When it’s said and done there was only one story that mattered in the retail universe this year and it was the rise of the digital-first economy. The numbers speak for themselves. PYMNTS research on consumer shopping habits showed that 24 percent of all consumers say they have taken at least one of their routine shopping activities online and do not plan to revert to shopping in stores for this activity, even after the pandemic is over. More consumers are going online to shop and pay as the pandemic progresses. The latest research shows 40 percent of surveyed shoppers report doing fewer activities in stores and more activities online — this is up from the 12 percent who reported doing so on March 6.
It was the catalyst for most every business dynamic in the category. It produced several payment trends, which can be found in the How We Shop report. From a strictly retail perspective, however, the digital shift produced three major trends, presented here with quotes from executives that appeared on our pages: direct-to-consumer sales, the continued decline of malls and department stores and the accelerated growth of Amazon, Target and Walmart.
eCommerce spiked because consumers demanded it and drove it. Direct-to-consumer (D2C) brands drove into the pandemic and adapted to it to catch the digital shift. One was driven by demand; the other was driven by necessity. These are the brands that have either created new product categories, new business models or pivots on their previous business models. These are companies like Adore Me (lingerie), Green Goo (personal care), Shift (used cars) and Misfits Market (produce).
They and others have succeeded because they entered the market independent of traditional retail, and because their business model fit the needs of the pandemic. Adore Me, for example, was a thriving eCommerce brand before the pandemic. But it stayed alive during the pandemic by adding home delivery and home-shopping appointments to its business model.
“D2C has always been more about the direct connection between a brand and its customer, rather than simply selling things online,” Adore Me Vice President of Content Ranjan Roy told PYMNTS. “Having the data to serve them, the know-how to reach them across platforms and the products that they are looking for all come from that connection. The temporary shutdown of physical retail clearly accelerated eCommerce penetration, but the ability to connect to your customers both on and offline means D2C brands are incredibly well-positioned to deepen these relationships even as physical retail [hopefully] gets back to normal.”
Malls And Department Stores Get Hit
As seen in the opening flurry of numbers, consumers weren’t leaving home to shop. That, as well as the non-essential classification given to malls and department stores early in the pandemic, proved to be a tough pill to swallow for REITs and brick-and-mortar icons like Nordstrom, Macys, Neiman Marcus and others. Department stores are in some ways victims of dependency. Take a look at how they operated before the pandemic. First, they depended on an inventory mix that could be counted on to keep shoppers in the confines of the store for a long period of time. Then, they depended on good relationships with designers and consumers’ attraction to their seasonal merchandise. They also required a supply chain that included factories in faraway countries. Then there was the dependency on shipping, and warehouses, and related reliability issues — and the mall owner who took the time and capital to drive foot traffic.
It’s a challenging business model when compared to agile world of an eCommerce pure play. As former Saks Fifth Avenue CEO Steve Sadove told PYMNTS, the challenge now in retail is living up to the demands of the digital consumer, which is here to stay both in the holiday shopping season and beyond as retail emerges from the pandemic into what will be a very different ecosystem with a very new set of demands.
“At the end of the day, I feel really good about the opportunities for retail,” Sadove said. “I actually feel really good about what’s coming down the road in analytics and what’s happening relative to differentiated product and the ability to get differentiated product to consumers. But if you are running [a] store in the mall that doesn’t have differentiated product — boy, that I feel that is going to be pretty tough because retail is an exciting space, but it’s rapidly evolving.”
Target Steps Up With Walmart And Amazon
Hard to argue that any retailer had a better year in terms of adapting to the digital shift than Target. Walmart’s scale is simply massive but get into the strategies around eCommerce and things start to get very interesting between the two. Q3 increase in eCommerce sales: Walmart, 79 percent; Target, 154 percent. The difference here can be attributed to the business models for each company. Target has invested in technology and acquisitions to keep its digital assets in-house. Examples of this include its use of stores as fulfillment centers and judicious use of off-site “sorting” centers to keeps goods moving and shipping delays minimal. It has also kept its acquisition of delivery service Shipt close to the company even though it is not exclusive to Target. Walmart has relied on its massive ground and air transportation network to feed its eCommerce effort, most of which is fed through its distribution centers instead of stores. So far, it looks like Walmart could steal a few pages from its Minneapolis-based neighbor.
But while Target gets points for innovation, Walmart and Amazon simply ran away from the rest of the pack as the pandemic took hold and then advanced through the year. When it comes to Amazon’s share of consumer spending, as of the end of Q3, Amazon accounted for 3.2 percent of total consumer spending in Q2 (across all categories, including retail) and 9 percent of total retail spending. Check that against Q1 (7.7 percent of total retail) and the results are significant, considering Amazon’s revenue base. Now compare it to Q2 2019 and the 6.4 percent number shows that Amazon has gained 2.6 percentage points in a year.
For eCommerce Amazon touched just north of 50 percent for Q1 2020 in eCommerce market share (51.2 percent). That dropped to 44.4 percent in Q2 2020, which is still a number any other company would give their whole paychecks for. It even dropped from Q2 2019 (46.6 percent). But the numbers are misleading. The U.S. government Census department put the eCommerce increase from Q1 2020 to Q2 at 44 percent – a total number of $211 billion. For Amazon to drop only 7 percent in total eCommerce share with that kind of overall increase is actually quite an achievement.
When it comes to consumer spending, Walmart accounts for 3.4 percent overall and 10.2 percent for retail. That’s up from 9.6 percent in Q1 2020, but roughly even since 2016. Bottom line: In 2019, Amazon accounted for 6.8 percent of total retail spend, and Walmart grabbed 8.9 percent. 2020 has been better for Amazon so far. For Q2 2020 Amazon took 9.0 percent of consumer retail spend and Walmart increased to 10.2 percent. Amazon has been closing the gap with Walmart over the past five years, and trends suggest they will continue to reduce the gap in the next few years as the battle for the whole paycheck pulls to about even.