Staying relevant has never been harder, given the rapid pace of innovation, driven by the number and variety of new technologies and, not to mention, the global pandemic that created additional economic and operational strain.
The COVID-19 pandemic changed consumer life overnight, leading retailers to rethink how they conducted trade. The crisis also sped up digital innovation. According to an industry survey from Euromonitor International fielded in November, 72% of retail professionals said the crisis accelerated their digitalization plans by at least one or two years with 21% saying it fast-forwarded plans by at least three years.
As part of this accelerated digitalization, retailers ramped up their e-commerce strategies to serve consumers that were shopping from home more either due to mandated lockdowns or their own safety concerns. Retailers and consumer brands should keep these five e-commerce trends top of mind as 2021 kicks off.
E-commerce continues its march
One of the most profound changes unfolding in commerce is the shift to the digital channel. Euromonitor estimates that 17% of goods will be bought online in 2021, nearly doubling from 2016. The pandemic accelerated this shift toward e-commerce, as many consumers experimented and became reliant on the digital channel while in isolation. In 2020, goods bought online globally grew by 24% while stored-based sales declined by 7%.
Three-quarters of global retail professionals surveyed by Euromonitor expect the crisis-inspired e-commerce boom to lead to a permanent channel shift. The key debate is what percentage of this overnight e-commerce growth is sustainable in the coming years. Euromonitor forecasts that e-commerce sales of goods purchased globally will post a 9.5% compound annual growth rate from 2020-2025, which is more moderate than the 24% crisis-driven spike in 2020. By 2025, Euromonitor forecasts that online sales will account for 21% of total retail spend.
Growth possible through optimization
Even without expanding supply chains or logistics networks, growth is possible merely through optimization. Several markets are positioned to handle more e-commerce purchases than they saw coming into the pandemic, meaning they are positioned to sustain the COVID-19 surge in 2021 and beyond. In fact, Euromonitor International’s E-Commerce Readiness Model* found that the retail market globally could support more than $77.7 billion in additional e-commerce sales without further infrastructure expansion based on market dynamics entering the pandemic.
Categories with relatively low e-commerce sales like fresh and packaged food as well as alcoholic drinks have potential for significant movement toward online sales ($38.5 billion globally), while more developed e-commerce categories like apparel ($3.4 billion globally) still show prospects for growth. In a similar capacity, countries at varying stages of e-commerce maturity point to continued prospects for online shifts. From developed online markets like China and the US to emerging markets like India and Brazil, there is room to grow in nearly all geographies.
Online grocery reaches new heights
Prior to the pandemic, the penetration of e-commerce into the grocery space lagged other retail sectors. Of course, there were bright spots like Asia Pacific, which accounted for a majority of global sales and served as an innovation hub. Globally, online grocery saw a significant boost in 2020 as consumers sought to comply with lockdown restrictions, self-quarantined and turned to websites in search of hard-to-find products. To meet this increased demand, retailers ramped up digital investments and consumer brands launched direct-to-consumer operations. In 2020, food and drink e-commerce, in particular, posted 53% growth – the highest of any product category.
Vaccinations will lead consumers to return to physical stores more frequently in 2021, but this crisis will be viewed as the catalyst for bringing down the walls that previously held online grocery back. Coming off the historic year, Euromonitor forecasts that food and drink e-commerce will still expand by 8% in 2021. In order to survive in this changing competitive landscape, grocery retailers will need to prioritize operational efficiency. The digital shift will lead to a rise in dark stores, micro-fulfillment centers and automated delivery as grocers seek to reduce costs that come with selling more online.
Latin America emerges as growth story
Latin America has long lagged other regions in terms of e-commerce development due to the large unbanked population, weak postal systems and consumer distrust of the channel, as well as other factors. The COVID-19 pandemic led companies to make bigger investments in digital platforms, which included developing a smoother website experience, adding direct-to-consumer operations and partnering with last-mile delivery services. Many turned to social media platforms like Instagram, Facebook and WhatsApp to facilitate interactions across the shopping journey. For example, Walmart WMT -0.9% allows consumers in Mexico to order products via WhatsApp.
These efforts helped Latin America post the strongest growth of any region with a 60% jump in goods sold online in 2020. Euromonitor expects Latin America to be the regional growth story in 2021 as well with a 16% increase in e-commerce sales of goods. Mexico is projected to lead that expansion, narrowing the gap between itself and the region’s largest e-commerce market, Brazil. Traditionally, spend in the travel sector drove e-commerce in Mexico, but the desire to shop online to ensure safety during the pandemic caused consumers to overlook some of the hurdles like fraud and logistics that previously hurt online sales.
From a regional perspective, one of the biggest corporate winners has been online marketplace MercadoLibre, which was already a household name. During 2020, the company’s market capitalization doubled, benefitting from the crisis-inspired shift to online retail and a surge in new users for its digital financial services platform, Mercado Pago MELI +3.3%. MercadoLibre, which provided merchants with delivery, fulfillment and payment support, increased market share to capture 22% of all goods sold online in the region in 2020, according to Euromonitor.
Day of reckoning for last mile
Rising last-mile delivery costs and environmental concerns magnified by the e-commerce boom are forcing retailers and foodservice operators to explore new delivery and collection methods. In 2020, 40% of global retail professionals viewed enhancing product delivery as an important delivery initiative. These players will struggle to meet consumer expectations of yesteryear in the post-pandemic, digital-first era unless they reimagine their physical assets and make significant upgrades to logistics networks.
As such, last-mile strategies, including both home delivery and consumer collection options, have been in the spotlight during the pandemic. Last-mile options receiving attention range from low-tech, click-and-collect services that require consumers to retrieve items from specific locations to high-tech robotics that deliver products or meals to the consumer’s home. Even chatter around the potential for dark stores and ghost kitchens speak to how retailers and foodservice operators are trying to solve this dilemma, too.
Half of those global retail professionals surveyed in November agree that having a digital presence is an important component of their company’s value proposition, but only 15% see their company as setting the pace for a digital transformation against industry peers. As retailers and consumer brands continue to navigate the digital terrain, understanding these tech-driven trends is imperative in order to better compete in 2021 and beyond.