Ecommerce shopping has grown significantly in 2020, and many companies are questioning if it will replace the need for brick-and-mortar retail. While it’ll never likely get rid of every store on the block, there may be some customer groups and product types that shift online and never look back.
What’s important is figuring out if those are your customers or not. The odds are that many of your customers are spending more online right now than you (or they) expected. It’s a great opportunity for you now.
According to IBM, the COVID-19 pandemic pushed us all five years forward in our shift from physical retail to online shopping. Ecommerce revenue is expected to grow 20% this year while department stores will drop 60%, with many already closing.
Those numbers scratch the surface. To successfully navigate what’s next, let’s dive a little deeper and look into the habits and preferences driving how these dollars move.
Consumer habits and changes
The majority of people have changed how they shop. One survey notes that 75% of people have tried new brands or shopping methods, and the majority plan to continue these new habits. The reasons are a mix of job and wage losses plus less confidence in stores and safety. Store closures are also playing a role.
If you’re already selling online, two of your biggest target markets are likely doubling down on ecommerce. Millennials and high-income earners are shifting more of their money to online purchases for essential and non-essential goods. Nearly every category tracked in that study found that consumers expect to shift more of their dollars to ecommerce, averaging between 15% and 30% more.
When the crisis ends, most people who have tried new brands say they will stick with those new companies and products. If stores carry both brands, they’ve positioned themselves to be more secure. If your online shop doesn’t, then you’re at risk of loss to other ecommerce as well as in-store sales. Availability of products was a reason for 48% of consumers trying a new brand in recent months, even higher than a convenience factor (34%), which is a great reason to maintain stock of goods that brought in new customers.
Brick-and-mortar locations tend to be less tied to a specific brand, so they could pick up traction by noting all of the brands they carry in their marketing. Ecommerce marketers will need to focus on their value, customer service, and other areas to win back shoppers, which is more complicated. The McKinsey survey gives some insight to where you can focus efforts, with consumers including promotions/pricing and value within their top five reasons for trying a new brand.
You may also want to consider highlighting your best value options. Looking specifically at shampoo, survey data shows that value-oriented and mass products outperformed premium brands in terms of sales growth during the pandemic. Value should be especially apparent in any broad campaigns during the end of the year, like Black Friday, Cyber Monday, and holiday sales.
Invest in research to see where your customers are spending and how you’re impacted. Take these big surveys and look for ways to apply them to your market. Start with existing customer feedback and then expand into making future product decisions based on their voice.
Turning habits into sales remain complex
Your targets will have multiple reasons for buying from you or another store. Their choices are complex, and recovery is going to be, too.
Traditional stores seem to be best poised to offer the selection customers want because they tend to have more historical data on customers and will allow people to get out of the house, engaging in small-scale social activity. We all need a reason to get out and shopping can feel relatively safe, plus it’s easy to control how much time you spend on it.
Finally getting out of the house and picking up something you’ve been craving is win-win.
However, even as stores reopen and see increased traffic, sales may not follow. We’ve seen a significant uptick in showrooming and price checks via mobile in stores since 2018. Pair that with the growth and normalization of ecommerce, and it’s more likely that your customers may find what they want in your store but then hunt for the best price online if they don’t need to have it right away.
Supply chain disruptions have caused inconsistent stock levels and product availability. What isn’t certain is how often customers are willing to be burned by a specific location or a chain. Ecommerce stores can protect themselves with upfront information on products as well as email campaigns on availability.
Again, researching customer feedback is your safest method of turning this understanding into practical insight.
Pandemics, recessions, and product choice
Major life events change the way people shop, and right now, we’re still looking to grapple with what that means in terms of local retail versus online shopping.
For U.S. consumers, there is relevant data you can look to when trying to predict what’s coming next: the 2008 recession and its impact on spending habits. While it may feel like a long time ago, this data is important because it gives us a glimpse into how consumers still shopped when wages declined, options changed, and brand loyalty was just as important.
When people saw declines in wages during this recession, about 18% shifted spending to lower-priced goods and brands, according to that McKinsey report. Roughly half of those consumers said the lower-cost option did better than expected, and 34% said they no longer preferred the higher-priced option.
People switched to what they could afford and then realized that some of the premium they were paying wasn’t worthwhile. They started hunting for deals out of necessity, and that pattern of behavior stuck. Reports nearly a decade later indicated that Americans, as a whole, were still looking for a deal and shopping in these recession-like patterns. The brands that delivered on these deals were the ones most shoppers stuck with for years.
In 2020, we see price sensitivity come back into play, and that’s impacting many brands via online shopping. You’ve got greater competition and more consumers choices, so margins are likely to thin as the pandemic lingers and economic recoveries slow. If you’re a dropshipper, you might need to cut margins further or introduce loyalty rewards to keep people coming back to you specifically.
In-store shopping has some convenience elements that normally give it a benefit, such as shopping at the checkout counter or making it faster to find, buy, and use a product. Two-day and even one-day shipping options are chipping into that lead, especially if paired with a lower price.
Think of how you’d want to buy now. Where do you feel comfortable? How much does that depend on selling online vs offline stores with the person at the counter?
If there’s something specific you like getting from a certain shop, you’re likely to continue that trend. If you don’t have a strong feeling about the product or the place, there’s a good chance you’ll look at an online store.
Large purchases are also trending that way based on what our clients have seen and large retailers are saying they’re experiencing a dramatic increase in online furniture sales, with one brand claiming a 317% increase from the same time last year. The pandemic created greater confusion and uncertainty here, especially with products like dumbbells and other gym equipment.
Bulky or heavy items (think petfood) can now be shipped to your house at specific intervals, so you never run out. Not only does that make it easy to get home, but you can set it and not worry about it anymore. It’s a substantial improvement for convenience, and that’s going to be incredibly tempting if people are still afraid of being in stores for a long time.
Balancing communication and control
During COVID-19, people were willing to give brands a break for longer wait times, delays, and more if those companies communicated well. This meant being upfront about delays and production issues, when shipping was impacted, or if products were running out regularly.
However, early research shows that people will be less forgiving for future disruptions if you’re not honest and proactive. That’s true for both in-store elements and things on your website or other online channels. There’s no clear winner for communication, but online stores do have an easier time delivering the most accurate details about shipping delays and product availability.
Communication is easier to control and manage at scale for online operations. You only need to provide a handful of updates to a small set of people and you can continually update a digital scorecard with details. For in-store elements, you have to tell clerks and staff about every change and provide a straightforward way for them to get updates. It’s hard to ensure that this is a real-time assessment and that becomes even more difficult if your procurement and distribution happen at separate locations.
The best thing for ecommerce brands to do — plus portals to give managers for brick-and-mortar locations — is to invest in automation for notices and alerts. These elements not only mean less training and messaging is required but they can update as soon as manufacturing, shipping, or other details change. Think about it this way: If your Ulta cosmetics online order is delayed by a week, that’s just an automated notification. If you go in-store to find your products and they’re not there, there’s no guarantee the sales associate will know when they’re coming back in stock.
An “I don’t know” may not only lose an immediate sale but cause the person to go elsewhere to find the products and cost you a long-term customer.
The tug of war between online vs offline stores
Ecommerce and retail arbitrage are going to battle when companies only have one channel available. There are many situations where in-store shopping presents clear wins, but the convenience of online shopping and its clarity during delays make that list much shorter.
Again, a chief concern is if customers shifted spending to online due to the shutdown and other factors. If that’s their new preference, you need an online option. It might also be their new requirement due to changing work and gig-related tasks that happen at all hours. To succeed, a business needs to match consumer choices and preferences and let those drive where you invest. Go to where your shoppers are and see what they’re exploring to find you and other companies.
Now is the time to invest in the channels and tools for creating awareness and building great customer experiences for your audience. You can build loyalty and drive sales in both online vs offline stores if you focus on their needs.
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