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How Pandemic accelerates the growth of Ecommerce Industry

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Global Surge of Ecommerce Industry during COVID Pandemic

As a result of COVID-19, the ecommerce industry has been highly impacted and this article examines the expansion of consumer access to luxury items by analyzing the impact on new companies, customers, and products.  The article illustrates how digital technology can be used to help businesses adapt and increase social acceptability without leaving anyone behind.

E-commerce expanded to new businesses, customers, and categories of goods after the COVID-19 crisis. In spite of contact restrictions and other confinement measures, online shopping has enabled consumers to access a wide variety of products from the comfort and safety of their homes while also allowing businesses to continue operating.

There are likely to be some long-term changes in the e-commerce landscape, given the possibility that additional waves of e-commerce will emerge, the convenience of the new purchasing habits, the learning costs, and the incentive for firms to benefit from investments in new sales channels.

Additionally, the government should ensure fair competition for intermediated services, thereby addressing the unique needs of SMEs. E-commerce, communication, logistics, or trade, such as trade services, requires a well-functioning business environment, including sufficient competition in the retail sector.

A long-term effect of COVID-19 is likely to be felt on e-commerce:

DEMAND HAS SHIFTED FROM BRICK-AND-MORTAR TO E-COMMERCE:

Several countries have seen a significant reduction in physical interactions as a result of the COVID-19 crisis. Retail has been sacrificed temporarily in many countries, because of restrictions on access, combined with self-imposed social distances aimed at preventing contagion. E-commerce is likely to have a significant impact across countries as brick-and-mortar retail shifts. Accordingly, while in the United States e-commerce grew gradually between the first quarter of 2018 and the first quarter of 2020, it exploded to 16.1% between those two quarters.

According to estimates, online orders rose significantly across several regions during the first half of 2020, including Europe, North America, and Asia-Pacific. A significant increase in e-commerce was recorded in Asia-Pacific countries in the first quarter of 2020, whereas in Europe and North America, it was primarily attributed to Italy following several other countries‘ examples and taking a series of measures at the same time.

A recent Google trend indicates that pre-containment Google searches almost doubled in some countries before actual confinement measures took effect, illustrating the relationship between behaviors and consumer expectations.

THE RISE IN E-COMMERCE DIDN’T BENEFIT ALL ONLINE SELLERS OR PRODUCT CATEGORIES:

Product categories and sellers are affected differently by the COVID-19 crisis. US consumer demand increased for items relating to home improvement, groceries, and ICT equipment, while demands for items related to travel, sports, or formal clothing shrank. As changes to the food supply chain occur, e-commerce may be observed in a few ways, including farmers who use digital tools to sell their produce directly to consumers or restaurants offering food delivery services. Even though the dynamics may vary by country, these data indicate that despite the shift to e-commerce, brick-and-mortar retailers are also experiencing reduced consumer spending on non-essentials, as indicated by reduced spending on e-commerce.

One particular group affected was sellers with fewer than 1500 product listings, whereas retailers with over 3000 listings experienced growth. This suggests that during the COVID-19 crisis, the demand for goods shifted from smaller, specialized sellers to larger, diversified sellers. It also illustrates the complementary nature of online and offline sales channels.

Thus, despite Amazon’s own sales rising by 26% compared to the prior year in the first quarter of 2020, its share of total e-commerce in the United States fell from 42.1% in January to 38.5% in June. Walmart and Target gained market share from Amazon (from 4.2% to 5%) and Target (from 2.2% to 3.5%). These and similar firms, then, benefited from large, physical stores, which enabled fast kerbside pickup for consumers (kerbside fulfillment).

COVID-19 MAY CAUSE LONG-TERM CHANGES TO EMPOWER BUSINESS:

There are some changes in demand which may only last a short time, while others may have a lasting impact. Anecdotally, there is evidence suggesting that the SARS epidemic of 2002 and 2003 contributed to China’s retail industry’s digital transformation. SARS was one of the primary drivers of JD.com’s move from brick-and-mortar to online sales in 2004. It also paved the way for the launch of Taobab, Alibaba’s business-to-consumer (B2C) branch in 2003.

For example, during the current crisis, some elderly consumers who started to use e-commerce to improve their physical distance may continue to do so. Credit card use by more than ten million Japanese consumers suggests the largest increases occurred among users in their 60s and those in their 70s. The adoption of digital and low-touch activities during the COVID-19 crisis indicates that online grocery shopping and kerbside pickup are among the new e-commerce activities of which new users drive over 50 percent of the increase.

In terms of supply, many brick-and-mortar operators who have faced the closure of their stores now look to e-commerce as a potential alternative sales channel or complement. As the process of moving to online sales involves an investment, many companies that have increased their participation in e-commerce in the COVID-19 crisis are expecting to be able to reap the benefits later. In particular, large merchants that have built their own distribution and sales infrastructure discover this to be true. As an example, by April 12, 2020, Amazon’s Whole Foods Markets had increased online ordering capacity by more than 60% in response to the demand surge, bringing its pickup services from about 80 to over 150 stores, and further integrations are anticipated as time goes on.

In spite of the large number of merchants who have beenrelying on the infrastructure and services provided by online platforms, smaller retailers are increasingly likely to realize the value of their established online identity and experience.

Since the confinement measures have been loosened, a number of people are beginning to build platforms for online sales. Various items like cafes, restaurants, and museums have to introduce an online booking system in some countries to control the number of people coming onto their premises at any given time.

E-COMMERCE MUST DELIVER FOR ALL – NOW MORE THAN EVER:

We’ve described how the COVID-19 crisis prompted new kinds of firms, customers, and products to become e-commerce players. The physical distance between buyers and sellers is virtually eliminated with e-commerce for individuals. A large share of the population values the availability of groceries, medicines, and other necessities, which is increasingly reflected by e-commerce, including high technology goods, toys, and books. Because of e-commerce, either certain aspects of public life, such as concerts, museums, or swimming pools, have also become easier to access, online or in person; time-stamped tickets can be issued to prevent overcrowding. A vital component of many firms’ sales strategies today is e-commerce, which allows them to keep up their operations despite contact restrictions and other limitations.

Therefore, closing remaining digital divides has become increasingly important. Access, income, awareness, and skills can all be associated with them for consumers. People in many countries, including many wealthy nations, consistently lag behind in the use of e-commerce, even though e-commerce enables physical distancing among the elderly. Furthermore, despite the decline in the cost of Internet connectivity, the sheer number of online products, and the ubiquity of digital technologies, significant and persistent gaps remain for households or individuals with low educational attainment.

For firms, particularly small and medium businesses (SMEs), persistent barriers remain in terms of e-commerce participation. Due to low levels of digitalization and difficulties in accessing and adopting new technologies, SMEs are finding it especially difficult to adapt current work processes, such as the introduction of tele-working or online sales channels, to meet the challenges of reduced demand.

Several of these divides have been aggravated by the COVID-19 crisis. Furthermore, an increasing number of firms are experiencing regulatory uncertainty about what rules they need to follow to merge and shift sales channels between offline, online, and omnichannel.  Despite the multiple challenges that COVID-19 already faced prior to its onset, current events have made policy actions even more urgent. During the COVID-19 crisis, some countries have taken initiatives to support the digitalization of business models, but many countries continue to face challenges.

BRIDGING THE DIGITAL DIVIDE AND PROMOTING PARTICIPATION AMONG VULNERABLE PEOPLE:

Economic and social barriers to e-commerce participation are often rooted in factors beyond e-commerce, such as rural-urban divides, income distribution, and unequal access to education. Low connectivity may result from a lack of digital skills, low levels of trust, or insufficient access to online payment mechanisms, all of which can be addressed by appropriate policy measures. A few measures that could be considered here include targeted information campaigns, trust-building initiatives, adult education opportunities, and public-private partnerships directed towards low-income households.

A number of other factors limit e-commerce participation for some groups of people, including rural-urban divides, economic equity, unequal education access, and aging societies. These conditions may also be manifested by a lack of digital skills, low levels of trust, and a lack of online payment methods. In this regard, public-private partnerships may be particularly effective in targeting low-income households and rural populations through targeted information campaigns, trust-building initiatives, adult training, or other strategies.

Many countries took action during the COVID-19 crisis, reducing the financial burden of Internet access for members of certain consumer groups, such as the poor and young. The developing and emerging world also offers examples of novel approaches to closing lingering digital divides, like mobile money (e.g. M-Pesa in Kenya), cash on delivery, or using landline phones and social media to coordinate online orders for those without digital skills or access. Accordingly, in several countries, strategies for introducing community-based delivery might be considered for consumers who are particularly vulnerable or do not possess the necessary skills to take part in e-commerce.

There might be a need to take targeted action in the context of grocery shopping, an activity with high contact potential. Several elderly with access to digital technologies were deterred from using these tools for grocery shopping by the challenges of obtaining a delivery slot and wait times of several weeks during the first wave of the COVID-19 crisis. Merchants have reacted by reserving delivery slots on their websites for elderly and vulnerable customers or by encouraging non-vulnerable customers to shop in stores to ease capacity constraints for vulnerable shoppers (e.g. Waitrose, Tesco, WholeFoods).

During the crisis, even mainstream consumers become more vulnerable, psychologically and financially. Hence, governments might need to establish trust, engage in an open dialogue about fair business conduct with online businesses, and educate consumers about possible swindles. In addition to ensuring adequate competition in the retail sector, governments must ensure adequate guarantees for small and local brick-and-mortar retailers because of the COVID-19 crisis, which will enhance market consolidation to the advantage of larger retailers with online sales channels.

SME DIGITAL TRANSFORMATION AND INNOVATIVE E-COMMERCE BUSINESS MODELS:

New business models are emerging as the digital transformation progresses in ways that are difficult to predict and challenge traditional policy frameworks. Regulations may limit businesses from combining online and offline commerce, even as firms pursue business models that combine both. There can be additional challenges associated with converting brick-and-mortar facilities that are already in existence (such as repurposing warehouses and logistic hubs in urban centers). Similarly, they can hamper advancements in contact-free delivery technologies, such as drones and robots. To ensure economic survival, firms must accommodate new business functions and logistics solutions, and adapt to limitations on physical interactions, such as those caused by the COVID-19 crisis.

In addition to being transparent and flexible, e-commerce regulatory approaches should be able to allow experimentation. Some countries have been more flexible with regulations in response to the COVID-19 crisis, including easing the cap on contactless payments or temporary exceptions to planning and zoning rules, such as allowing restaurants to add terrace space or adding bicycles lanes. Governments could employ experimental regulatory waivers in e-commerce that are legally monitored and evaluated as examples of how to address similar challenges. These waivers have been used to evaluate new technologies such as drones and digital payments that have been used successfully in e-commerce.

CREATING AN ENABLING ENVIRONMENT FOR E-COMMERCE:

Regulators and policymakers must build on a robust digital economy by providing a comprehensive ecosystem for online transactions, including digital connectivity, international logistics, and international trade. The postal service, for example, has immediate implications for e-commerce. Logistics, despite slowing in many countries due to new COVID-19 safety guidelines, and postal services struggled to continue as key enablers of e-commerce because many governments considered them critical. Also, service providers have utilized alternative proofs of delivery in several countries, in addition to fostering contact-free delivery methods like parcel lockers. Governments can actively support such solutions. Italy, for instance, is exploring various methods to promote the use of automated parcel lockers, including increasing the number and coverage of parcel locker networks and encouraging more efficient use of lockers, online sharing among different suppliers or something similar.

Concluding recommendations:

  • By building affordable and high-quality broadband access in rural and underserved areas as well as increasing financial inclusion and trust, we will be able to address existing digital divides among individuals.
  • Providing the most vulnerable with access to e-commerce via delivery programs and reserved slots for the elderly, for example. A protective environment should exist for vulnerable consumers from unfair business practices and unsafe products.
  • Ensure flexibility in regulatory frameworks so that innovative e-commerce business models can be developed. Increase transparency through information sharing and reduce regulatory uncertainty.
  • Provide financial incentives for SMEs to diversify their sales. Equally important is providing policies, regulations, and other incentives that enable SMEs to participate in e-commerce.
  • E-commerce is enabled by lowering bottlenecks in various areas, such as connectivity, trade, logistics, and postal services.
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