Qualifying and Quantifying 2020’s E-commerce Surge

On the shortlist of Covid-era silver linings, we’ve seen an acceleration in digital transformation for local commerce. One of those accelerated areas is e-commerce. You’ve heard the story: Local businesses have been forced to pivot to selling online and, in the process, picked up new fire-tested digital skills.

Somewhat less discussed is just how much e-commerce has inflected in 2020. eMarketer reports that U.S. e-commerce spending grew 32% year over year in Q2. To put that further into perspective, it now accounts for about 15% of U.S. retail spending, after hovering around 10% for the past decade.

eMarketer projects record-breaking spending in this year’s “cyber-5” (Thanksgiving day through Cyber Monday). Perhaps more notably, it projects that e-commerce gains in 2020 will offset physical retail declines, making overall consumer spending essentially flat year-over-year. This is good news considering the blow the pandemic dealt to retail.

Boil it all down, and the lesson is that spending hasn’t declined — it’s just shifted. One of the themes we’re seeing is that the standouts of 2020 are those who have shifted with it. We’re talking here about a broad definition of e-commerce — not just ordering things online, but any digital or mobile purchase.

For example, in local commerce, these digital fulfillment models include mobile order-ahead functions in QSR and coffee. They also include curbside pickup for physical goods. And in an even broader sense (and looking forward), they will include touchless or cashier-less retail in a post-Covid era of physical retail.

To show rather than tell, who are the companies demonstrating best practices that map to the above fulfillment models? Starting with order-ahead, Starbucks is the poster child but we’re seeing other fast-following brands (such as Chipotle) and tech platforms (such as Rakuten Ready).

One thing that brands are beginning to see is that order-ahead models have inherent benefits beyond Covid requirements. There are economic and operational perks such as lower overhead and higher-yield business locations. There are also smaller physical footprints that raise possibilities for store locations in new areas.

As for curbside pickup, the standouts are Walmart and Target. Both retailers had blowout Q2 earnings, with the majority of growth coming from digital ordering revenues. For example, Target reported 25% year-over-year topline growth, while its “same-day services” revenue grew 273%.

Walmart and Target were fortunate to already have curbside pickup initiatives underway pre-Covid. This let them hit the ground running with infrastructure and employee training already done. Regardless, the writing is on the wall that agile pivots to digitally fueled local commerce are the new retail table stakes.

As for the third local e-commerce model — touchless or cashier-less retail — we’ve been surprised that it hasn’t been even more prevalent. Then again, its dynamics could better align with the demand signals of a post-Covid world. This will accelerate the work Amazon has already done to boost cashier-less retail models.

This started with Amazon Go stores. But one thing we predicted about two years ago is that these stores were just testbeds for Amazon’s real endgame: to spin out this capability (just like it did years ago with AWS) to power cashier-less operations for third-party retailers. Call it “retail-as-a-service” (RaaS).

As RaaS germinates in a post-Covid world, we’ll see other “touchless” technology evolve alongside it. One of those is augmented reality for product interactions. This includes at-home 3D product visualization (spend less time in the store) and in-aisle visual search with informational overlays (avoid touching products).

Driving all of the above is consumer demand. Earlier we mentioned business benefits for streamlined fulfillment models, such as mobile-order-only stores. But the demand side of things could propel these models just as much as the supply-side benefits. Just like businesses, consumers have gained new skills and habits in 2020.

Put another way, consumers have gotten a taste of digital experiences, and they have seen firsthand the procedural efficiencies digitization brings to their lives. The question is if e-commerce remains at 15% of consumer spending, or grows from there. Either way, we can be fairly confident that it’s not going back down to 10%.