- Overview of E-Commerce
- E-Commerce Today
- Rise of Buy Now, Pay Later
- The Next Horizon
- Growth Concerns
Got too many parcels arriving at your door? You’re not the only one. The pandemic has caused rapid changes in trends related to the way we work, learn, socialise and shop. Individuals are spending more time at home, with foot traffic significantly reduced due to general uncertainty, forced social distancing measures and mandated lockdowns. While this has resulted in unprecedented disruptions to our everyday lives, the current environment has provided major tailwinds for the already growing e-commerce market.
This piece will explore the e-commerce market in general, how the pandemic has accelerated the shift online, what may lie ahead and whether the growth we are witnessing is sustainable.
Overview of E-Commerce
E-commerce (short for electronic commerce), is the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions. This includes online retail (apparel, travel, ordering food) as well as online goods and services (e-books, streaming, software). Global retail e-commerce sales amounted to US$3.5 trillion last year and are projected to grow to US$6.5 trillion in 2023. E-commerce is also steadily gaining a greater share of global retail sales, with this forecast to be 22% in 2023.
Due to increasing internet penetration, the rise of smartphones and greater product personalisation (along with a range of other factors) a growing number of people worldwide have transitioned to purchasing online. It has become the norm in many of our daily lives, with the convenience of a few clicks at any time of the day trumping the need to travel anywhere or wait in line. Some other advantages over traditional brick-and-mortar include the ability to access a wider range of options and easily compare prices which can provide immense time-saving benefits. Data has played an integral role in the growth of e-commerce, with every online interaction providing businesses with valuable insights into the consumer and contributing to improved offerings as well as rising sales.
Over the span of a few months, the world has experienced an acceleration of digital trends and several years worth of e-commerce adoption. According to IBM, this global shift to digital shopping has been fast-tracked by roughly five years due to the pandemic. For Australia, online spending rose to 62.6% year-on-year in July, breaking the previous record rate of 60% back in April. Though there had already been a permanent movement towards the online world, the pandemic has contributed to behavioural changes driving the surge in e-commerce growth globally since March. Customers who were previously reluctant to shop online have been forced to digital channels, with those shopping online for the first time consisting not only of millennials and Gen Zers, but also Gen Xers and baby boomers.
While supermarkets have fared better than other physical retail segments, there has been unprecedented online demand for grocery items. Along with this, rising online sales in the home and leisure categories have reflected the lifestyle changes in place as more people continue to embark on home improvement and DIY projects. This structural shift towards e-commerce has been evident across the globe in the earnings and stock surges of e-commerce players.
Australian online retailer Kogan’s share price is up more than 400% from its March low (currently at around $20 from $3.79) after having experienced record sales volumes and significant growth in its customer base over the past year. Global giant Amazon recently reported its largest profit in its 26 year history and Canada’s Shopify, which provides the software enabling retailers to sell online, is trading at around 50 times projected 2020 revenues.
Rise of Buy Now, Pay Later
Whilst not a new phenomenon, the increasing appearance of ‘buy now, pay later’ options at checkouts has likely also contributed to the frequency and value of online purchases over the past few months. BNPL allows buyers to make instalment payments over time rather than paying the full amount up front – providing greater flexibility to the consumer and adding to the convenience of transacting online. For younger shoppers in particular and given the economic downturn faced, zero-interest instalment payments offer an appealing alternative to credit.
In the recent earnings season, BNPL players Afterpay and Zip reported more than double in transaction volumes and active membership bases over the past financial year. While the sector has become increasingly crowded and competitive, it is clear that these payment solutions will continue to empower consumers in making online purchases and help bridge the omni-channel gap as more companies make the move online.
The Next Horizon
The economic fallout of the pandemic will continue to accelerate traditional retail dislocation and as companies consider their strategies post-pandemic, it is clear that e-commerce will continue to play a growing role in people’s lives. Companies will be re-evaluating and adjusting business models in order to adapt to changing industry landscapes and consumer behaviours. The rise of e-commerce will not only drive growth for organisations at the forefront like Amazon or eBay, but also for related businesses in areas such as shipping, automation and social media. We have also seen companies like Uber adapt their business models to begin delivering groceries. The current success of such offerings highlight the potential for ride-sharing to expand into the whole market for delivery services.
Even prior to lockdowns, more investments were being made into digital capabilities – whether that be the technology powering websites, analytical tools to enhance consumer experiences or the robotics managing inventory in warehouses. Supply chain vulnerabilities exposed after the rapid increases in online demand since early this year, have now also prompted a greater focus on strengthening the physical supply chains which e-commerce relies on. While the current environment has created even greater pressure on margins, companies will need to continue making significant investments in order to stay well-positioned as online competition grows and technology evolves.
Some of Australian supermarket giant Woolworths’ recent decisions have been reflective of the need to adapt to the rapid changes our world faces. Earlier this year it launched partnerships with last-mile couriers Sherpa and Drive Yello to create additional delivery capacity and just recently it announced it would acquire a majority stake in food service distributor PFD Food Services. The importance of ensuring strong fulfilment capabilities was also highlighted by Woolworths’ decision in June to invest $780 million in building automated distribution centres.
E-commerce has evolved from simply being an online alternative to physical purchases, to a whole ecosystem of consumer experiences integrated over the various stages of the transaction lifecycle. Although attention tends to lean towards the growth of e-commerce, companies must also continue to be focused on catering to consumer needs. We are witnessing a growing generation of conscious consumers seeking not only a great customer experience, but also taking into consideration key environmental and social factors. Businesses will be faced with the challenge of offering competitive prices while keeping up with evolving expectations.
While the pandemic has acted as an accelerant for e-commerce, it is important to consider how sustainable the current growth is and whether this momentum will continue forward. The optimism for the future of digital sales does come with the caveat of the pandemic weighing on employment and incomes. As government rebates and stimulus packages are wound back, it is likely that in the near-term, growth rates will decline relative to what we have witnessed this year. Additionally, as lockdowns are lifted some spending will likely flow back towards holidays and dining out.
However with the continued working from home trend, along with shifting sentiment as consumers become more wary of crowded spaces and more accustomed to buying online, a large part of the growth does appear sustainable – at least on the surface. The past few months have prompted greater changes to adapt to a ‘new normal’ of living and there has been a permanent steepening of the growth curve of e-commerce.
With income support measures for Australia having been extended to March 2021, it will be interesting to re-evaluate the landscape for e-commerce along with the broader economic environment and health situation both globally and nationally. As the world continues to face a significant amount of uncertainty, it is hard to tell what the future holds. One thing is for sure though – there will be less ‘bricks’ and a whole lot more ‘clicks’ as the e-commerce market continues to grow.
Edited by Dominic Holden and Gary Palar
Disclaimer: The views expressed in this article are solely that of the author’s, and do not necessarily reflect the position of UNIT nor the University of Melbourne. The advice given is general in nature and does not consider an individual’s personal financial circumstance. Transacting off this information is done so at one’s own risk, and individuals are encouraged to consult a finance professional before making investment decisions based off of this article.