Since the beginning of last year, the sudden epidemic has accelerated the change of people’s shopping style. Online shopping has become the lifeline of many people in the period of home isolation, and the prospect of e-commerce is more bright.
After the epidemic, the strong growth of e-commerce market is expected to continue for a long time. More importantly, the proportion of online sales in total retail sales is likely to increase in the next few years. According to digital commerce 360, the share of global e-commerce in total retail sales increased from 15% in the fourth quarter of last year to 21.3% at the end of last year.
The obvious winner of this shift is Amazon. The online retailer’s revenue jumped 37% in the third quarter of 2020 and 44% in the fourth quarter.
As more and more consumers choose online shopping, traditional physical stores have gradually increased the proportion of online sales.
Douglas mcmillon, Wal Mart’s chief executive, said last year that due to the epidemic, the upward trend of online sales in two to three years “will accelerate in some cases” and this change will continue after the epidemic.
“With the outbreak of the epidemic and the rapid development of the retail industry, our ability to adapt quickly is crucial,” he said
Wal Mart launched its Walmart plus subscription service in September last year, which provides unlimited free shipping services for its members. It also provides other shopping functions supporting mobile devices, allowing customers to scan their own codes and pay for their own purchases.
In fact, long before the epidemic accelerated to change consumers’ shopping habits, some large retailers began to look forward to the future.
In view of the fact that users began to turn to online shopping, home depot began to integrate its in store shopping and online ordering as early as 2017. U.S. retailer target has been improving its online ordering and store pick-up systems for several years.
Jharonne Martis, head of consumer research at refinitiv, a market research firm, said both chains had been criticized by investors for rising costs when they entered e-commerce. But now that investment is turning into very strong revenue growth.
“A lot of retailers are building customer loyalty now, which will translate into sustained sales performance,” Matisse said
Convenience is a key factor driving the growth of online business, and more and more companies are launching or improving their own mobile applications. According to JPMorgan, the amount of goods ordered through mobile devices reached $434.1 billion in 2019, and could reach $729 billion by 2023.
“It’s an evolving challenge if retailers want to remain competitive,” says Matisse “At the moment, it’s crucial for retailers to have an e-commerce strategy.”
Traditional retailers are changing
More than 250 stores at Academy Sports & outdoor, a US sports retailer, were closed for several weeks at the beginning of last year’s epidemic. But according to Ken Hicks, the company’s chief executive, many customers are still reluctant to go into the store to buy camping equipment or basketball as the store reopens.
Image: Academy Sports & Outdoors store in Florida
Because many people want to continue to exercise during the epidemic, the company sells bicycles, treadmills and other products in great demand. But academy needs to find a better way to get its products to customers, and the answer is to pick them up on the side of the road.
In less than five days, Hicks said, the company had a plan to provide roadside pick-up across the country. It designates roadside parking spaces as delivery points, reassigns employees, and issues paging devices to alert employees when shoppers drive in. Hicks said that 30% of the company’s online orders are placed on the day customers pick up goods through the roadside.
In a recent interview, Hicks said Academy had begun to see its stores as “delivery points,” with rooms in the back filled with additional items that could meet online orders. More and more goods are being shipped directly from stores to consumers’ homes, he said. Academy’s E-Commerce orders surged nearly 96% in the third quarter of last year, but more than 95% of its approximately $1.35 billion in sales in that quarter were delivered through stores.
“We have to change the way labor is used and make adjustments similar to those made by grocery stores,” Hicks added. “Our job now is to find someone to sort out orders.”
The academy is far from alone in making these adjustments. Over the years, retailers, from target to Nike to Macy’s, have been thinking about what the role of stores is as consumption moves online. But that change accelerated last year.
Over the years, the rise of e-commerce indicates that retail stores will be eliminated. However, consumers’ demand for goods on the day and pick-up on the side of the road has given physical stores a new mission. Closer to the customer is undoubtedly a key advantage. Physical stores are being transformed into small warehouses that can quickly complete online orders at lower cost. In the United States, stores in closed shopping centers have been closed due to slowing passenger flow and declining sales, while retailers such as gap and Abercrombie & Fitch are investing in smaller stores far away from shopping centers.
Stores are still the center of retail
“In the long run, the store ecosystem no longer seems to have a way out,” said Joel bines, managing director of alixpartners, a consulting firm. “But physical stores are still crucial at the macro level and will remain the center of consumer activity for the foreseeable future.”
More than three-quarters of retail sales in the United States still occur in physical stores. Emarketer previously estimated that the proportion of e-commerce will rise to 19.2% by 2024.
The epidemic has indeed accelerated this transformation. ‘in just nine months, e-commerce has achieved what it would have taken five years to achieve,’ said John Blackledge, an analyst at coon.
Illustration: Best Buy employees split products for online orders in stores
According to the estimate of digital commerce 360, in 2020, the sales volume of US retail e-commerce will reach 861.12 billion US dollars, an increase of 44% over the same period last year. Before the outbreak, emarketer, a market research firm, predicted an 18% increase in e-commerce revenue.
With the surge of online consumer demand last year, more enterprises began to complete online orders through the original stores, which also led to the decrease of deteriorating and unsold goods on the shelves.
Urban outlets said that in the third quarter of last year, nearly 1 million items were delivered from its stores to customers’ homes. In the same quarter, Nordstrom said nearly 25% of its $1.6 billion online orders were made from store goods.
“We think there is still a long way to go – not only to connect the digital part of our business with the physical part, but also to take advantage of the physical assets we already have,” Erik Nordstrom, chief executive, said in a earnings call last November “We need to leverage our existing assets Take care of your customers without too much extra investment. ”
Consumers’ demand for convenient shopping will also be growing. Cowen predicts that the proportion of online retail orders using roadside pickup will reach 35% by the end of 2021.
Some companies are trying to make bigger changes. Macy’s, located in Dover, Delaware, and Littleton, Colorado, became pick-up and online order delivery centers rather than physical store shopping centers. Wal Mart is changing its four physical stores into e-commerce labs, such as testing new technologies such as contactless checkout.
John crecelius, vice president of Wal Mart’s U.S. operations, said: “this year has ushered in a new era of retail, where consumers demand retailers to show themselves in different ways.”
Amazon strides forward
The epidemic has upended retail businesses around the world, but it’s good for Amazon. Every online “click to buy” during the quarantine period makes the company take another step towards completely dominating the online shopping market in the United States. But if the bigger the scale, the better for everyone, Jeff Bezos, Amazon’s founder and chief executive, would not have appeared at the antitrust hearings in Congress last year.
Charlene Anderson is one of the many businesses that sell goods on Amazon. Their sales account for more than half of the total sales of the website. But they also have to pay: Amazon charges Anderson $39.99 a month to post her knitting and handicrafts on amazon.com, and takes about 30% commission on every item she sells.
But during the outbreak, Anderson’s seller experience was worse. For example, in mid March last year, Amazon informed sellers that during the epidemic period, the Amazon warehouse only accepted household necessities, medical supplies and “other high demand products”, but it did not explain how it decided to accept what. Some sellers see sales of their products evaporate; others pay U.S. Postal or other express delivery agencies for shipping orders, while still paying Amazon’s monthly delivery fees.
Image: Amazon warehouse
Mr. Anderson, 63, who lives in Jackson Hole, Wyoming, said Amazon will send customers the wrong product. Although the company makes the mistake, customers will leave negative feedback on their sales pages. Anderson said many sellers are worried that a lot of problems will lower their internal ratings on Amazon, so that the company will kick them out of the site.
But where else can they go? “What can we do to protest without selling on Amazon?” Anderson asked. “Well, I’ll ruin my business. They know they control you – if you go, they’ll find someone else to sell them. ”
From May to July last year, consumers spent 60% more on Amazon than in the same period last year, according to facteus, a financial data company. The company currently has nearly a third of the U.S. e-commerce market share, followed by Wal mart with only single digits.
Scott Galloway, a marketing professor at New York University, has long been critical of Amazon. He said that Amazon’s prime membership service can be regarded as a huge competitive advantage once enjoyed by railway tycoons. With its huge logistics and delivery network, Amazon has attracted the attention of millions of families.
“Amazon is already a rail giant with 115 million American families,” Galloway said. “Do we really want one company to be the leader of all businesses?”
Crises always produce winners and losers. P & G flourished during the Great Depression by spending more on advertising; target expanded after the 2001 recession, with profits up 50%. Before the outbreak, Amazon’s online sales accounted for only about 4% of total retail sales in the United States. But with the new shopping habits formed during the epidemic, UBS predicts that e-commerce will account for a quarter of total retail sales by 2025, up from 15% last year. The company also expects 100000 stores to close in the next five years. “Consumers are increasingly turning to online shopping,” analysts wrote “After the current status is over, many consumers may not go back to the store for shopping.”
But Amazon also sells ads. In the fourth quarter of 2020, the company’s advertising revenue was US $7.9 billion, a year-on-year increase of 66%. Ads appear on the Kindle, prime TV and Amazon e-commerce websites, and many of them are likely purchased by the same small seller.
Due to the way e-commerce works, Amazon advertising is essential for any third-party seller selling on the site. According to market research, when consumers consider buying a product online, about half of them will go directly to Amazon to search for the product rather than Google or visit other websites. Most people don’t browse the back pages of search results, so it’s important for sellers to be recommended on the first page. They can rely on positive reviews or buy advertising services from Amazon.
Amazon is now the third largest digital advertising seller in the United States, after Facebook and Google. As its position in the field of e-commerce continues to consolidate, it can charge higher fees for advertising on its website. According to the company’s financial report, Amazon’s other business (mainly advertising) revenue increased 66% year on year last year. Andrew lipsman, retail analyst at emarketer, a market research firm, once said: “it’s starting to feel like they’re playing chess. They have to think three or four more steps.” “The more I think about Amazon, the more I marvel at it.”
Investors, too, see Amazon as a safe haven in the stock market. At present, the market value of Amazon’s stock has grown to $1.69 trillion. Bezos, the chief executive, is one of the richest people in the world, with a net asset of $189.7 billion, and may become the world’s first trillionaire by 2026.
For Amazon’s consumers, there’s no reason why they don’t like the company. Amazon argues that it is not a monopoly because it is competing with physical stores for sales. “The Internet is just a channel in the retail market. People don’t just shop online, “an Amazon spokesman said in a statement. But stores without Amazon find themselves unable to compete. Kathy Gonzalez runs two retail stores in northwestern Florida. She said she had tried to pay for the freight for consumers who didn’t buy furniture and other goods, but the price was so high that people had to turn to Amazon, a free delivery company.
“If you want to reach customers online, you basically have to go to Amazon, but Amazon is not where you can succeed,” says Stacy Mitchell, director of the local business association. “With the sudden surge of online shopping, all this has been magnified.”
The huge scale also gives Amazon an advantage that only it can have: Amazon’s cloud computing platform Amazon network services (AWS) achieved revenue of $12.7 billion in the fourth quarter of last year, an increase of 28% over the same period last year, enabling the company to subsidize distribution costs, expand its warehouse network, and dare to provide the same day service without worrying about huge losses. According to supply chain and logistics consulting firm mwpvl, the company currently has 1223 buildings and 278 million square feet in the global logistics network, an 82% increase since 2016, and is still expanding at an “unprecedented” rate. ” Just between March and July last year, Amazon announced plans to build 49 million square feet of logistics space in the United States, according to Marc wulfraat, founder and President of mwpvl.
Amazon’s financial strength is also ensuring that the company can operate in a way that other companies cannot during the epidemic. Bezos said at the end of April last year that Amazon has invested $4 billion in epidemic prevention, including providing workers with personal protective equipment, improving facilities cleaning, and improving virus detection capabilities. Galloway said it would help Amazon gain further competitive advantage.
Amazon is also continuing to invest in technologies that will further strengthen its dominant position in the e-commerce market. In June last year, the company said it would spend $1 billion 200 million to acquire Zoox, a self driving car start-up, which could help expand its express service. Amazon is expanding its fleet of cargo planes as other airlines lease cargo planes at cheaper prices, thereby reducing its dependence on FedEx and UPS. It also invested hundreds of millions of dollars in rivian, an electric car company, and ordered 100000 electric trucks from the start-up. In the middle of last year, Amazon said it would open more Amazon go stores without cashiers.
“A lot of people, including me, buy only certain items on Amazon,” said Brandon Fishman, chief executive of vitacup, an online retailer of coffee and tea drinks Vitacup’s sales on Amazon grew 35% during the outbreak last year. Fishman says it’s cheaper to sell products in physical stores than on Amazon, because Amazon costs both packaging and transportation. But he doesn’t want to miss e-commerce customers because they have better customer loyalty. More than half of the people who buy vitacup products on Amazon will continue to buy more.
But New York University Professor Galloway said: “third party sellers will say it’s a deal with the devil.” “Amazon brings us a lot of revenue, and we’re addicted to it, but our economic situation deteriorates every year.” (Jiao Han)