I’m bullish about the need for more digital transformation in retail. At the same time, I have to question if sensational headlines about e-commerce taking over the world actually reflect what happened last year.
Investment analyst Elena Burger recently explored this issue in an article that I encourage everyone to read. In short: e-commerce results were less stellar than one might expect during a global pandemic. Digital sales in Q3 of 2020 were 36.7% higher than the same quarter a year prior, according to the US Census Bureau, but they still represented only 14.3% of total retail.
As Burger explained:
“If your memory of the past year was erased, and I told you that a pandemic would rip across the world, rendering us all loyal supplicants to online shopping, what percent of sales would you assume e-commerce would be of overall consumption? Probably pretty high, right? I posed the question to some family and friends, and everyone guessed in the 50-80% range. The reality — a little over 14% of sales — is actually shocking. The takeaway shouldn’t be “e-commerce is eating the world,” it should be “despite lockdown, store closures, mass layoffs and global logistics networks that rival militaries in terms of sophistication, e-commerce was less than 1/6th of sales in the U.S.”
This strikes a chord with me. From consumer surveys to management consultancy reports and sensational headlines, all of us were inundated last year with a message that the pandemic would forever change how we shop. And yet, it’s been difficult to square that with what I saw in my city. I’ve been telling people since last summer that if they came to Des Moines, Iowa, they could be forgiven for forgetting that a pandemic had even occurred. I live near our busiest mall. From big-box stores to home improvement stores and more, the parking lots have rarely looked different than they did pre-pandemic.
I’ve also long believed the “e-commerce versus brick-and-mortar” framing to be rather silly as the two are not mutually exclusive. Physical or digital, it’s all retail. And in hindsight, perhaps it was wrong to expect e-commerce penetration to be more pronounced given the degree to which many shopping behaviors and preferences are ingrained.
But I notice something else as I reflect on this past year: The pandemic reminded me how much I truly enjoy shopping at brick-and-mortar stores. I worked remotely long before COVID-19 normalized it. Despite loving my home office setup, I frequently dine out, go to movie theaters and visit nearby stores to avoid feeling cooped up — or at least I used to. I especially miss going to the local mall with my wife to look at BoxLunch’s ever-changing inventory of pop culture merchandise. They have a website, but it lacks the same discovery experience. The only reason we haven’t returned is because she’s high-risk for COVID-19, and the mall always seems too busy.
Retail isn’t always a purely utilitarian endeavor. While Amazon and other e-commerce solutions made it easier to buy what we need right now, there’s an entire dimension of the shopping experience that’s difficult to move online. Retail can inspire, delight, entertain and serve as a public space for those of us who need to get away from home. Sometimes we want to look, touch, smell and do more than just click and collect.
But there’s no denying the presence of mediocre retailers who insist on operating stores that feel like relics of the past. These brands struggle for relevance amid the hollowing of America’s middle class, fail to evolve their product offer and customer experience, and are being swept up in the right-sizing of our over-retailed landscape. Pinning their failure on COVID-19 would be a mistake — they were struggling long before. I can’t see any good reason to visit a dirty or disorganized Macy’s, Sears or Bed Bath & Beyond when better alternatives are nearby or just a few clicks away on a mobile device.
As 2PM’s Web Smith pointed out in response to Burger’s article, e-commerce doesn’t have to exceed 30% or 40% to negatively impact struggling mall retailers. Many carry high debt to EBITDA ratios and have little room to tolerate any disruption. In the early days of COVID-19, JCPenney owed $8.30 for every dollar earned.
Reality is more nuanced than the sensational rhetoric, and COVID-19 isn’t changing everything even if it’s changing a lot. As for Burger’s article, she ended on a note that I completely agree with.
“What I’m looking for is something slightly different. Call it brand populism. Call it net nativism. Call it making retail space as idiosyncratic, surprising, and weird as the 3 a.m. discoveries you find in an Instagram wormhole. There are hundreds of thousands of shops that exist only online (some examples: Happy99, blum and vewn, which is managed by an animator with almost 750k followers on Youtube). Why don’t we get to wander inside of these brands in reality?”
I can think of a few dozen Etsy retailers and direct-to-consumer brands that I’d certainly add to the list. Moving forward, I think there is a tremendous opportunity to leverage physical retail in new ways. Let e-commerce handle mundane fulfillment. Well-executed stores can satisfy a broader range of needs and foster a brand trust that further supports their digital channels.
I think there’s a similar parallel here for convenience retailers. Rather than giving in to knee-jerk sensationalism about how everything is changing, this is a time to listen, learn and be thoughtful about how customer needs can be satisfied through a variety of physical and digital means.