Online sales have been the bright spot in a turbulent economy over the past year, but it’s important to remember that the e-commerce boom was already well underway before COVID-19 arrived. Now that the pressure of simply reacting to the pandemic has eased, it’s an excellent time to take stock of where we’ve come from as an industry, what we’ve learned during the crisis and how those lessons will shape e-commerce in the coming years.
E-Commerce Is Older Than You Might Remember
While e-commerce feels (and is) very much a 21st-century thing, its roots go back to the 1980s. In the spring of 1984, U.K. grocery chain Tesco started offering online shopping through TV-connected terminals, and a few months later, the pioneering online service CompuServe opened its Electronic Mall.
If you were to pick a starting point for the modern era of e-commerce, it would have to be 1995. While the news broadcasts of the day revolved around stories like the O.J. Simpson trial, the Oklahoma City bombing, and (on a lighter note) the last-ever Calvin and Hobbes comic strip, three unheralded startups laid the foundation of the modern online economy.
In San Francisco, Craig Newmark began circulating an email list of happenings around town to a handful of friends; Craigslist now boasts revenues in the billions. Not far away, in San Jose, Pierre Omidyar launched his new site — Auction Web — by selling its first product at auction: his broken laser printer, which went for $14.83. Auction Web became a million-dollar business within months and changed its name to eBay in 1997. And an online bookstore called Amazon shipped its first book that summer from a garage in Seattle.
Pre-COVID-19 E-Commerce Projections: Yesterday’s Tomorrow, Today
The turn of the century dot-com crash weeded some early e-commerce entrepreneurs, but as the internet got better, faster, and more secure (especially as mobile devices gained popularity), buying things online became normalized. According to the U.S. Census Bureau statistics, e-commerce accounted for less than 5 percent of total U.S. retail sales in Q1 2011. Though the rate of increase fluctuated through that decade, e-commerce grew more or less steadily, and in 2019 it reached 10 percent of retail sales for the first time.
The e-commerce boom was one of the business stories of the decade, and it was perfectly reasonable to expect this steady, moderate growth to continue into the 2020s. That said, the change to a new decade also provided a logical moment to speculate on how e-commerce might evolve. Among these projections:
- More automation in the warehouse
- Emphasis on convenience and streamlining the online shopping experience
- Increased online customer engagement (through the use of chatbots, A.I., and V.R.)
- A focus on personalization
- Volatility and slow growth in the fashion market
- A growing shift to rental and subscription payment models
- Improved supply-chain transparency
- Improved use of mobile platforms
- The possibility of an economic downturn
- Continued growth, but at a declining rate
In the event — unsurprisingly — some of these predictions aged well, and others did not.
During COVID, the E-Commerce Boom … Boomed
The reality was unlike anything even the most discerning CEO or entrepreneur could have predicted. Despite the supply-chain disruptions that earned so many headlines, e-commerce merchants flourished. Consumers began shopping online in droves, thanks to lockdowns and their desire to avoid potential exposure.
In just the first half of 2020 (and bear in mind, the pandemic’s impact wasn’t felt until late in Q1), online shopping grew as much as it had in the entire previous decade. The Census Bureau’s figures showed online sales peaking at over 16 percent of total U.S. retail sales in Q2 of 2020, at the height of the initial confusion, before subsiding slightly to 14 percent in Q4.
Those are substantial numbers, representing year-over-year increases of 14.8%, 44.5%, 36.6%, and 32.1%, respectively, over 2019’s Q1 through Q4. For some merchants, logistical difficulties, website issues, or falling demand in their niche market meant they couldn’t take full advantage of this surge. For those who were able to adapt in time, 2020’s challenges translated into opportunities.
The Many Challenges of 2020
That sharp upswing in online sales was gratifying, but innumerable challenges accompanied it. The first and most apparent was the shocking fragility of international supply chains. Leanness and just-in-time delivery were aspirational goals for a generation of merchants, but they left supply chains brittle and vulnerable to disruption. Domestic supply chains proved fragile as well, with a mishmash of local restrictions and lockdowns randomly removing warehouses, distribution centers, and, crucially, staff from the picture.
Merchants quickly discovered whether their apps and websites could handle sharply higher volumes: many could not, and customers bounced to rivals who could handle the volume (or had inventory to sell). Much of this new digital customer base consisted of people who had previously only shopped in person and whose inexperience with the online world rewarded vendors who were ahead of the curve on convenience, usability, and interactivity.
Fulfillment and especially last-mile delivery became issues, even for Amazon, as sales volumes exceeded capacity. This was incredibly annoying for customers who had become accustomed to the “two days or less” delivery standard Amazon Prime had set. Finally, growth itself — as always — proved a challenge to many merchants, who struggled with their own administrative and operational processes as well as the stresses of trying to hire and train during a pandemic.
Pandemic-Inspired Innovation: The Future of E-Commerce Is Already Here
Numerous studies indicate that consumers, having become accustomed to shopping through online channels, will continue to do so. That, in turn, means that merchants need to leverage 2020’s lessons and use them to guide future operations. Some of those lessons confirmed (and accelerated) already-known trends, but others were entirely unforeseen:
- The end of leanness: There will always be a limit to the levels of product you want in your system, but after 2020 leanness will be balanced against resilience. Carrying too much product has a cost, but so does being caught without it.
- Accelerated automation: Distribution networks were squeezed mercilessly by rising volumes combined with a shortage of workers and the need to account for distancing, sanitation, and personal protective equipment. Companies (like Taylored Services) that had invested heavily in automation handled higher volumes with lower staffing levels.
- Supply-chain transparency: It’s always been important to know where your inventory is. The crisis drove home that point emphatically, at a moment when the technology to provide end-to-end transparency was finally available. It’s not universal yet, but merchants can choose suppliers and logistics partners with that capability.
- Increased use of A.I.: Machine learning and A.I. are newly mature technologies. On the logistics side, they’re poised to handle the wealth of data generated by the same smart tracking infrastructure that enables supply-chain transparency: machine learning can make warehouse management significantly more efficient, for example. On the retail side, A.I. can help drive website personalization and inform ordering decisions.
- More distributed distribution: One of the pandemic’s hard lessons was that if you have a single distribution hub, it’s in a location that gets shut down (by pandemic closures in this case, but the same holds for natural disasters), you’re in trouble. Many merchants responded by partnering with third-party logistics suppliers to add redundancy and resilience to their networks.
- High website interactivity: Improved interactivity was a must for customers who weren’t entirely comfortable shopping digitally and for products that don’t lend themselves well to a simple catalog format. Many sites added interactive features ranging from chatbots and video consultations to virtual- or augmented-reality showrooms, while others doubled down on personalization.
- The return of physical locations as assets: Part of the “retail apocalypse” narrative was that physical locations (and their staffing costs) had changed from an asset to a costly burden. As last-mile delivery became problematic, omnichannel merchants quickly repurposed their physical outlets as curbside pickup locations, and some online-only merchants similarly partnered with operators who had physical locations. With a few tweaks to inventory-management software, physical stores could also become a network of distributed small warehouses to support sales.
- The future of work here now: Remote work was forced upon many employers at the start of the pandemic, and it’s not likely to go away when the crisis is over. Some staff members need to be present physically, but many do not. It’s a mixed bag for employers: it increases the need for a good I.T. team to handle the various networking and security issues, but it can also mean a reduced need for physical space and its attendant costs. It can also free some employers from reliance on local labor markets (or costly relocation bonuses).
There are plenty of other noteworthy trends in the industry, too many to cite here specifically. Business schools will be working overtime through the coming years to analyze the pandemic’s impact and draw long-term conclusions from it. In the meantime, e-commerce merchants will continue to make that future a reality, day by day.
Sources
SitePro News: A Brief History of E-Commerce
Inc: How Craigslist’s Founder Realized he Sucked As a Manager
The Street: History of eBay: Facts & Timeline
Funding Universe: Amazon.com, Inc. History
US Census Bureau News: Quarterly Retail E-Commerce Sales, 4th Quarter 2020
Deloitte: 2020 Retail Industry Outlook: Convenience As a Promise
McKinsey & Company: The Future of Personalization – and How to Get Ready for It
McKinsey & Company: The State of Fashion 2020
McKinsey & Company: Future of Retail Operations: Winning In a Digital Era
Growcode: The Top 40 E-Commerce Trends for 2020
McKinsey & Company: The Shortlist, June 14 2019
Oberlo: Global E-Commerce Sales Growth (2017-2023)
McKinsey & Company: The Next Normal Arrives: Trends That Will Define 2021 – and Beyond
Knowledge@Wharton: What’s Ahead in the Second Year of COVID-19?