There has been enough said and written about COVID-19 and its impact on our lives and more so on the economy. So I’m going to restrict myself to analyzing its impact on E-Commerce, especially in the North American market.
I live with my family in Chennai, India and last week, the government announced the closure of educational institutions, malls and banned public gatherings. Within four hours, the school in which my kids’ study, sent google classroom logins. From the next day onwards, the online classes started! Now, that is a classic example of how an online service replaces a physical one in an instant.
The next day, I ran into an ad, in my FaceBook news feed: an online company that teaches children how to code was running special coding classes for kids during the period of “Corona Shutdown”!! How about that for adapting and converting a situation into an opportunity?
Let’s first look at the obvious gainers in e-commerce. All online groceries, daily convenience stores, food and delivery, pharmacy and healthcare stand to gain primarily because people are forced to stay home and would prefer to order online rather than get out of their homes. I also believe online education stands to gain big-time. Online toy stores are possibly seeing a lot more sales than before, as parents figure out how to keep the kids engaged when they are at home!
What about online fashion?
Now that’s a tricky one. Let us first understand the variables that impact online fashion (in the current COVID-19 scenario):
- Industry classification – The fashion industry, in the current context, is a non-essential industry for most people. In other words, if most people had limited money, they would possibly spend it on food, medicine and daily needs rather than fashion.
- Price – While the absolute price of the product matters, wallet share possibly matters more.
- The propensity to spend – Your buyer may have the ability to buy your product, but is he or she willing to spend on the product right now?
- Other factors that influence this industry include demand, demographics, supply, culture, style, eye-ball time towards fashion, etc.
Let’s have these variables at the back of our minds while getting into the analysis. I asked my team to provide data from 15 stores (all American Boutiques) who have used the Vajro app for at least a year. I’ll weave the data into the analysis and make observations.
First up, I envisage that there would be an immediate drop in overall online orders for fashion stores and boutiques. This is primarily because people are distracted right now – they are vying to settle down with the new norm of working remotely. They need to take care of kids, keep them engaged, buy and stock groceries and essentials, etc. They are also possibly spending a lot of time tracking the news about the virus and its impact.
Let’s call this phase 1. I expect this phase to last until the end of this month and in this period, people are more worried about their immediate needs than clothes and accessories. This is where the “industry classification” plays an important role and unfortunately, the fashion industry is bound to lose out at this stage. Our findings also corroborate with this: 70% of the stores that we considered have 25% fewer orders (total online orders) in the first couple of weeks in March 2020 as compared to the last two weeks of Feb 2020.
Perhaps the most significant impact in phase 1 is that a lot more people would start buying online than before, though not necessarily clothes and accessories. Consider this – a good 30% of the American population has never purchased online! People who previously preferred to buy physically and had inhibitions about buying online have been forced to change their fundamental purchasing behavior and have started buying online a lot more.
So what happens next?
I anticipate that in phase II (which I believe would primarily be April and May 2020), things would change significantly. Let’s try to understand why and extrapolate a few variables. Primarily, a lot of people would have ‘settled down’ to the new norm. On the plus side, this would mean significantly more eye-ball time on the internet than in phase 1. This is because most people would continue to work from home but would have settled down and adapted (and they also spend significantly less time on travel). So this is where online fashion stores and boutiques have to work hard and grab the eye-ball time of the buyer, which would now be available in abundance. However, there is a flip side to this: Not everyone would have the propensity to spend. There would be one set of people who would continue to work from home and would either not have to worry about cash because they have enough to last them for months or they continue to get their paychecks on time (remember – many large companies like Walmart, Shopify, etc are even providing one-time/additional compensation to work from home). Then there would be another set of people who may struggle to make ends meet. These would include small business owners who run physical stores and are shut down, but more importantly, this would include the large swathe of people who are typically paid only when they physically turn up for work.
Online fashion stores and boutiques would do well to target that segment for whom cash is not a problem. I also think that in phase 2, online fashion stores would do well to lure the buyers with discounts because a lot of them may want to hoard cash for being in the ‘new norm’ for longer and may bite the bullet only for attractive offers.
I also believe that customer engagement would play a significant part in phase 2. Live videos, push notifications, text notifications, FB posts, etc. – all of these would have a lot more eyeballs in phase 2 than before. I also believe that Mobile Apps would make a significant difference in this phase. Picture this: if your regular buyer has your app, he or she is more likely to open it and browse through it during phase 2. Our data already supports this:
- Only two out of the fifteen stores reported a drop in sales through the app. The rest thirteen reported an average increase of an astounding 78% increase in revenue from the Mobile App channel!
- 60% of the stores reported an increase in their returning customer rate on the app
- On average, there was a 6% increase in conversion rate on the Mobile App channel
However, there is one important factor that could wipe out the entire phase 2 – that is supply. If you are having difficulty in getting the supply of merchandise, then there is no question of generating more revenues. The other ‘supply’, i.e. your ability to ship out the merchandise to your buyers is equally important. If any or both of these two are severely impacted and comes to a complete stand-still, you would be better off thinking about spending time with your children and family than worry about your online business. Period.
As we move further down the timeline, it becomes more and more difficult to predict. The impact in phase 3 would depend on a lot more factors. It would primarily depend on how fast the world curbs the spread of COVID-19 and how fast economic recovery happens. If the spread continues unabated like now, then more and more large organizations would be constrained in their ability to pay their employees consistently. Small organizations and small business owners would find it even more difficult. This would primarily mean people going back to buying ‘essentials’ and fashion stores and boutiques would lose out significantly. However, if the spread is contained and the economy bounces back sooner, it would be a significant positive for the fashion industry. Remember the 30% population in phase 1 who embraced eCommerce for the first time in phase 1? A lot of those folks would continue to embrace eCommerce and start buying online beyond the bare necessities. This would possibly be the single largest positive takeaway from COVID-19 – whenever the recovery happens, the online commerce industry would have expanded significantly and fashion stores and boutiques would be well poised to maximize on that!
In the meanwhile, stay safe and take care…