The Impact of Ecommerce on Small Businesses During COVID-19

Since March 2020, the COVID-19 pandemic has affected practically all aspects of our daily life. Zoom meetings have replaced meetings in conference rooms. Children attend lessons from kitchen tables. Family movie nights will likely include a premiere movie streamed to a television, rather than a trip to the local movie theater.

The retail sector has certainly felt the upheavals of the pandemic. But despite what some may think, not all news is bad. Retailers have found new ways to connect with and serve customers, particularly through e-commerce. Retail sales for the third and fourth quarters of 2020 show that shoppers are ready to spend both online and in stores – but their expectations for the shopping experience have changed.

To keep up with this new retail business reality (which won’t return to pre-pandemic norms even if COVID-19 is under control) retailers need to focus on maximizing and empowering the shopping experience for customers online -Retail offers and the consideration of increasing costs in connection with the operation of a stationary shop.

Retail trends show massive online growth and positive signs of in-person sales

To be clear, e-commerce was there long before COVID-19 was included in our collective vocabulary. In 2019, online sales accounted for 16 percent of total retail sales, up from 7.6 percent in 2013^I. Statistics show a relatively steady increase in the share of e-commerce in retail sales from 2013 to 2019.

The pandemic has shifted this trend into overdrive. Ecommerce sales volume reached $ 211.5 billion in the second quarter of 2020, up 32 percent from the first quarter and 44.5 percent year over year.
Although e-commerce revenue was down slightly compared to the second quarter, it was approximately $ 210 billion in the third quarter – up 37% compared to the third quarter of 2019.ⁱⁱ These numbers do not include transactions that have been “touched” online – for example, a customer researching a product online and buying it in a store.

But the growth in retail sales was not entirely at the expense of stationary retail. In fact, in-store retail hit an all-time high of $ 1.259 trillion in the third quarter of 2020 and rebounded 14.5% after a shaky second quarter. Customers still want the immediacy and personal experience of a brick and mortar retail store. You want to approach these stores in a different way, however, and that involves a blended approach that blends aspects of online and in-person trading.

Stationary retail hit an all-time high of $ 1.259 trillion in the third quarter of 2020 and rebounded 14.5% after a shaky second quarter.

Blended Approach Critical in the Developing Retail Economy

Undoubtedly, e-commerce has played a huge role in preventing the US economy from suffering further damage during the pandemic. Home orders and consumer concerns about exposure to the virus resulted in people ordering goods online and having them delivered to their homes with increasing frequency.

However, e-commerce is not yet fully satisfactory for most consumers. According to a 2018 study, 90% of the shoppers surveyed said that high shipping costs and home delivery for more than two days would put off an online purchase.

Amazon (the country’s second largest retailer after just Walmart) cracked the code with its Prime service, offering free shipping and a two-day (or faster) turnaround time. Unsurprisingly, Amazon saw tremendous sales growth in 2020. Other national retailers, including Walmart and Target, have invested resources in strengthening their online shipping services.

Omni-channel marketing – which combines the strengths of online and physical retail – offers stationary retail the opportunity to serve customers in this new environment of increased convenience when shopping online. For example, customers buy articles online and then pick up their goods either in the store or, even more conveniently, from the curb in the car.

The market shift in the retail sector poses enormous challenges for small retailers: challenges that COVID-19 has exacerbated. Running e-commerce is more than just setting up a website and waiting for orders. Omnichannel marketing is difficult for small retailers because of the cost of setting up such an operation. These costs include:

• E-commerce software. Retailers either need to set up their own system for online purchases or pay a third party (like Shopify) to process orders.

• VAT settlement. A 2018 Supreme Court ruling made e-sales subject to state sales tax. Large, national retailers have the resources to resolve tax obligations from state to state. However, small businesses will likely need to use third-party software options to track government sales taxes.

• Search engine optimization (SEO). Businesses need to be able to grab customers’ attention when they search for keywords on the Internet, and that coveted placement costs money.

Black Friday / Cyber ​​Monday demonstrate the growing potential of omni-channel marketing

Black Friday and Cyber ​​Monday – typically two of the busiest sales dates of the year – illustrate how quickly the retail market is changing.

Black Friday foot traffic in physical stores fell 48 percent. However, the expenditure per customer increased by more than 36 percent.ⁱⁱⁱ Online sales on Black Friday rose 22 percent from 2019 to $ 9 billion, while sales on Cyber ​​Monday rose to $ 10.2 billion – a 15 percent increase over the previous year.^NS These numbers show several things: 1. Even in the current economic crisis, customers are still willing to spend money; 2. Buyers are more focused; they come to the stores and know what to buy; and 3. Consumers still value in-store purchases but increasingly need a reason to visit the store.

Another key statistic is that contactless roadside pickup in retail stores rose a whopping 52 percent on Black Friday 2020. This increase responds to consumers’ desire for safety during the pandemic, as well as their desire for instant access to retail products.

The Buy Online Pickup in Store (BOPIS) revolution combines online and in-store customer loyalty and offers consumers a more convenient way to shop. Again, it’s likely that customers will continue to crave this convenience even after the pandemic.

Legal and business challenges for brick and mortar retailers

But BOPIS raises important business and legal questions. Lease terms can be a complication for retail landlords in the current environment. If, for example, an anchor market is eliminated, other retailers in the shopping center may trigger rent reductions or even termination rights. If rent is based on a percentage of retail sales, is BOPIS sales included and if so, how?

Retailers face their own legal and business challenges. The conversion of shopping centers and big box stores as delivery points can be restricted by applicable restrictive agreements. In addition, restrictive agreements can limit the right to use the common area for deliveries to consumers. These issues should be addressed beforehand as it is in the best interests of both the retailer and the retail landlord to keep customers happy.

Many brick and mortar retailers have fixed costs and do not depend on pedestrian traffic or sales. These fixed costs include items such as land rent, insurance, business software (needed to run the business, manage payroll, etc.), public area maintenance (CAM), and property value tax. These costs have not decreased with COVID-19.

The latter cost can be particularly problematic. Ad Valorem property taxes are usually based on shop rent, not profitability. Unfortunately, for most retailers, current property tax bills are based on the January 1, 2020 valuation date – before the pandemic became a factor – and are therefore irrelevant to current property tax bills.

Municipal revenues declined 21 percent during the pandemic, while municipal spending rose 17 percent.^v It doesn’t take an economist to realize that these two trend lines are unsustainable for urban budgets and are likely to translate into deep cuts in municipal services, significant increases in property taxes, or both. And in general, only landowners, not tenants, can dispute the property tax assessment. It is important that retail property owners and their tenants work together to solve these challenges.

Important considerations for retailers in the COVID-19 era

Retail trends continue to evolve, but the country’s adoption of e-commerce appears to be permanent. So retailers need to prepare to meet customer demand now and in the future after the pandemic. Some points to keep in mind:

1. Create value in the in-store experience. Customers are unwilling to give up personal retailing, but stores need to incentivize them to shop. Remember that today’s customer values ​​convenience.

2. Omni-channel marketing is here to stay. So look for ways to get married online and in-store deals. The BOPIS model already mentioned, for example, combines the convenience of e-commerce with the immediacy of shopping in-store.

3. Note the rental conditions. In particular, keep an eye on BOPIS rights, rent considerations (ie are there thresholds for triggering automatic rent reductions / rent escapes?) And taxes.

4. Try to lower the usage costs inherent in brick and mortar retail (e.g. value taxes). The good news for retailers is that we are in a commercial property buyer’s market. Businesses should work with their landlords to reduce the fixed costs of doing business.

^I Internet retailer magazine
ⁱⁱ US Census Bureau / Commercial Café
ⁱⁱⁱ RetailNext
^NS Adobe Analytics
^v National League of Cities