Retail tech draws lockdown dollars

When coronavirus forced Heidi Sabelhaus Myers to shutter her high-end fashion boutique in San Francisco, she did something she had put off for years: she took her business digital.

“We got our online store up a couple of weeks after we closed,” she said. “And that has definitely carried us through. But it has been challenging.”

Ms Myers turned to Shopify, the Canadian ecommerce group that bills itself as online retail’s “operating system”. Bricks and mortar stores have flocked to its platform to replace sales lost to lockdown, prompting a threefold surge in its share price since the pandemic took hold.

Almost two-thirds more new stores were created using Shopify in the six weeks to April 24 than in the previous six-week period, as the severity of the crisis became clear not just to Ms Myers but the entire retail sector.

“The pace of growth won’t necessarily continue,” Harley Finkelstein, Shopify chief operating officer, told the Financial Times. “But in terms of the new world that will emerge on the other side of Covid, I don’t think there’s any going back.”

US consumers are now expected to spend $710bn online in 2020, according to research group eMarketer, up 18 per cent on last year, while ecommerce’s share of the retail market is set to jump to a record 14.5 per cent.

Chart shows selected countries (% of total retail sales) showing retail e-commerce sales penetration

A rush to buy online is hardly surprising during lockdown. But the industry is watching closely for signs shopping habits have changed for good.

“Some people are going to want to walk into a physical store, but then they’re going to want to complete the purchase on their iPad,” Mr Finkelstein said. “Some people are going to want to buy online and pick up in store. It’s not going to be separate, either online or offline. It’s going to be a mix.”

Amazon, meanwhile, has added more than $400bn to its market capitalisation since the start of the year — more than any other company. Seen as an obvious beneficiary of the crisis as bricks and mortar rivals shuttered stores, investors have piled in despite chief executive Jeff Bezos warning that an extra $4bn in coronavirus-related costs could wipe out its second-quarter operating profit.

Heidi Sabelhaus Myers: ‘We got our online store up a couple of weeks after we closed. And that has definitely carried us through. But it has been challenging’ © Dave Lee/FT

Wayfair, the Boston-based online furniture company, started the year dismissing 500 staff but has since enjoyed a sharp rise in revenues as working-from-homers seek new desks and other home improvements.

A “tsunami” of first-time buyers is a sign that long-term behaviour could be changing, according to chief executive Niraj Shah.

“Once everything opens back up, they’ll go back to buying at brick-and-mortar,” he said on a recent analyst call. “But the piece that’ll stay online will not be the zero it was before. It will now be a meaningful piece of their spend.”

Online groceries have grown most dramatically during the pandemic, although the transfer to virtual shopping has not always been smooth.

Problems with online grocery orders

Customers wanting to buy from Amazon-owned Whole Foods Market were put on waiting lists as the company struggled to meet surging demand. Several Whole Foods stores were turned “dark” — closed to walk-in customers to maximise the online service.

Despite such problems, eMarketer expects an almost 60 per cent rise this year in US online grocery spending. But there is a generational divide on the appeal of internet food shopping. According to a study from the Food Marketing Institute, just 10 per cent of baby boomers said they planned to use online grocery shopping more after the pandemic than they had done previously.

“Older consumers really don’t want to shop for groceries online,” Bourcard Nesin, an analyst at Rabobank, wrote in a recent research paper. “It literally took a pandemic to get them to start ordering groceries online.”

The US electronics retailer Best Buy shifted all of its stores to kerbside shopping in late March © AP

Coronavirus is expected to cement the dominance of ecommerce’s market leaders. Amazon, easily the number one, will take almost $4 of every $10 spent by US shoppers online in 2020, eMarketer projects.

Yet while the company has what seems an unbreakable grip on the sector, two of its nearest US rivals — Walmart and Target — have been capitalising on their key advantage. Click-and-collect services, sometimes known as kerbside pick-up, have surged in popularity, allowing customers to get their hands on goods quickly while still adhering to social distancing guidelines.

The US electronics retailer Best Buy shifted all of its stores to kerbside shopping in late March, allowing it to limit its year-on-year sales decline to about a fifth.

Shopify said 26 per cent of retailers in its English-speaking markets had switched to local kerbside pick-up or local delivery, up from just 2 per cent before the pandemic.

US click-and-collect sales are expected to top $58bn in 2020, a 60 per cent increase on last year, giving physical stores renewed utility as lockdowns ease but social distancing restrictions persist.

“There is a very bright future for physical stores,” said Neil Saunders, retail analyst with GlobalData. “It’s about a retailer being able to fulfil products from a store, or for customers to check the items are in stock before they venture out to the store. A lot of the investments are supporting physical infrastructure, and bringing together digital and physical much more closely.”

Other analysts say stores should look to add a human touch to complement the online experience — taking some of the in-store interaction online.

US click and collect sales are rising sharply

In China, store staff at luxury retailers have started using platforms such as WeChat to communicate one-on-one with their most valuable clients about new items that have come in.

“Since there isn’t as much traffic walking into the stores, they’re spending some of their time doing outreach to their best customers and connecting that way,” said Althea Peng, a McKinsey partner focused on fashion and luxury retail.

Emily Holt, a former Vogue journalist who owns two boutiques in the San Francisco Bay Area, said her customers had been grateful for a personal connection when navigating online purchases during lockdown.

“If one of our regular clients is purchasing something online that I just know is not going to work for her, I’ll say: ‘Hey, I’d actually rethink this — what you should be wearing is X, Y or Z’,” she said. “I’m very proud of the fact our return rate is relatively low.”