Corona Virus: A Catalyst or Disruptor for E-commerce?

I live in Amsterdam, the Netherlands with my family. As of yesterday, all schools here are suspended, bars, restaurants and gyms are closed until 6th of April if not longer. It`s hard to find any durable foods in the supermarkets and online grocery shops are crashed due to the overload. Undoubtedly, the recent pandemic of Covid-19 (a corona virus) and measures taken to prevent its spread has made an impact on people’s shopping behaviors. Quarantines, social distancing, closed schools, restaurants and avoidance of crowded places all contribute to a slow-down of traffic in retail stores. A February Coresight research shows a tendency to avoid crowded places such as malls and stores by 58% if the Covid-19 virus outbreak worsens in the US. Not surprisingly, Morgan Stanley indicates that last week total retail traffic fell by 9.1% and is expected to decline further in the rest of March.

Demand in Retail goes down, what about E-commerce?

Despite the decline in retail sales, online sales are increasing. Data from Quantum Metric show an average e-commerce revenue weekly growth rate increase by 52% and an 8.8% increase in conversion rates compared to a year ago. This increase is attributed mostly to the high demand for virus-related products. Bloomreach analyzed its 250 retailer clients’ online sales for the week 22-27 February compared to the prior week and found out that masks sales increased by 590%. And hand sanitizers by 420%, disinfectants by 178%, bottled water by 78%, and toilet paper by 26%. Especially, the increase in toilet paper sales has become the hoarding fetish of covid-19 struck countries.

An obvious but rather naive conclusion is that e-commerce will gain from the sudden downturn of retail traffic by increased short-term demand on certain product categories and in the long-term by conversion of conventional retail shoppers into online shoppers.

Will the pandemic really boost online shopping permanently?

E-commerce is also not risk-prone. Declining overall demand will eventually have a negative impact on online sales as well, at least dampen its growth. Additionally, e-commerce is exposed to supply-chain risks as much as retail does. There are already reports about disruptions of manufacturing and Harvard Business Review predicts that worse is yet to come: world markets will experience more severe supply limitations in mid-March given the spread of the virus in the US and Europe, China’s increased role in global supply during the last decade, increased use of lean manufacturing techniques resulting in more outsourced production of parts, 30 day inventory policies of most businesses and 30 day supply lead times. The impacts of the pandemic on ports are also becoming visible. Allard Castelein, the CEO of Rotterdam harbor said, “The effect of the corona virus is already visible. The number of departures from Chinese ports has decreased by 20% these days.”

An Uncertain Future

Digital Commerce 360 conducted a survey of 306 retailers and found out a mixed outlook among retailers. 38% of them expect a significant increase of e-commerce sales. The majority of retailers, however, are more pessimistic and expect no or negative growth due to the covid-19 virus.

While everyone is adopting a wait and see approach, it is also time to act. The covid-19 virus will most likely not stop the long-term transition from retail to e-commerce, but rather speed it up drastically. Businesses should increase their investments in the e-business transformations to catch up with new consumer behaviors and their shock-altered shopping preferences. If the pandemic will temporarily or fundamentally speed up this process or not, we will see in the coming period.

Emre Tan

Managing Director of Icecat, MSc. in International Finance, investor via E-nvest., ex- IBM, PwC, McKinsey