3 Stages of Coronavirus Impact on Commerce
Article by: John L. Ghiorso
The novel coronavirus (COVID-19) is undoubtedly shaking the world of retail, creating massive disruptions in supply and volatile shifts in demand. As social distancing increases, brands, retailers, and manufactures are left feeling uncertain about the future of commerce.
While no one has all the answers, there are strong indications that retail could fundamentally shift in favor of eCommerce. To demonstrate this shift, I’ve broken down three stages that I believe we will see in the coming months.
Stage 1: Panic Buying
Fear motivates purchasing. It’s an axiom on full display in picked-through grocery stores nation-wide and on online marketplaces like Amazon, where supply and delivery systems are facing unprecedented strain.
Demand is skyrocketing for hand sanitizer, masks, and disinfectants, as well as consumables like canned food, bottled water, toilet paper, and diapers.
But the increase in demand is not limited to non-discretionary items. Other products that lack an obvious connection to the outbreak are seeing major boosts simply because they are at the top of mind for shoppers actively considering emergency preparation and their health. These include general emergency supplies like bandaids and flashlights as well as health products such as supplements, cold medicine, and air purifiers.
In response, Amazon is commiting to hire over 100,000 employees into its fulfillment centers and vast delivery network. They are also placing a temporary suspension on all warehouse shipments by sellers from “non-essential” categories. The suspension is in place until April 5th and is aimed at ensuring that Amazon is able to meet the massive increases in demand.
Amazon lists “essential” categories as: baby, health and household, beauty and personal care, grocery, industrial and scientific, and pet supplies.
To be clear, while fear may be driving the increase in demand, convenience is determining where that demand surfaces. It is much easier to use Amazon or Instacart than it is to load up cases of bulk products at Costco and wait in line for hours. That’s why eCommerce is poised to pick up a major share of retail in the coming weeks.
Stage 2: Sustained Shift Online
Scientists and health officials have been stressing the need for social distancing measures to mitigate the impact of the coronavirus outbreak. The latest recommendations from the CDC includes prohibiting gatherings over 50 people and staying at least 6 feet away from others.
In urban epicenters like Seattle and New York, precautions are more extreme. The public has been asked to only leave their homes for “essential” reasons, with virtually all places of business closed and restaurants limited to take-out/delivery.
As the weeks wear on, isolation and uncertainty will create a massive softening in retail spending. The macro-economic impact is likely to be dramatic: businesses will close, layoffs will take place, 401ks will tank, and stock market volatility will get worse.
But while the overall pie shrinks, Amazon is poised to increase their share—maybe substantially.
Discretionary purchases, when they are made, will be made online. People who would have never otherwise tried Amazon Fresh will be getting their groceries delivered. And a massive portion of the population will realize that they can, in fact, find exactly what they are looking for online.
All of this will happen and continue to happen so long as social distancing keeps us isolated.
Stage 3: New Normal
Daily life will eventually resume. Restaurants and stores will reopen their doors. And while things may seem back to normal, there will have been a fundamental change in the way we purchase products.
Shoppers won’t be running back to brick-and-mortar stores to browse the curtains and decorative pillows they’ve been holding off on purchasing. Instead, many shoppers will do what they had been doing for weeks prior and purchase those items online.
Why? Because purchasing online brings the most convenience, the most selection, and oftentimes the best price.
People don’t go back to hailing taxis after taking their first Uber. They don’t go back to renting movies after streaming on Netflix. So why would they go back to shopping in-store after experiencing the benefits of buying online?
Of course, there may be some mix of products…expensive watches will probably still be purchased in a physical store. But for the most part, eCommerce will maintain its increased share, and in-person retail will be forced to adjust.
For businesses, momentary flexibility won’t be rewarded as much as strategic foresight. Those who anticipate the shift online will be ready to capitalize on the increased share, while those who wait around for brick-and-mortar to pick up again will be left behind.
There’s no telling exactly how everything will play out. But looking beyond initial fluctuations in demand may be the only way to ensure success in the new normal.