommerce growth as a result of the coronavirus (COVID-19). The duration, scale and time between these waves of growth will depend on the effectiveness of local and global interventions to manage through the dual health and economic crises. And different categories will be impacted differently throughout these waves.
Wave 1: The shock switch from physical to online channels as a result of public space shutdowns.
Wave 2: Regrowth starts and sticks online, due to permanent changes to shopping behaviour.
While the grocery, liquor, healthcare, home maintenance and recreational sectors may realise an increase in ecommerce trading during this first wave, apparel and footwear in particular will suffer. However when the second wave takes force, the apparel and footwear categories will likely resurge stronger than ever.
The First Wave
Currently we are in the first wave. The people who normally fill malls and shopping centres haven’t disappeared. They may be more conscious of expenditure and buying different products, but they are still shopping. The queues are invisible but they’re crashing servers and online fulfilment processes around the country. Many ecommerce channels cannot meet the current demand – meaning lost sales.
Categories that have been slow to move online are now needing to ramp up this capability and capacity, and quickly. The industry as whole needs to act fast and deliver creative solutions to widen access to the channel. Some of the ways retailers are dealing with this new demand is through converting stores to dark stores, creating click and collect pop-ups, ramping up phone ordering if ecommerce platforms are unstable, converting store teams to local delivery teams and partnering with other retailers. While these solutions are inelegant, it enables revenue to keep flowing and people to remain employed through the lockdown period.
The Second Wave
The second wave of ecommerce growth will come as consumer confidence begins to recover, as it did in the wake of the Global Financial Crisis (GFC) which triggered a four-year ecommerce boom. By this stage consumers will have become accustomed to buying all their purchases online during physical distancing restrictions. When they are ready to spend again, it will start online – and more transactions are likely to stay online. Activity will return to shopping malls but digital will likely play a much larger role. Retailers with truly omni-channel experiences will be best positioned to benefit during the early recovery period.
We saw this enduring shift in consumer shopping behaviours as the economy recovered from the GFC. During the crisis period many Australians experimented with online shopping for the first time as they looked for new ways to save money. As the purse strings eased, it became clear that everyday Australians had embraced ecommerce – and growth almost doubled over the next four years.
A history of ecommerce growth in Australia, pre COVID-19
Source: KPMG analysis; NAB Online Retail Sales Index; Australian Bureau of Statistics
* Online retail penetration calculated as total online retail spend divided by total retail spend (including groceries and liquor; excluding cafes, restaurants and takeaway food services)
At first customers will still be cautious with money – and cautious consumers do more research prior to purchase and wait for sales events. On the flipside, retailers will be eager to clear inventory surpluses left by the demand side shock and try to stimulate sales. This combination of frugal consumers and inventory surpluses will likely lead to aggressive discounting globally and ecommerce sales events, such as Black Friday, could escalate to a new level.
Growth of ecommerce shopping events in Australia, pre COVID-19
Note: * Sale period was double the length of 2018
# These events occurred later in 2019 compared to 2018
˄ VOSN – Vogue Online Shopping Night
Source: Australia Post – e-Commerce update February 2020; National Retailers’ Association; Kogan
We expect to see a shift in the range of products bought online. Currently online retail penetration in Australia is behind other parts of the world – indicating the high level of latent demand for ecommerce that coronavirus (COVID-19) could release. Previously, Australian consumers largely bought more discretionary items online, such as apparel and consumer electronics. Now they are also shopping online for essential items, including groceries, pharmacy products and alcohol. In the post coronavirus (COVID-19) era we expect most categories to experience an acceleration of online channel growth.
Potential for ecommerce penetration uplift, post COVID-19
*Online retail penetration calculated as total online retail spend divided by total retail spend (including groceries and liquor; excluding cafes, restaurants and takeaway food services)
Source: KPMG analysis; BRC – KPMG Retail Sales Monitor; Retailer sentiment & interviews; Australian Bureau of Statistics; Australia Post – Inside Australian Online Shopping (2019); NAB Online Retail Sales Index; Office for National Statistics (UK), Statista
Another change we can expect to see will be a shift in consumerism. Our collective current experiences will affect how people think about money and material goods, and how people live and shop. The current state of physical distancing is highlighting for many the value of community and connection to our environment. Consumers will have a renewed focus on health and wellbeing, family time and improving their home environment and will expect retailers to provide all these things at a value price point, sustainably and responsibly.
The UK is one of the world’s most developed eommerce markets and overall penetration is:
- 2.3x Australia including grocery
- 2.4x Australia excluding grocery.
COVID-19 will likely increase penetration across all categories, but some more than others due to:
- potential vs UK penetration, pre COVID-19
- expected consumer demand for product categories during the social distancing period.
The bar for Australian will keep moving given that the UK is also set to experience an increase in penetration due to COVID-19.
So how can retailers prepare for these waves of change?
- Rapid ecommerce capacity supplementation must be part of every retailer’s immediate crisis action plan.
- Omni-channel experience investments should be accelerated in preparation for the recovery period.
- Start assessing inventory pain points and prepare to respond to an always-on sales event calendar.
- Elevate products speaking to value, health and wellness, children and family time, community and home.
- Re-build with strong socially and environmentally aware propositions that deliver great value and customer care, as spending money, even on essential items, becomes a careful decision making process.
We will all benefit greatly from the achievements of the pre coronavirus (COVID-19) digital revolution. Australian’s have the tools to manage our groceries, our payments and finances, our relationships, and our health and well-being despite physical distancing. As a result the retail sector has the ability to recover faster and in better shape, than even five years ago.
However it is time for retailers to fast-track digital transformation. Many retailers in Australia are far from achieving this and must be careful not to rush with permanent solutions too quickly to avoid regret spend. Once short term solutions are in place, retailers need to invest time and effort into designing a more flexible operating model that can respond to crises like the coronavirus (COVID-19), which experts say could become more common. Digital and ecommerce is a lifeline for consumers, retailers and employees, and core to retail’s survival and its revival.
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