Can Ecommerce Carry the Retail Industry During Coronavirus?

As businesses across the United States and around the world grind to a halt amid the coronavirus crisis, one industry has something of a lifeline: retail. While the vast majority of retailers, with the exception of grocers and pharmacies, have temporarily closed their brick-and-mortar locations, they can still sell goods to consumers on their websites or the websites of their retail partners. The success of the retail industry, then, would seem to rest firmly on the shoulders of ecommerce. And while digital has long been touted as the future of retail, the coronavirus pandemic presents an opportunity for it to flex its muscles. But analysts say that even in 2020, ecommerce can't carry the industry entirely, and a financial setback is inevitable, not only because of the lack of stores, but also because many people aren't thinking about spending on anything but the essentials with millions of consumers already feeling the pinch.[article_summary section="1"] "It's not being distributed across every category; it's being distributed in a cluster," Sucharita Kodali, lead analyst at Forrester, said of where ecommerce sales are happening. At the center of that cluster is Amazon, which is seeing skyrocketing sales, particularly for household items, food and other essentials. Other retailers are bound to perform well during the ongoing pandemic. Costco, for one, is seeing throngs of panicked buyers in its stores and online, and Target has also run out of several essential items online. For stores that sell nonessential items, it's been a different story. "In the near term, [ecommerce] is just not going to replace [sales] by any stretch of the imagination," said Thomas O'Connor, a senior director and analyst for global retail at Gartner.[article_summary section="2"] But that doesn't mean ecommerce isn't going to pick up some of the slack. According to MediaRadar, ecommerce ad spend has jumped from $4.8 million to $9.6 million from mid-February to the beginning of March. And that ad spend is having a positive effect on sales. New research from Quantum Metric shows that fashion and general retailers have seen a 106% increase in sales this year compared to the same period last year. Fashion retailers have seen a smaller, but substantial effect: a 43% year-over-year bump. Even for businesses that are doing well online, ecommerce is still only 20-30% of their overall business, O'Connor said. So unless there's a massive spike, losing physical retail sales is going to hurt the bottom line. Zeroing in on digital is also a method that's proved successful in China, where the worst of the pandemic has come and gone. In an earnings call Tuesday, Nike CEO John Donahoe said that focusing on digital while stores were closed in China allowed Nike to avoid a steeper decline in sales. For retailers to shift focus to their digital arm, however, requires that digital arm to exist in the first place. For those that haven't invested in digital, this moment will be something of a reckoning and will showcase the power of the direct-to-consumer model for brands. For example, Purell and Charmin, both of which have products in high demand right now, don't have their own ecommerce platforms. Instead, their websites point to retailers where their products are sold. "They were asleep at the wheel for the last decade," Kodali said. "And now it's too late." Though sales for such products aren't hurting, the lack of online ordering capabilities is a missed opportunity—not only for the brands but for consumers who want to purchase their in-demand items. Other retailers that have ecommerce platforms but haven't invested in them are experiencing the same thing. "Retailers that have done digital to defensively cover that base but they've never really done digital to win, are going to jump in now and realize they have to really step on the gas," said Allen Adamson, CEO of marketing firm Metaforce. "It shows that digital has to be mission critical for every retailer. They can't just check the box." Brands that have made digital their top priority are in a better position to weather what comes next. Direct-to-consumer businesses, for one, may find themselves at an advantage. While some have expanded into physical retail, digital still represents the bulk of their business. However, if consumer trends are moving toward not buying, there's not much retailers can do, even if they have a comprehensive digital presence (and are offering discounts). "If you have an ecommerce site at a time where nobody is buying your stuff anyway, that's not going to help you," Kodali said.[article_summary section="3"] That could change if stores remain closed and consumers are forced to adapt. O'Connor said that depending on how long the lockdowns last, it could be long enough to permanently alter consumer behavior, and the increase in online shopping could continue long after a return to normalcy. "Maybe older consumers who have historically avoided shopping online for all types of products become more comfortable," he said, "and we see a material increase in online sales and the percentage of total retail sales that are online sales." Added Adamson, "This will be a catalyst to have digital dominate in almost every category."