Market Overview

Brick And Mortar Beware: The Shift To E-commerce Might Be Permanent


It’s no surprise that a pandemic would change the way consumers engage with retail. 

In the depths of the COVID-19 crisis, consumers embraced online shopping experiences over brick and mortar stores. In many cases, this is because stores weren’t open, lockdowns were in place, or people simply were afraid to venture somewhere that might potentially get them sick.
Looking at consumer spending data taken from debit card transactions, however, suggests that the change in consumer behavior around shopping might have shifted from something temporary to something more permanent.

If we look at a year-over-year comparison of online spending and in-person spending at brick and mortar locations, we can see some striking trends emerge.

Online vs In Person Spend
In the months leading up to the pandemic, online spending was about 20-40% higher year-over-year, while in-person spending was largely flat or slightly below where it was the previous year.

Brick-and-mortar was already in trouble before the pandemic. And the divergence has only gotten more pronounced. 

Online and in-person spending both took a hit in March, with online dropping down to 0% year-over-year growth and in-person plummeting as much as 40% compared to the previous year.

But then online recovered, rocketing as high as 80% year-over-year growth, before finishing out August at 60% growth. In-person shopping? Not so much. It remains flat or slightly below last year’s spending levels.

What this shows is that seven months into the pandemic, when most of the U.S. has relaxed its lockdowns and restrictions, and the initial shock around COVID-19 has dissipated, the consumer shift towards e-commerce and away from brick and mortar has yet to abate.           

It’s as if a behavior pattern that was already gaining traction before the pandemic got a huge nudge from COVID-19, and then permanently stayed in place.

This trend becomes even clearer when we look at consumer online retail spend as a percentage of total retail spend.

Online as percentage of total retail spend

Pre-pandemic, stretching back as far as July 2019, we see that online spend is capturing roughly 20% more consumers than in-person spend on a year-over-year basis. There’s an expected surge to 30% around the Thanksgiving sales and holiday shopping season, which then drops back down to the 20% level. 

As you can see in the latter part of the graphic, that number jumped to 35% in mid-April and pretty much stays there for the next four months, finishing out August at 30%. The move towards online spending isn’t budging; it’s staying put.

Who’s driving this e-commerce growth? Much of it can be attributed to retailers who made the right investment in infrastructure, be it robust e-commerce operations or curbside pickup, while offering goods that were either deemed necessary during the pandemic or that consumers showed an increasing predilection for as they spent more time at home.

Take Williams-Sonoma Inc (NYSE: WSM), which in the past quarter was able to demonstrate respectable year-over-year growth, despite the fact that every single one of their physical stores had to be closed for half the quarter. 

How’d they do that? Their strong e-commerce infrastructure picked up the slack, showing results that were up more than 30% year-over-year, in no small part because of an increase in “basket size.”

During the three months ending July 31, consumers dramatically increased the amount they spent per transaction at Williams-Sonoma, from around $90 at the start of the quarter to around $140 at the end and reaching as high as $180 in the month of July.

Retailers who have been reluctant to step into the e-commerce lane and who are primarily reliant on brick and mortar stores weren’t positioned to capture this kind of manna from heaven and have struggled in comparison.

What all this means is that people largely have the ability to shop in person now… but they’re not. The consumer shift to e-commerce might be less a temporary blip, than a permanent trend that is here to stay.

Randy Koch is CEO of Facteus, a leading provider of actionable insights from financial data.


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