Jack Ma, CEO of Chinese tech and e-commerce giant Alibaba, envisions a future where e-commerce is ubiquitous.
In the book Smart Business" about Alibabas success, he writes, My hope is that conducting business over the internet will become the norm and that the term e-commerce becomes moot. Online retail and e-commerce have exploded during the COVID-19 outbreak, which could draw us closer to the future Ma envisions.
E-commerce is defined as the buying and selling of goods over the internet, including the exchange of money and data to complete these transactions. It encompasses retail, wholesale, services, subscription and digital products and can be used for business-to-business, business-to-consumer, consumer-to-consumer and consumer-to-business applications.
Amazon, for example, encompasses its widely known retail business and also Amazon Web Services, a massive cloud platform that powers Netflix along with media streaming services including Prime Video, Twitch and Whole Foods.
E-commerce thrives during COVID-19
Demand for e-commerce increased during the pandemic. U.S. e-commerce saw a 49% increase in daily sales compared to March, according to the Adobe Digital Economy Index 2020 report. Online grocery alone has seen a 110% boost in online sales in April compared to March overall in the U.S., based on measures of 80 of the top 100 U.S. online retailers. Demand for comfort items and grocery, electronics, wine and spirits, and home entertainment has gone up, according to the report, while apparel has gone down and become comfort-centric.
The coronavirus created unprecedented demand for Amazon's retail business and fulfillment services, which struggled to meet demand. In its Q1 earnings report, Jeff Bezos announced the e-commerce giant would be reinvesting the entirety of its $4 billion revenue back into the business. Amazon Web Services business was also boosted by the COVID-19 outbreak.
Amazon currently has the largest e-commerce business of any company in the U.S., accounting for 38.7% of the U.S. e-commerce market. eMarketer predicts that Amazon will increase its market share in 2020 and 2021.
Walmart accounts for the second-highest share of the e-commerce market in the U.S. with 5.3% of the market, so its far behind. Walmart took eBays spot as the second-biggest e-commerce company in the U.S. in 2020, and Target broke into the top 10 of U.S. e-commerce businesses.
Walmart and Target gained traction in the U.S. e-commerce ranking because COVID-19 helped boost their online businesses. Overall comparable sales for both Walmart and Target grew more than 10% from Q1 2019 to the same period in 2020 due to a large increase in digital business, including online shopping, pickup and delivery services. Walmarts U.S. e-commerce sales grew 74% during the first quarter of 2020. Target saw digital sales grow 141% from the first quarter of last year to the first quarter of this year.
Walmarts report notes unprecedented demand for products across multiple categories created revenue increase and credits its e-commerce performance to its walmart.com site, grocery pickup, delivery sales and marketplace. Walmart also launched a fulfillment service in February of 2020 which makes shipping services available to third party services and allows Walmart marketplaces third party vendors to compete with Amazons fast shipping.
Both Target and Walmart reported the coronavirus was the driver of the growth and impacted their operating results significantly. According to Targets earnings report, the increases its e-commerce business reflect the impact of rapidly-evolving shopping patterns and significant investments in response to the COVID-19 pandemic. According to an infographic from Target, on an average day in April, it fulfilled more online orders than last years Cyber Monday.
With the unprecedented increase in online retail shopping, COVID-19 might push e-commerce toward ubiquity in the U.S. but more likely omnichannel retail transcending strictly online commerce will come into practice for more stores.
Companies use omnichannel retail to interact with customers in a multitude of ways, encompassing physical stores, online shops, social media, kiosks, direct mail, networked appliances and more. Influencer-driven commerce is an increasing selling channel. Gen Z enjoys shopping in-store as well as online, according to a research brief from Marketing Dive.
Walmart and Target both saw revenue from e-commerce increase in part from omnichannel business practices. According to Walmarts earnings report, e-commerce rose with strong results from grocery and pickup, marketplace and its website. Amazon owns Whole Foods and apparently was trying to break into the grocery market.
Another notable e-commerce company, Shopify, saw its stock price surge in May. The Canadian e-commerce powerhouse is investing in its cloud capabilities and developing its own fulfillment service. However, several analysts believe the stock is overvalued and will go down after the coronavirus, according to Business Insider.
Facebook is also getting on the e-commerce bandwagon with the launch of Shops earlier in May.
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Traditional retail amid the pandemic
While some retailers have expanded their e-commerce business during the pandemic, retail sales overall, including both in-person and e-commerce retail, have dropped in the U.S.
Retail trade sales were down 15.1% from March to April, according to the advance monthly retail and foodservice report by the U.S. Census Bureau. The drop in retail and foodservice sales accelerated from the beginning of the year until April, meaning the percent decrease in overall sales increased from each month to the next. The report notes that nonstore retailer sales were up 21.6% from 2019.
Stores like Neiman Marcus, JCPenney and J. Crew have all filed for bankruptcy in the last month and their CEOs have cited the coronavirus as the driver. In the new world of e-commerce, traditional retailers must adapt or die.
Clicks to bricks
Digital-native companies adapted by turning to physical store pilots in 2019, according to Deloittes 2020 retail industry outlook report, while in-person stores added digital elements. For example, Amazon a digital-native company has physical "Four Star" stores that only include products with four- and five-star ratings on its site. Deloitte also noted that physical stores play a critical role in fulfillment supply chains and predicts that retailers will continue to convert store space for fulfillment capability in 2020.
Physical stores played a critical role in Targets jump in digital sales. According to its Q1 earnings report, stores fulfilled Targets nearly 80% of first-quarter digital comparable sales.
We place our stores at the center of fulfillment, which gives us both speed and efficiency, Target CEO Brian Cornell said on the companys Q1 earnings call. We have teams at headquarters, stores and throughout the supply chain who are relentlessly focused on our guests and who place a premium on agility and adaptability.
Whats next for e-commerce in the U.S.?
Ming Zeng, author of the aforementioned Smart Business, argues the U.S. can look to China for a crystal-ball view of its own future in online business. According to Ming, China is leading the world in e-commerce, in that the ratio of online-to-offline sales is much higher in China more than double that of the U.S. because China developed systems around the internet.
This feeling is echoed by an article in Forbes by Michelle Grant who predicted in 2018 that e-commerce would become the largest retail channel in the U.S. by 2020 since its already the biggest in the Asia-Pacific region.
While e-commerce is the norm in China, in-person retail in the U.S. still dominated right up to the coronavirus outbreak. Brick and mortar dominated in the fourth quarter of 2019 accounting for over 90% of retail sales in the U.S., according to the U.S. Census Bureau.
Omnichannel was on the rise before Americans were affected by the virus. There was a 13% increase in retailers who said their omnichannel businesses were profitable from 2016 to 2017, according to data from the eMarketer 2018 Omnichannel Retail Statpack.
It's hard to imagine a Times Square without a giant Macys or H&M but the landscape of these businesses will likely change to reflect omnichannel strategy: offering seamless point-of-sale hardware, putting in a kiosk with virtual reality or offering BOPIS not the zesty Filipino dish but an acronym that stands for buy online, pick up in-store.
There's a bright future for e-commerce in the U.S. in that companies like Amazon and Shopify will continue to expand and offer more services. Still, in-person retail thanks to younger generations will have a place in the U.S. for the foreseeable future.
Jillian Lynch is a senior international affairs major. Contact Jillian at lynch8jm@dukes.jmu.edu.
Disclaimer:Jillian Lynch and Madison Business Review editor James Faris are long-term investors in Target. I wrote this article myself, and it expresses my own opinions. Im not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Investors are always reminded that before making any investment, they should do their own research on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information and shouldnt be relied on as a formal investment recommendation.
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Bricks to clicks: Will traditional retail survive COVID-19? - The Breeze