COVID-19 Pandemic: Ecommerce and Online Marketplace Impact and Suggested Actions
Reporting on the New Normal from the Digital Frontlines
Digital Commerce has taken on an unprecedented level of societal importance during the early days of the coronavirus outbreak in America. As response planning and social distancing measures began in late February to mid-March, retailers were flooded with waves of panicked customers clearing their shelves of key items such as toilet paper, bottled water, hand sanitizer, and food staples. This lack of physical retail availability of goods drove an already growing surge of online shopping traffic, first to the usual suspects like Amazon and Walmart, then to other large marketplaces like Albertsons, then to anyone who had available stock of needed items. This not only showcased why online marketplaces are valuable for both consumers and site operators, but it’s the first large-scale example of ecommerce-as-a-lifeline to a supply-panicked populace.
The coronavirus (COVID-19) outbreak has been declared a global pandemic and will have far-reaching medical, business and economic implications for the entire world. But first and foremost, this is a human tragedy, affecting thousands of people across the globe. At McFadyen Digital, we are fortunate enough to work with many global Fortune 500 organizations, including those on the frontline of this new digital commerce reality. Through this blog it is our endeavor to provide leaders in the digital commerce space with a perspective on the evolving situation and what it means for their businesses, with stories and examples of those who are also contending with these challenging circumstances.
As coronavirus continues to spread across the US and we look at the current data on consumer spends and habits, it’s apparent that the consumer behavior is changing. As physical environments are shunned in the name of social distancing, the growth of ecommerce demand is inevitable. The chart above from Marketplace Pulse shows the trend in popularity of items that are driven by Corona outbreak like face masks, wipes, medical gloves, soap, and hand sanitizer. With Amazon representing close to 40% of the US online market, this is a good indicator of the current mood in the US. Shortages make consumers panic, so the continuity of supply chain availability will prove a key to keeping the public calm and focused on what’s important.
Retailers are experiencing unusual purchasing patterns related to the panic and stock-up buying of the COVID-19 pandemic. While out-of-stock and social distancing will drive many consumers to prefer online shopping, physical retail locations remain vitally important to both the supply chain and the psyche of the American consumer. The local availability of goods and the open, physical presence of the retail stores themselves will be a frontline symbol of normalcy and safety in an otherwise uncertain time.
Inventory levels are paramount – One of the areas that the outbreak has helped to focus on is the local inventory levels. Many businesses are now planning to have at least a 60 day inventory locally (2 months’ time even if there is disruption at the global head warehouse, as in many cases China). This is a good risk mitigation strategy to have that many businesses have learnt painfully over the last few weeks as panicked buyers stock-up for an uncertain long-haul. Alternatively, local-sourcing has been shown as an important part of a retail business continuity plan, looking closer to home for items usually fulfilled by larger suppliers or manufacturers.
Some small-format stores stand to gain – One of beneficiary of the ongoing crisis would be the small format stores that carry essential items like food, medicine, and household items. A lot of the panic-buying and over-stocking we are seeing now can be a cash infusion to smaller stores and markets as consumers turn their way when the larger grocery and big box stores run out of certain items. As long as they can remain stocked, the demand for their products will keep sales and profits higher than usual. If these stores can provide a recurring positive experience, they may find themselves a regular part of the customer’s buying cycle on an ongoing basis.
The new normal buying patterns are driving more and more traffic online, straining the underlying supply chain and pushing many merchant’s ability to restock and keep up with demand. With the Ecommerce channel in a new position of importance, these challenges need to be met for the good of the site operators and the greater good of society in providing a stable and reliable channel to purchase essentials. As Ecommerce merchants rise to the challenge of new consumer behavior, opportunities to adapt and improve the customer experience will abound.
Analytically Scaling to the New Normal – As there are many parts to an Ecommerce operation, from the technology, to merchandising, to fulfillment, to service, and more…reacting to meet a sudden demand can cause a shock to any business’ ability to operate normally. It is vital for site operators to analyze recent buying patterns in relation to current events, discover what is a temporary blip, identify what is likely to become a recurring pattern, and react accordingly with adjustments to staff, technology, vendor relationships, and so on. No one knows exactly how long the COVID-19 pandemic precautionary measures will last, but estimates have ranged from a couple months to 18 months, so preparing for a continuity of newly observed buying patterns is likely a worthwhile investment.
Putting Stores to Work for Ecommerce – Amazon has done a decent enough job of providing physical options for the pickup and returning of products via fast delivery, Amazon Lockers, relationships with Kohl’s, The UPS Store, etc., but what they still lack in most markets is a strong physical presence. In the US, physical stores permitted to remain open include “essentials” like grocery stores (Albertsons, Safeway, Weis, Kroger), hardware and home repair stores (Ace, True Value), and big box stores (Walmart, Target, Home Depot). These retailers investment in physical locations provides not only a local face to the organization, but also a convenient place to offer expedited pickup of a locally out-of-stock items that can still be ordered online. Given that these businesses can remain open, the online-to-in-store inventory systems have become vital to setting customer expectations and avoiding unnecessary visits. Improving stock accuracy, enabling smooth in-store pickup, and anything else that improves the online-to-in-store buying experience is worthy of a near-term investment.
ONLINE MARKETPLACE IMPACT
Online Marketplaces have been the true heroes of this pandemic situation. Marketplaces like Amazon, Walmart, and Albertsons provided breadth of products and depth of stock, both through owned stock and via the third-party seller ecosystem. The stock advantage provided by the marketplace model is an almost unfair advantage from a commercial standpoint, but for customers…they’re a reassuring and stabilizing force in uncertain times.
Marketplaces are growing at the cost of traditional retailers – After the outbreak and especially in the last two weeks, there has been a downfall of 30-40% across the “non-essential” category at retail stores. On the other hand, the “essential” category inclusive of grocery, pharmacy and household have been up significantly, a trend likely to continue as this crisis goes further into 2020. This is advantageous time for the ecommerce and marketplace businesses as more and more people work from home and avoid physical stores all together.
One McFadyen client saw an increase of over 300% in online orders and in-stock to back out-of-stock times of less than 30 minutes for some of the more in-demand items, which is unprecedented. Thankfully, the depth-of-stock provided by an online marketplace means overflow options for the consumer when a site operator runs out, and more alternative options should stock truly run out across all sellers. One of the best effects of depth-and-breadth-of-stock is that consumers re-purchase from such well-stocked destinations because they trust that essential items can be found…a buying pattern that becomes a habit.
Retailers should pay attention to the benefits of the online marketplace model and think about how it could be leveraged to improve their own agility, scalability, and supply network versatility.
Amazon is setting an example – One company that is setting a very good example in terms of its response strategy during the outbreak is Amazon. It’s planning to hire an additional 100,000 employees in the U.S. as there is a surge in demand from online shopping amid the coronavirus outbreak. This will be mostly in form of full-time and part-time warehouse and delivery workers. Amazon is also encouraging employees from other sectors who’s jobs may have been lost because of the coronavirus outbreak to come and join their team
Amazon is also prioritizing both the re-stocking and the delivery of essential items (household staples, medical supplies and other high-demand products) over non-essential. They can safely make these changes, in part, because of its vast network of third-party sellers. Knowing that many of the non-essential items Amazon, themselves, will not be restocking will still be available by other sellers means that they stay a top destination, the customer still gets what they want, and the company gets to focus on what’s ultimately best for their customer base and what’s best for consumer confidence by ensuring that essential items remain readily available.
SUPPLY CHAIN IMPACT
The most important part of consumers remaining supplied is also the most complex and most vulnerable part of the equation. The Supply Chain in America is about to be stressed and strained like never before, mirroring the global supply chain difficulties facing many countries around the world. Illness and safety are a paramount concern for those managing and delivering at every stage of the American product supply chain. The good news is that the supply chain is flexible and our last-mile efforts robust and up for the challenge.
Home delivery takes on an increased role – With consumers essentially homebound for the an unknown amount of time, home delivery of everything from groceries, to pharmacy items, to general household items, is being embraced by many for the first time. Not only are traditional logistics operators like FedEx and UPS being relied upon, but the last-mile delivery services such as Instacart, Shipt, and PeaPod have become trusted partners in the grocery pick-up and delivery space. The next big question for the supply chain is…what’s next? Are these last-mile services the path forward or just a bridge to what’s next in terms of connected online/offline shopping experience? Now would be a good time to take that next leap.
The supply chain is robust, resilient, and will become even stronger – China’s role as a global production and supply chain hub resulted in a unique kind of exposure when the coronavirus pandemic hit and production facilities were closed. As a result, many businesses are evaluating and even more distributed, coordinated, and trackable supply across multiple geographies. Even with the months-long disruptions, supply chains remain strong with existing inventory set to meet customer demand once the pandemic restrictions are lifted and consumer confidence returns.
CLOSING THOUGHTS ON COVID-19 AND DIGITAL COMMERCE
COVID-19 is a massive shock to the world economy as well as the individuals and families it has affected. Companies, in the short term, need to focus on the health and safety of their workers, partners, and suppliers. The longer term ramifications are still mostly to-be-determined, but it’s clear that this will forever change many aspects of customer behavior and how they interact with retail brands. The immediate reliance on ecommerce channels for vital supplies indicates that customers may form longer term habits that get more engrained as the pandemic-related social restrictions remain in place. This means that ecommerce operators need to prepare their capabilities and supply chain for the new normal.
Digital transformation has been an important topic for many years now, but only under these dire circumstances do we see its true value in the systems and processes built to flex and scale to meet the task at hand. We’ll get through this pandemic together and, as Ecommerce professionals, we’ll continue to work towards the betterment of an increasingly vital digital commerce experience for our customers.
Stay safe. Stay aware. Always be innovating.
The McFadyen Digital team remains available to support our customers and partners in these challenging times, as remote global collaboration isn’t our new normal, it’s engrained in our culture. If there’s any way we can help you adapt to the changing buying patterns resulting from the coronavirus pandemic, please reach out to us at email@example.com.