Whilst it comes as no surprise that the world of retail has been changing for some time, and that more and more shoppers are choosing to buy online, the speed at which Covid-19 has accelerated this change was totally unexpected.
Since March 2020, the number of shoppers choosing to buy online has rapidly increased and is now at levels that were only expected to happen by 2024. This is due, in part, to the simple fact that you can’t shop on the high street when the high street is closed but also, more importantly, it’s due to a fundamental shift in consumer behaviour created by the Covid pandemic.
The shift from high street to online retail has been accelerated by three to five years, and in a world where many retailers were already struggling to keep pace with the digitisation of retail, this poses a big threat to their business – and a big opportunity for those who embrace this change.
What does the immediate future bring for retail?
The next three to six months is perhaps the most uncertain time for consumers and, in turn, for the retailer. If only we had a crystal ball.
With increasing local restrictions, talks of national circuit-breaker lockdowns and decreasing consumer confidence in both the economy and even in simply heading outdoors, footfall and spend in the high street is only going to head in one direction: south.
A common trend across retail forecasts is that only the food sector will show growth, and all other retail sectors will show an average 15% year-on-year decline across the next three months. For retailers and brands already struggling to keep the lights on, this is a real threat.
With less certainty, increasing restrictions and downward high-street forecasts, retailers and the brands that sell through them, need to rapidly adopt an online strategy to offset this and face into the new and uncertain world in which they operate.
Online to face greater demand over this peak
With demand shifting into online channels, and in direct contrast to high-street retail forecasts, the online world has seen drastic growth throughout the pandemic and forecasts for the final quarter of 2020 suggest that online overall will grow between 25% and 35% vs the previous year.
Nowhere has this growth been more prevalent than with Amazon which saw its dominance continue through the pandemic (albeit not without its challenges) posting a 40% year-on-year sales growth and doubling of profits.
With an established customer base, a deep selection of products in almost every retail category, and the vast majority of its customers benefitting from free, next-day home delivery, Amazon became the go-to destination for lockdown home deliveries on everything from essentials to luxuries.
Whilst many people scorn Amazon’s growth and dominance, what many miss is that due to its unique marketplace model, over 50% of the goods sold on Amazon are sold by retailers and brands, rather than by Amazon itself, and the vast majority of this sales growth was felt by those brands directly.
In the face of an increasing shift to online, and with record Prime Day sales already for 2020, the growth of Amazon through peak trading in 2020 looks set to continue – as does the opportunity for brands to sell to consumers through Amazon in this period and grow their own sales.
Can the couriers and warehouses hold up?
With any growth in online sales, the pressure is typically felt in two places – a retailer’s warehouse and its delivery network.
Warehousing efficiencies are difficult to manage at the best of times, but throw on top of that Black Friday and Cyber Monday peaks, followed by an uncertain level of growth this Christmas, plus sick time due to Covid and isolation requirements, and you’ve got a planning and potential capacity nightmare on your hands.
As well as the usual annual creaks and pains in the courier network, you’ve only got to look at the recent news from Royal Mail about becoming more of a parcel-collection/-delivery business, and the 6,000 new jobs created at DPD to see how quickly the home-delivery networks are growing and changing to support the shift to online. However, this won’t come without its challenges.
In recent years, the home-delivery networks have become so much more robust and rigorous in their planning for peak trading events but this year’s unknowns could bring extra pressure on the couriers’ ability to handle the newfound volume.
It goes without saying that Amazon faces the same challenges in scaling its logistics operations through peak trading, but with its significant scale, efficiency and superior infrastructure, it often fares better. This gives retailers operating on its platform, and through its logistics solution, Fulfilled By Amazon, confidence that they can scale sales without worrying about the logistical headaches.
Amazon and marketplaces – the obvious opportunity?
Selling on Amazon and third-party marketplaces (eBay, Etsy, Fruugo, Zalando etc.) is nothing new, but retailers and brands have been, at times, slow to adopt them. This has often been because of fear of losing their own sales to a third party or concern about working with third parties because of a lack of knowledge or capability within their teams. Whilst these are valid concerns, they can easily be overcome with the right level of understanding, strategy and partner in place.
Whilst these are concerns for retailers, the consumer (quite frankly) couldn’t care less and is already shopping in these channels in serious volume for every possible product you could imagine.
In 2019, over $1.9 trillion was spent on global marketplaces and very few of those customers cared whether they were buying from a brand, a retailer or a marketplace. They chose to buy from the outlet that had the right product, the right price, the right delivery proposition and the customer’s trust.
Even pre-Covid, there were more reasons to sell on marketplaces than there were not to – but fear, ignorance or lack of knowledge got in the way.
In a post-Covid world, any retailer or brand facing declining sales in their biggest channel has to start taking marketplaces seriously.
With a ready-made customer base, latent demand for almost every product in the market, tools and technologies to help you sell and a logistics infrastructure already in place and scalable, Amazon and other marketplaces must be an integral part of any retailer’s strategy.
If you’d like expert guidance and advice about selling on Amazon, don’t hesitate to get in touch at [email protected], through our website, or call us on 01422728435.
