The ecommerce-first economy has finally arrived

The Metapack Ecommerce Delivery Benchmark Report analyses the new cohorts of shoppers born from the COVID-19 ecommerce boom, and how their shopping and delivery expectations have shifted during this unprecedented time. It also examines the ways in which top retailers and brands are already responding to embrace change and succeed in 2022.

COVID-19 sent economic shockwaves throughout global retail markets with its full repercussions still to emerge. These changes have been accelerated by the emergence of new shopping behaviours, including a new wave of permanent online shoppers – ‘digital shifters’ who value speed of delivery above all.

The pandemic has accelerated the migration towards online, driven by a permanent shift in consumer behaviour and vast investment across the entire online retail ecosystem, from digital marketing to more frictionless returns. This acceleration in online growth will lead to $540 billion of additional sales going through home deliveries alone by 2025, compared to a scenario where the pandemic had no impact on behaviour across the four key markets of UK, USA, Germany and France. A total of $650bn of non-food spending will shift toward online by 2025.

More mature online markets have greater digital capacity and are set to experience higher levels of long-term shifts in shopping behaviour, with ‘maturity’ measureable by average spend online per person per year. The UK and US offer some of the most sophisticated online propositions, with a relatively high average online spend per year per capita of $2,500 and $2,800 respectively. This means the pressure on physical non-food retail is most severe in the UK and US compared to other countries.

20% of consumers will permanently shift more of their shopping online. The shift varies by country, standing at 27% in the UK and America, compared to 15% in Germany and 9% in France. 7% of shoppers moving online say speed of delivery is THE most important factor, but 58% are more willing to delay delivery times than pay more to offset the environmental impact of delivery.

COVID-19 is not, however, the only force re shaping consumer attitudes. Reducing our collective impact on the environment has become a major priority for shoppers, driven in no small part by younger demographics.

A New Era for Retail

After moving on from the initial stages of the pandemic, the retail industry is facing a new era. Considerable lifestyles changes are now embedded that incorporate greater dependence on digital. This has fuelled changes in how consumers work and socialise, as well as how they buy and receive goods and services.

A key question for retailers is whether these new online behaviours will persist beyond the pandemic. It is critical to distinguish between consumers making temporary changes in reaction to COVID-19, from those whose behaviours will be more permanent, particularly towards home shopping. 42.2% of consumers working from home expect to permanently shopmore online, compared with 16.8% who are continuing with normal work patterns.

The proportion of non food sales rose markedly in 2020 then fell back in 2021 as global economies reopened, but remained elevated on pre-pandemic levels. This is particularly relevant to the UK where online accounted for 43% of total non-food sales in 2020. Although the proportion fell back to 37% in 2021, it remains ahead of long-term trends.

In the UK – Online expected to account for 49.7% of total non-food sales by 2025; there was an additional $30.8 billion shift towards online caused by the pandemic and an additional $27.0 billion through home delivery.

In America – Online expected to account for 30.6% of total non-food sales by 2025; an additional $538.6 billion shift towards online caused by the pandemic; an additional $449.6 billion through home delivery.

In Germany: Online expected to account for 28.2% of total non-food sales by 2025; an additional $29.6 billion shift towards online caused by the pandemic; an additional $22.7 billion through home delivery.

In France – Online expected to account for 32.3% of total non-food sales by 2025; an additional $48.9 billion shift towards online caused by the pandemic; an additional $40.1 billion through home delivery.

Follow the Money!

Higher priced items are not following the same pattern. Big ticket items typically involve more considered paths to purchase, commonly relying on ‘touch and feel’ experiences in-store to drive conversion. There is also a degree of cautiousness around the delivery of expensive or fragile items. Shoppers in high-value categories such as furniture and flooring are likely to revert to old behaviours of shopping as the impact of COVID-19 recedes

Younger shoppers exhibited the greatest propensity to shop online with overseas companies throughout 2021, with 18-24 years olds nearly twice as likely to purchase an item online from a company operating overseas compared to consumers 65 years and over. Younger consumers in the UK and US are also twice as likely to have increased spending overseas compared to consumers in France and Germany of similar age.

Younger consumers effortlessly discover new products on social media, which offers them direct access to emerging brands, brought to their attention through celebrity endorsements. Online platforms have enabled brands to sell direct to customers by effectively lowering the barriers to entry and social media shopping is paving the way for brands to use their existing following to drive direct sales.

Legacy retailers struggling with investment are likely to require ‘piggybacking’ off existing infrastructure and expertise as consumers shift online. This includes partnerships with other retailers (e.g. shop-in-shops, and between online-only and store-based retailers), and third-party logistics providers in mutually beneficial arrangements. Acquisitions can provide ‘bolt-on expertise’ to ramp up capability and capacity in a given market.

As vacancy rates across retail have stepped up since COVID-19, rental values have come under scrutiny with the balance of power shifting in favour of retailers over landlords in contractual negotiations (e.g. CVAs). Against a backdrop of higher online sales, retailers are also looking to include more digital experiences in physical stores to entice online shoppers into them.

As such, digital and physical channels will merge more in the future. Store function will move more towards: showrooms for high value items; marketing tools for customer acquisition and retention; and store staff will provide virtual customer services online. Stores are also increasingly being leveraged as convenient collection and returns points, whilst supply chains have needed to become progressively more sophisticated to ensure efficiency. For retailers, final mile delivery incurs the highest single cost for fulfillment.

As the volume of home deliveries continues to ramp up, retailers will need to increasingly rely on data to optimise the efficiency of deliveries (e.g. route optimisation) and must remain open to partnerships to improve both capacity and capabilities – both of which are highly capital intensive.

As domestic markets become saturated with competition, opportunities arise for brands to venture into overseas markets as online grows internationally and brands with a recognisable profile overseas are increasingly targeting a global pool of potential. Logistical and financial barriers to cross border ecommerce must be overcome to gain traction in new markets, including adapting to tax regimes, managing local postal services and payment systems.

Partnering with local third parties and online marketplaces offers a powerful solution for brands branching out overseas. Partnerships mean that they can benefit from existing infrastructure and expertise to derive value from exporting. While successfully penetrating foreign markets remains challenging, there are now many routes to market across borders to cater for individual needs based on product category and in-house capabilities.

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