The Top 10 eCommerce Trends Making an Impact

Photo of the eCommerce Pickup area at a Walmart store
 

By Tricia McKinnon

Who would have thought 2020 would be eCommerce’s year? As the pandemic took over making it scary to leave home consumers turned to eCommerce in a way they haven’t before. Were you one of the millions of consumers who tried shopping online for groceries for the first time? Others got into the habit of using curbside pickup. The more adventurous tried beauty or fashion consultations with their favourite brand over Zoom or FaceTime. All of this activity translated into a material growth in eCommerce sales. eMarketer forecasts eCommerce sales will grow by 32.4% in 2020 in the United States to reach 14.4% of retail sales.

The most surprising part of eMarketer’s eCommerce forecast isn’t the growth rate. Everyone expected eCommerce to take off this year as lockdowns swept across the world keeping consumers out of stores. What is surprising is that in a year of unprecedented restrictions and growth eCommerce is still expected to be less than 15% of total retail sales. Even when categories like gas and automobiles are taken out of the mix eCommerce penetration is expected to only reach 20.6% of retail sales in 2020 in the United States. Brick and mortar stores are hardly down and out. If anything the pandemic has revealed how much consumers enjoy taking a stroll on a Saturday afternoon in their favourite store after grabbing a coffee with friends.   

What has also emerged is how important stores are to eCommerce success. Some of the retailers not named Amazon that have had outsized eCommerce growth this year are Walmart, Target and Best Buy, which are all omni-channel retailers. It turns out that the customer decides when and how they pick up their packages and many are opting to go to stores to do that. Who would have thought that eCommerce success would be about more than sitting in front of a phone or a laptop and never leaving home? If you are interested some of the other trends leading eCommerce retailers are capitalizing on then read on.

1. Omni-channel retailing leaves control in the hands of the customer

With Amazon’s success there isn’t a day that goes by where there isn’t a discussion about how online sales are over taking brick and mortar sales. But if you take a look at the data you will see that is not the case. Amazon, the undisputed eCommerce leader, has more retail stores than many national chains. It has 591 brick and mortar stores. That’s more stores than Trader Joe’s and lululemon which have 488 and 460 stores respectively. Amazon even opened a new grocery store chain earlier this year (during a pandemic!) called Amazon Fresh.

Why focus on stores? To be a great e-retailer you have to figure out how to meet your customers where they are. That could be in-store, that could be at home or that could be in their car as they drive up to pick up an order. The retailers that are the best at meeting these needs are having the greatest success.

Target is a retailer that has invested heavily in the omni-channel experience with great results. In the first quarter of 2020 Target’s online sales were up 141%. “Target definitely smashed it out of the park…with triple-digit numbers in e-commerce [in the first quarter] and it’s very evident that today more than ever [a] good omnichannel strategy is key for any retailer to survive. It’s not just about selling key essentials but really investing in the omni-channel experience -- something that Target did five years ago” said Michael Lasser, broadline and hardline retail analyst at UBS. 

2. In-store and curbside pickup takeoff

Not many could have predicted that curbside pickup would become a standout offering in the fight for more eCommerce share. But with 75% of the US population living within 10 miles of a Target store, Target is one of few retailers able to leverage its store network to provide a desired service in a way that Amazon can’t. For example, Target provides a service called Drive UP which allows customers to pull into a Target parking lot at nearly 2,000 stores one to two hours after making a purchase and have Target employees bring their purchase directly to their car. This service grew the fastest out of Target’s same day services, up more than 700% in the second quarter of 2020.

“Our second-quarter comparable sales growth of 24.3% is the strongest we have ever reported, which is a true testament to the resilience of our team and the durability of our business model. Our stores were the key to this unprecedented growth, with in-store comp sales growing 10.9% and stores enabling more than three-quarters of Target’s digital sales, which rose nearly 200%,” said Brian Cornell, Target’s CEO.

90% of the US population lives within 10 miles of a Walmart. Grocery pickup is now available at 3,200 Walmart locations across the U.S. Offering this service has been key to the growth of Walmart’s eCommerce business since the majority of Walmart’s sales come from grocery.

Perhaps the most interesting takeaway from the list of the top ten eCommerce retailers in the United States is that with the exception of eBay and Wayfair all of the retailers have a contingent of stores which are critical to their success in grabbing eCommerce share.

 
Chart of the Top 10 eCommerce retailers in the United States
 

Is the era of the successful direct to consumer or pure play eCommerce retailer over? It may not be over but the proof is in the pudding, stores are critical to long term success.

3. One stop shopping is back en vogue

It is not a coincidence that many of the retailers that are performing well during the pandemic offer one stop shopping. From Walmart to Target to Costco customers are seeking refuge in retailers where they can get what they are looking for in one trip. You could attribute this to the pandemic since customers may reduce their exposure to COVID-19 by consolidating their shopping trips but that doesn’t explain why consumers are choosing these retailers for online purchases when they can easily and safely make purchases from other retailers from the comfort of their own homes. 

What we are witnessing is a trend towards more convenient shopping trips. Why buy your grocery and household items online from several different retailers when you can save time by getting everything you need from Walmart? Shopping with one retailer also saves you delivery fees. One stop shopping is an area Amazon has dominated for a very long time. Part of the reason consumers shop at Amazon is because it’s the “everything store”. You can find almost anything on Amazon from books to kitchen appliances to groceries. Having everything in one place simply makes shopping easier. With more dual income households people have less time for shopping and would rather consolidate their trips, not only now but in the future. 

Consider a weekly decision about where to shop for groceries. If a consumer is choosing between shopping online with Target and a grocer that does not sell general merchandise items they may choose Target instead. With Target a customer can get groceries, a baking pan and even a new laptop computer all in one order. Retailers that offer a wide selection due to their sheer size have an advantage over retailers with a narrow assortment since it is that much easier to buy everything you need in fewer trips or shopping sessions. 

4. Same day services are increasingly important to consumers

If it wasn’t clear before it is now. People want their eCommerce orders quickly. The less friction while shopping online the better. If you aren’t shopping in-store then you want to have your purchase as fast as possible and that’s whether you are having it delivered or are picking it up in person. One of the keys to Target’s eCommerce success is its investment in same day delivery. Target went down this path several years ago when in 2017 it purchased Shipt which provides same day delivery. 

Customers can place an order at Target and either pick it up in-store within a few hours or elect for curbside pickup. On Target’s first quarter 2019 earnings call, Target’s COO John Mulligan said: “well over half of our digital growth was driven by same-day fulfillment options: in-store pick up, Drive Up, and Shipt. Put another way, these three services drove more than a quarter of our total company comps growth.” 

This behaviour is indicative of our desire to have control over our time. Not everyone wants to wait a week to receive something they just ordered. If I just purchased something and I have the choice of receiving it today instead of tomorrow in many instances I will elect to receive it today. Why should I wait when I don’t have to? “Together, our same-day services saw more than 270% comp growth in the second quarter [of 2020], outpacing overall digital growth. Among these services, we saw the fastest growth in Drive Up, which grew an astonishing 734%. We also saw incredible growth in Target sales fulfilled by Shipt, which were up more than 350%,” said Cornell.

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5. A continued focus on stores to elevate digital sales

In clothing retailer Aerie’s second quarter of 2020, digital demand (measured by ordered sales) soared, up 113%. Digital sales represented 70% of sales during the quarter. Despite success within this channel Aerie is still focusing on stores with plans to open 25 new stores this year alone. "We know that stores generate increased brand awareness, expand customer reach, and raise average spend in underpenetrated markets," said American Eagle Outfitter’s Chief Operating Officer Michael Rempell.

Another reason for opening stores is that they are a “highly profitable” channel says Jay Schottenstein, American Eagle Outfitter's CEO. eCommerce can be a good and a bad thing all at the same time. The revenue is welcomed but eCommerce can be the most expensive channel as tasks like picking, packing and delivery are shifted from the customer to the retailer. The best model is really a combination of brick and mortar stores and digital sales. 

6. Store design as a way to facilitate mobile sales

No company does mobile ordering better than Starbucks. Now Starbucks is taking cues from the success of its popular mobile app and integrating mobile ordering with easy mobile order pickup. In November of last year, the first Starbucks Pickup location store opened in New York. Starbucks Pickup locations are small and do not have seating but there is enough space to pick up mobile orders. Starbucks is planning to close 400 stores in North America by the end of 2021 and open 300 new stores this year with a focus on pickup and takeaway. 80% of Starbucks transactions are already “on the go” and in the first quarter of 2020 17% of Starbucks transactions in the United States were mobile transactions. "Our vision is that each large city in the US will ultimately have a mix of traditional Starbucks cafés and Starbucks Pickup locations," Starbucks said in a statement.”

Starbucks Pickup locations will be located in densely populated cities like New York, Chicago and Seattle while curbside pick-up, drive through and walk-up windows will be the priority for suburban locations. For curbside pickup, customers must order and pay in advance using the Starbucks app and then check-in to designated parking spots to receive their order. Starbucks is also testing curbside only locations. Starbucks plans to offer curbside pickup at as many as 1,000 locations.

“By blending traditional Starbucks stores in dense markets with these new Starbucks Pickup stores optimized for the mobile order occasion, we not only improve the customer experience for those who want to sit in our store and enjoy their beverage but also create a great experience for those customers who want a convenient way to pick up their beverage on-the-go,” said Starbucks CEO Kevin Johnson in a letter to employees.

7. Mobile apps that extend beyond eCommerce 

Nike has a strong ecosystem that provides many entry points to its business outside of its of its core eCommerce app. One these entry points are apps like Nike Training Club and Nike Running Club. These apps allow users to access training programs such as strength workouts that can be done from the comfort of a user’s home. 

Early in the pandemic Nike saw just how valuable these apps could be. Once COVID-19 started to spread in China Nike quickly shifted its focus to helping customers stay fit and connected while stuck at home. This approach resonated strongly with Chinese consumers. By the end of Nike’s 2020 third quarter weekly active users of Nike’s activity apps in China were up by 80% versus the beginning of the quarter in what the company has called an “extraordinary” increase in usage. Not only was engagement up but so were sales. In the third quarter of 2020 Nike’s digital sales in China were up by more than 30%. Speaking about this Donahoe said “the strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app.” 

As Fortune writes: “Nike has long understood that digital tools must do more than just support sales and have to insinuate themselves into customers' lifestyles to really pay off. Otherwise, e-commerce growth often just means business going from one avenue to another, rather than growing the overall pie.” 

8. Subscription services that increase customer acquisition and loyalty

Subscription as a service (SAAS) is the new “it” business model in both B2C and B2B environments. SAAS primarily results from consumers increasingly accepting subscriptions versus making one-time payments. Whether it be streaming, software, health apps, clothing, or groceries, recurring revenue subscriptions are an increasingly popular business model due to their ability to generate predictable revenue streams as they lock in consumers. 

These types of subscriptions are becoming more popular in retail. In September Walmart launched a subscription service called Walmart Plus. The new service is $98 per year, $21 less than the cost of Amazon Prime which now boasts more than 150 million members. Members of Walmart Plus receive unlimited free shipping on orders over $35 across 160,000 eligible items. Members can also access same day delivery and discounts on gas. Subscribers can also skip the checkout line in-store and instead can scan items and checkout using Walmart’s Scan and Go app. It’s no Amazon Prime but it is away to lock customers into to shopping at Walmart on a frequent basis for groceries.

Last year Nike launched “Nike Adventure Club”, a subscription service that allows parents to order shoes for their children aged 2-10 on a monthly, bimonthly, or quarterly basis. This is a smart move as it locks parents into Nike while their children are little allowing Nike to stay with these customers as they get older.

9. Digital consultations provide a new way to connect with customers

Once the pandemic hit in April beauty company Deciem set up Deciem at Home leveraging the online conversational platform Hero to connect customers with a local store associate through two-way live video or messages. The virtual consultations have been very popular with more than 200,000 consultations taking place or 2,500 per day since the program launched. These consultations have translated into sales with the consultations contributing to a 37% increase in average basket size.

“Just doing things with Hero makes it a more personal conversation, because you’re inviting customers into your home, and vice versa. There might be customers who aren’t comfortable going into stores, so this is a good way to make them more comfortable where they feel in control. I see white space in bringing the market into the home, and we need more adaptability. We get to bring ourselves into the home and customize their online shopping experience” said Anthony Clemetson, manager of Deciem’s New York City Fifth Avenue store.

Deciem is not the only retailer offering digital consultations. Neiman Marcus is also focusing on digital consultations finding that when sales associates connect one on one with customers using the brand’s internal mobile app spending can increase six-fold.

When Bobbi Brown launched its Artistry Like Never Before program in May it hosted one on one as well as small group video consultations. Some of these consultations were for as little as 15 minutes or for up to one hour. Conversion rates were exceptionally high. Due to the success of the program the brand is scaling the program globally.

As Bloomberg writes: “for the most part, e-commerce hadn’t changed in the past decade. It’s an efficient way to buy something you know you want—what the industry calls mission shopping—but it’s hampered by the challenges of promoting product discovery and impulse purchases. Those benefits are the point of a traditional store, which, despite its troubles and costs, is still very good at using employees, and ambience to persuade people to buy more stuff. With many stores closed during lockdown or at a limited capacity it has forced retailers to think about how they connect with customers.” 

Expect to see more retailers to connect with customers digitally once the pandemic is over as customer become more comfortable with digital tools and retailers refine their offerings.

10. Advertising as an additional revenue stream

Facing narrow margins in their core business retailers are looking outside of their retail operations to increase profitability. Within the last few years advertising revenues have surfaced as a bright spot for retailers. Amazon’s “other” category which is primarily compromised of advertising revenues passed the $10 billion mark in 2018 and it is estimated that Amazon’s advertising business will generate $17 billion in 2020 making it the third largest digital advertiser in the United States behind Facebook and Google. 

North American retailers are actually playing catch up in this area as Chinese eCommerce giant Alibaba has long had advertising as part of its business model and will generate an estimated $27 billion in advertising revenue in 2020.

Despite having such a high volume of online visitors Walmart has only recently begun to take advantage of its traffic to drive advertising revenue. Speaking to analysts in 2018, Walmart CEO Doug McMillon said: “our data has never been monetized and we have a tiny ad business. It could be bigger.” Adding to this Stefanie Jay, Vice President and General Manager of Walmart Media Group, said: "we can help brands understand if someone saw their ad on Walmart's platform or across the internet, and then purchased the product in-store or online. No one else can do this at scale like Walmart."   

Tricia McKinnoneCommerce, TrendsComment