Wellian Weekly 02.11.2020

The Ecommerce Experiment

As we head towards another lockdown of sorts in England, following Wales and other parts of Europe with tighter restrictions on people and businesses, we reflect on a year of extraordinary change for retail and the uncertainty that lies ahead. 

2020 has been an undeniably fraught year for business but it has also been a Petri dish for new trends, with ramifications that will be felt for many years to come. For ecommerce enthusiasts, this is the year that delivered not so much a gentle nudge, as a kick to the consumer’s backside. Globally, 4 billion people (over ¾ of the world’s adults) have the internet in their pocket thanks to their phones and with the closure of shops, consumers were forced to change their behaviour. Online was the only option available, accelerating a trend towards ecommerce and providing an environment for other trends to emerge, which otherwise may not have got off the ground. Zoom increased its daily users from 10m to 200m as many workers got a taste of their first work video call. But will it last? How much of this new behaviour will stick after Covid?

Online food shopping in the UK doubled from 5% of the market to 10% during lockdown as consumers put aside their concerns about product substitutions and bruised bananas to get their weekly shop. But will these new habits stick? If the consumer’s main purpose is to get their shopping in the cupboards in the most efficient way, they will convert to online; but if they want to browse the shelves for inspiration they are more likely to opt to visit a store in person.  

It’s not just how we are buying that is changing but what we are buying. Physical retail options are being lost and that spending is not necessarily simply flowing to another rival shop or online. Some spending will be directed away to entirely different products, as consumers reset their behaviour and spending patterns. Even in education and health, which had long been very resistant to anything other than ‘in person’ delivery of services, the crisis proved that it was possible to adapt. At a time when everyone is much more open to trying things, new ideas across all industries stand a greater chance of flourishing. 

In the UK, ecommerce rose from 20% of retail (ex groceries) to 30% over two months of lockdown. The figures partly reflect the impact of shop closures limiting the ability for shoppers to spend in store, but this still represents growth in online retail that would have taken years to deliver, taking place in just a few weeks. The trend was the same in the US, where online retail spending rose over 30% in the second quarter. Interestingly, since the UK lockdown eased in July and shops began to reopen, online spending has remained buoyant, although we will have to wait to see if this is a temporary phenomenon resulting from consumers having cash to burn after months spent at home.      

On the other side of the change is the pain of businesses that have been just about getting by for years. Online has been the tide lapping at the toes of some retailers for years; a persistent nagging problem, but never so awful that it causes alarm at the top. There are no longer any excuses - the list of industries that aren’t threatened by the rise of ecommerce is very short. Retailers are upping their game and focusing on creating an experience that is a reason to visit a store, recognising that just being a place to buy stuff may not cut the mustard anymore.  

The increase in ecommerce is widely blamed for the existential threat to high streets and shopping centres up and down the country. Declining footfall has destabilised key tenants and has a domino effect on other retailers and the viability of whole centres. Landlords recognise the symbiotic relationships between retailers and (pre-Covid) looked to manage that very carefully. In cities like London, what would the impact be if workers continue to work from home even one day per week? Can those businesses cope with 20% less footfall? Would the mix of businesses in the area need to change?

The change that is underway in the retail sector (we haven’t even touched on supply chains here) represents the biggest challenge for company management that we can recall. That will ultimately be reflected in the share prices of businesses, the quality of their debt and with repercussions for the property sector as a whole. There will be risks to be negotiated for investors, but also the opportunity that is associated with major change. 


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