Shopping behavior changed dramatically as the coronavirus pandemic spread across North America, leading many retailers in the 2020 Digital Commerce 360 Top 1000 rankings of North America’s leading online retailers to quickly adopt new strategies.
As the COVID-19 crisis plays out over the course of 2020, it seems clear that the Top 1000 retailers in the strongest position are those with robust capabilities in areas such as omnichannel and mobile services, as well as those with enough cash or credit reserves to get through a possible recession.
Here are six ways in which the COVID-19 crisis is likely to impact online retailing.
1. Online shopping will go up
When many stores selling nonessential items were ordered to close in March by government decrees, consumers moved their shopping online. U.S. online sales increased 49% in April over the prior year, according to Adobe Analytics.
Consumer surveys suggest the shift to online shopping will continue as long as COVID-19 remains a threat. A survey of 1,200 consumers in late March 2020 by research and consulting firm Retail Systems Research found 90% of shoppers were hesitant to shop in stores because of the coronavirus and 45% expected online shopping would be a necessity for them during the crisis.
A separate survey in April by Digital Commerce 360 and Bizrate Insights found that 55% of online consumers said they were ordering more online than they were before the virus hit, up from 26% in March. And 22% said in April they were ordering a lot more online, as opposed to only 6% in the March survey.
Barring a rapid easing of the health crisis, there could be a big shift to online shopping during retailers’ two biggest seasons of the year—back-to-school and holiday shopping. 23% of retailers surveyed March 17-25 by consulting firm Forrester Research and logistics technology provider Narvar Inc. planned to shift resources as a result of the coronavirus outbreak.
2. A recession will hurt retailers of discretionary products
With businesses laying off millions of workers in March and April 2020 as the coronavirus shut down much of the economy, fears of a deep recession spread. That contributed to fears even among online retailers that their sales would drop in the months ahead.
A March 3-9 survey of 304 retailers by Digital Commerce 360 found nearly as many retailers predicting their online sales would fall (36%) as they would increase (38%).
In a recession, it’s likely consumers will prioritize essential items, including food, healthcare products, household staples and pet supplies. Apparel sales fell sharply when the shutdown orders and layoffs started taking effect in March—and that provoked deep discounting by online clothing retailers.
A Digital Commerce 360 study of 124 leading online apparel retailers in early April 2020 found 91, or 73%, were offering a sale on their websites. Of those retailers, 53% were offering the kind of sitewide sales typical of big sales events like Cyber Week around Thanksgiving, with a median discount of 40%.
Retailers have to offer merchandise now for the holiday season, without knowing whether shopping will be back to normal or if consumers will be facing depression conditions. If the economy does not rebound quickly, discounting could be fierce during the holiday season.
3. Online retailers seek to diversify supply
The coronavirus first broke out in China, the center of global manufacturing and the source of many of the goods North American retailers sell online and offline. Chinese factories closed for several weeks in early 2020, raising concerns about whether the country can be counted on as a reliable source of products in the future.
Many of the digitally native brands that emerged in the last decade built their business model on buying goods at a low price from China and selling them online in North America. Among those is zulily, now part of TV shopping giant Qurate Retail Group (No. 9), which had to significantly reduce its promotions early in 2020 as deliveries from China dried up, Qurate reported.
Wayfair Inc. (No. 6), the leading online retailer of furniture and home goods, also faced a significant impact, as it sources about 50% of its merchandise from China. However, CEO Niraj Shah noted in a call with stock analysts in late February 2020 that it previously had reduced its reliance on China from nearly 60% of its products as it sought to minimize the impact of U.S. tariffs on Chinese goods imposed by the administration of President Donald Trump.
Many retailers said they were keeping in close touch with suppliers and seeking non-Chinese sources of supply in the early March 2020 survey by Digital Commerce 360. That included 23% who said they were aggressively monitoring deliveries from China and 19% who said they already had reduced their dependence on Chinese suppliers.
As much as they might like to shift orders from China, however, retailers in North America and around the world are likely to find it difficult to find alternative sources of supply in advance of the 2020 holiday season. That means another flare-up of COVID-19 in China could have a big impact on retail sales for the remainder of the year.
4. Omnichannel and mobile services take on greater importance
With many consumers fearful of entering stores, retail chains that could offer curbside pickup had an advantage as the coronavirus pandemic spread.
Only 7.7% of the 208 store-based retailers in the Top 1000 had that capability as of the end of 2019, but others added it quickly. Best Buy Co. Inc. (No. 10) shifted to curbside pickup only for online orders in late March 2020. Crafts retailers The Michaels Companies (No. 220) and Joann.com (No. 336) also introduced curbside pickup as the virus spread.
Big retailers like Walmart Inc. (No. 3) and Target Corp. (No. 12), which already had introduced curbside pickup in large part as a convenience for online grocery shoppers, promoted the ease of their curbside options in emails to consumers. Target told customers, “We’ve enhanced Drive Up with your safety in mind. No signature required and we’ll load your trunk, too.”
These retailers emphasized the convenience of ordering for curbside pickup through their mobile apps, which already have saved a shopper’s payment information, and that drove many consumers to download these apps. According to App Annie, which monitors app activity, downloads of the Walmart Grocery app increased by 460% in late March 2020 compared with January. And on April 5, it surpassed downloads of Amazon.com Inc.’s shopping app, which is consistently the most popular retail app.
The 45% of Top 1000 retail chains that offer mobile apps figure to have an edge in offering a service like curbside pickup, which could be a significant factor if fear of the coronavirus continues to impact shopper behavior.
5. Rethinking Amazon
It’s worth noting that 22% of the retailers responding to the early March Digital Commerce 360 survey said they were making adjustments to their marketplace strategies. Many of them no doubt were responding to Amazon’s announcement that it would temporarily halt accepting deliveries of nonessential items to its warehouses to focus on fulfilling orders for high-priority merchandise. Amazon eased those restrictions by early May.
That meant retailers that relied on Fulfillment by Amazon for shipping of their Amazon orders would likely see sales fall off as Amazon’s warehouses ran out of their goods.
Many Top 1000 retailers could well reevaluate their marketplace strategy: 42.7% of the Top 1000 retailers in essential categories sell on Amazon, including nearly 80% of Top 1000 sellers of vitamins and supplements and half the retailers selling such specialty items as baby gear, medical supplies and pet care products.
Amazon, No. 1 in the Top 1000, could also emerge as a stronger competitor in nonessential categories. As the coronavirus spread in North America, Amazon began placing larger-than-usual orders for products in discretionary categories unrelated to household supplies or health, sources told Digital Commerce 360. That suggests Amazon sees an opportunity to further increase its market share as more consumers turn to online shopping as a result of COVID-19.
6. Cash in the bank and strong credit take on added importance
When many economists predict a deep recession ahead, banks have cut back on lending. That makes it more important than ever for retailers to have sufficient cash or credit to survive a sales slump.
Some Top 1000 retailers moved quickly to shore up their cash positions and in some cases to reduce costs to preserve cash on hand. Wayfair, for example, in April 2020 sold $535 million in 5-year promissory notes that can be converted into shares in the publicly traded retailer. The e-retailer also postponed its annual Way Day promotion, which was held in April last year.
Apparel retailer Lands’ End (No. 63) furloughed 70% of its corporate staff and almost all retail store employees in April. It also announced that it had borrowed $75 million of its preexisting credit line from banks to provide it with additional operating capital and also increased its credit line $25 million to a total of $200 million.
Meanwhile, 13 of the Top 100 retailers in the 2020 Digital Commerce 360 Top 1000 issued nearly $39 billion worth of bonds from March 1 through May 8. That allowed them to beef up their cash in hand while borrowing at low rates.
Smaller players likely have less of a cash cushion, credit with banks or the ability to raise money through selling corporate bonds. Those with little cash on hand may not survive a steep recession and could go out of business or be forced to sell themselves.
Even those that survive may have to cut back on spending for inventory for upcoming seasons and advertising. Likely winners in that scenario would be Amazon, Walmart and other large Top 1000 players with deep pockets and strong ecommerce operations.
This article is based on analysis from the 2020 Digital Commerce 360 Top 1000 report. This report is available for free to Digital Commerce 360’s Gold and Platinum members and available for non-members to purchase for $499. View the table of contents for full details on what’s included in the report. You can learn how to purchase the 2020 Top 1000 report here.