COVID-19: Retail & E-commerce Reinvented

The COVID-19 pandemic has spurred governments, central banks and brands into a frenzy of action to save lives, and to protect livelihoods and bottom lines. Economic and fiscal rulebooks have been rewritten overnight, and business models have rapidly adjusted to stay relevant — and afloat — in response to a “black swan” crisis, the likes of which the world has never seen before.

While short-term mitigation efforts continue, brands and business planners also need to understand what happens next. What will the coming months bring? Consumer behaviours and attitudes will suddenly come to the fore — and which will outlive the current coronavirus crisis? What will the next normal look like?

The immediate impact on retail and e-commerce

With consumers told to self-isolate, brick-and-mortar retail — beyond grocery stores and pharmacies — has virtually ground to a halt. This has led to unprecedented pressure on e-commerce and delivery infrastructure.

Before the coronavirus crisis, the rise of the sharing economy, including Airbnb, WeWork, and Uber, was well documented. However, as the home has now become our only place where we live, work, exercise, etc., there will be an adaption to the concept of ownership as people aim to be prepared by trying to own everything needed to survive another lockdown.

At the same time, consumers are changing their buying habits to purchase just the minimum of what they need during the lockdown, they are becoming more aware of the positive environmental impact of the lockdown. This is evidenced by many social posts and memes of the improved air quality in LA and cities in India and clearer water in Venice. So, when the lockdown passes, people may be hesitant to order more things — as they may have more than they need — or go back to a carbon-heavy output, especially as they’ve adapted their home spaces to be multi-functional.

As people seek online entertainment and work from home, we’ve seen massive spikes of Internet usage during the lockdown. This increased Internet consumption is likely to continue — especially by those who did not use the Internet as much prior to the pandemic. This is what’s happening in China, as older people get used to online shopping, ordering offline delivery using online payment, and surfing sites like TikTok.

During the lockdown, social will continue to grow in importance as people seek to maintain connections. The Houseparty app became an overnight sensation as millions of people look for ways to stay in contact during lockdown with friends and family in countries across the world. And in China during their lockdown period, social became important for brands to keep engaging with customers. Many social platforms started to equip with a built-in live-streaming function enabling many brands, including offline retailers, to leverage live-streaming to entertain and sell products to consumers.

With the postponement or cancellation of major sporting events around the world, mainstream sports have moved to gaming to maintain interest during downtime. This translates into a watershed moment for gaming and Esports. Gaming is no longer a guilty pleasure. Any taboos associated with the pastime are lifting as the merits of playful leisure become lauded with players safely staying at home.

With nearly everything outside of home closed, the subscription business is booming and new forms of consumer loyalty are being tested. Additionally, in-person retail — including entertainment, meals and drinks out — is pivoting to online and delivery, and wholesalers that supply London’s restaurants are now delivering fresh produce to consumers’ doors.

In China, we have witnessed a surge in social commerce. During China’s lockdown period, only certain people ventured outside to purchase goods. As a result, people in the same neighbourhood formed WeChat groups to order together and appoint one to buy for the group. Meanwhile, many offline retailers, such as skincare counter assistants also formed a WeChat group to keep in touch with their customers and sell products.

For brands to adapt to these circumstances, the lowest risk or effort is not in changing the product, but changing the distribution, which plenty of restaurants are doing by going to take-out only. At medium risk is changing the volumes for a product that can be sold, such as larger bags of coffee. The greatest risk is in the development of entirely new products or service, something likely to happen as the economic impact of the crisis forces brands to adapt.

As the crisis lingers, economic uncertainty and low consumer confidence may delay further the purchase of bigger ticket items such as cars, real estate and large appliances. This might force brands to explore new forms of payment, for example, leasing or deferred payment.

We will likely see many of the impacts continue for the next 12 to 18 months, however, as we move beyond the initial stage of the pandemic, we will start to see a bounce back to more normal habits but with more safeguards and flexibility in place.

Changing retail logistics

With the increased demand for groceries and certain products, supply chains have been stretched. As a result, technology that reduces human-to-human contact, automates processes and increases productivity amid social distancing has been fast-tracked. We anticipate these changes sticking as the pandemic creates opportunities to test technological advancements such as delivery drones and worker robots. As the current increase in e-commerce is maintained, there is likely to be further expansion in distribution logistics.

Off the back of these changes will be more horizontal and vertical integration from brands. One example of this integration is restaurants pivoting to sell restaurant-quality raw ingredients for home cooks. This restaurant-at-home trend, combined with the professionalisation of home kitchen equipment, presents an opportunity for future development.

What comes next

With the coronavirus outbreak radically altering how people shop, the big question is how many of these new behaviours are here to stay. The expansion of home delivery and an entirely online path-to-purchase are speeding up the transition to presence-free commerce. Similarly, retailers are being forced to upgrade their digital engagement, bringing customer service online and experimenting with new channels like shoppable livestreams. Positive customer experiences during this time of crisis could lead to a longer-term commitment to e-commerce, further reshaping the post-COVID-19 retail landscape.

Once the lockdowns are lifted, we anticipate seeing an immediate bounce towards the things we’ve been missing — an increase in meals out at restaurants, social gatherings at events and bars. It’s also possible that we’ll see an immediate indulgence of quality (rather than quantity) of goods and services demanded, as people reward themselves for enduring a period of reduced consumption.

In China, where quarantines are being lifted, there’s been a rise of revenge spending — a pent-up, lavish expenditure of goods and services. The fallout of the virus in China has impacted the younger generation who have known nothing but prosperity, and we are seeing an increase in traffic to financial planning apps during the recovery stage. As other countries recover, we expect a similar trend: initial euphoria of consumption followed by a hybrid of behaviours both pre- and post-crisis.

Big brands and retailers will likely feel the impact of local-first consumer preferences. AB InBev have seized on this already with their Save Pub Life initiative whereby you purchase a gift voucher from a local pub and Budweiser will subsequently donate the same amount to that pub.

In the longer term we will likely see acquisitions of local businesses by larger competitors, cooperatives of independents partnering together to share logistics, etc., and the logistics companies starting up to service those needs.

Lastly, we anticipate the Death of the Startup Unicorn. Startups may need to change their models significantly. Their failure to turn a profit and ambitions for rapid growth will likely be snubbed by investors and VC. We anticipate seeing increased eco-friendly and Corporate Social Responsibility efforts.

Steps for brands

Brands will need to monitor if any of the new consumer habits developed during lockdown and recovery are permanently maintained as normality slowly returns, informing long-term product roadmap decisions.

There may be a post-COVID-19 legacy. Now that those who are able to work from home have become used to it, there’s a chance its benefits will lead to them working from home more in the future even if offices return to normal. For retailers, this means that city centre brick-and-mortar traffic and sales are likely to be affected.

Retailers are going to need to embrace new e-commerce purchase models and work smarter at enticing people into their stores.

Privacy will be a massive topic as governmental controls during lockdown may not be relaxed to pre-COVID-19 levels. Given the experience in China as the government leads to integrate data from different platforms to track an individual’s path in public, people may rethink data privacy. As a result, people may be more open for government or tech giants to use individuals’ data for public health emergency or security purposes.

The extent to which new consumer behaviours emerge in immediate response to the pandemic, and are sustained in the longer term, depends entirely on brands’ ability to adapt and change existing products and services, or develop entirely new ones.

This is a season of opportunity for brands to take stock and move in new directions. However, speed is of the essence! Your brand can be agile, and remember it’s better to make multiple smaller but faster bets now than waiting until consumer behaviour has settled (for it may settle around innovations created by your competition).