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Will the Coronavirus Pandemic Spell the End for Retail?

A major Pandemic shift looks to be the rapid transition over to mainly using e-commerce rather than relying on retail stores to buy goods.
Will the Coronavirus Pandemic Spell the End for Retail?

With the ongoing coronavirus pandemic, there is a massive amount of economic uncertainty. The financial markets have been hit hard since the virus started spreading out of China and across the world. Governments have been providing stimulus packages to keep businesses afloat and to help pay the wages of employees.

The daily life of the average American has been drastically altered since the coronavirus took hold across the country. This has led to major changes in daily routines and normal activities. While some of these changes will be temporary, others will be permanent.

With large swathes of people now working from home, it looks like this could be a trend that continues even when things get back to normal. Another major shift looks to be the rapid transition over to mainly using e-commerce rather than relying on retail stores to buy goods. This transition will have a lasting impact on businesses in the United States.

Gradual Transition To E-commerce In Recent Years

With the advent of the internet, the ability to purchase goods online became a reality. This provided a much greater selection of goods and it meant that people no longer had to travel to a retail store somewhere to make a purchase, the goods would be delivered directly to their home or place of business.

However, in the early years of the internet, a lot of people were skeptical about handing over their card details to online stores. People were also less informed about common internet scams and countless people as a result stayed away from this emerging technology.

Online Adoption

However, as time went on and the internet became more ingrained in the day to day lives of the average American, people began to embrace e-commerce a lot more. Online transactions were becoming a lot safer and people were using credit and debit cards a lot more when they were retail shopping as opposed to using cash.

Younger generations who grew up with the internet began buying goods online and showing their family how to do likewise. Now there are 1.8 million businesses in the United States that have an e-commerce presence.

Delivery times have been cut down significantly, with many delivery companies offering same day or next day delivery. There are all sorts of apps that you can now use to make your day to day lives easier, such as ordering groceries online and having them delivered to your home.

retail ecommerce sales

These are some of the many reasons why the e-commerce market grew as it did. This trend has caused a strain on retail stores who still have to pay high rents in a lot of cases and have to employ tons of staff. Retail demand has fallen by as a result, with the likes of shopping malls and retail outlets starting to go out of business and lay empty across the nation.

How The Pandemic Is Speeding Up The Transition to E-Commerce

The ongoing coronavirus pandemic looks like it will dramatically speed up the transition from retail over to e-commerce, for a number of reasons.

Number one is that people are staying at home and not making any unnecessary journeys. The only time that they go out is for exercise or to get vital supplies at a store, if they haven’t already been ordering their groceries online.

Retail Businesses Struggling

All non-essential businesses have been forced to close across the United States for the most part. Therefore, foot traffic in the likes of shopping malls is at rock bottom levels. While some of these businesses will be about to get help from the government or get rent freezes from their landlords, there are countless other issues they have to consider.

A lot of them will have to continue paying large rents while their stores are closed and they are doing no business. Then they have to consider either paying the full wages of their workers, paying part of their wages or letting people go.

Just like how 78% of Americans live pay-check to pay-check, a large proportion of businesses operate in a similar fashion. Just a few weeks of declining sales can be enough to put a business under as their overheads swamp them.

Even those businesses that remain open are struggling due to strains on global supply chains. Products that come from all across the country and the world are being delayed as the various delivery methods are being put under strain due to countries closing borders.

Heavier Reliance On E-commerce

With people not being able to go out to retail stores to shop for clothes for example, they are now ordering them at online stores. There have been record downloads of grocery delivery apps, with Instacart seeing a daily download increase of its app of 218%, with Walmart seeing an increase of 160%.

People like having all of their groceries delivered straight to their door. Many people will realize after this pandemic that by ordering their groceries online that they are saving time and potentially money by doing so. This will likely have a direct impact in a lot of smaller retail grocery stores that only have limited delivery capabilities or none at all.

With many non-essential businesses shut down, they now realize how important it is to have an e-commerce presence. Many companies have been focusing a lot more on this side of their business since this crisis struck. This will likely continue as they see the results that can come from e-commerce with reduced costs a lot of time.

Changing Habits

People's habits will have changed and having been forced in a lot of cases to use online alternatives, won’t go back to their old ways. As younger generations grow older, the usage levels of smart devices and the internet is only going to increase. They know the perks associated with e-commerce and this is going to have a major impact on retail operations.

Billionaire investor Carl Icahn is one of the many notable investors that is betting on the decline of the retail space in the United States. He has placed large shorts against the commercial real estate market in the country. Icahn believes that retail shopping is on its way out on a mass scale and that many shopping malls will default on their loans and go bankrupt in the near future.

What Will The Future Look Like?

As time goes on, e-commerce will dominate retail even further. Retail businesses will see the advantages of operating off a lean model, allowing them to downsize floor space thus dropping rents.

For many shopping malls, inflated rents are paid to get access to the prime foot traffic routes in a mall. For e-commerce operations, they can have a warehouse in the middle of nowhere, paying very low rents and delivering a more cost-effective solution to their customers.

Shopping malls seem like they will decline rapidly in their presence across the nation. While there will still be a place for the likes of clothes stores, these will likely be on a much smaller scale than they are currently.

Store chains like JCPenney and Macy’s are looking at annual earnings drops of around 50%. They were already having a tough time of things before this pandemic even began. Research firms project that up to 15,000 retail stores will close in 2020, a 50% increase on 2019 levels. This is why it is vital that these types of large store chains put more and more of a focus on e-commerce or else they will risk being left behind and becoming victims of the 2020 coronavirus pandemic.

Previous times of great economic uncertainty have spelled the end for different types of major companies and industries, so retail business owners need to make sure they are not added to this list. They need to adapt to much more efficient business models that operate on a leaner cost structure.

A Cashless Society

Another key change coming out of the pandemic will be a continuing shift towards a cashless society. With concerns that handling cash can transfer the virus, people are being urged to use card payments wherever possible. The transfer to a cashless society has been much heralded, but there have always been those who have resisted.

Many countries already are in advanced stages of this process with Sweden having an almost completely cashless society. Banks will be forced to adapt to these changing circumstances by offering modern platforms that allow people to instantly send and transfer funds as they please in a similar fashion to popular apps such as Venmo, Revolut and the Cash app.

Who Stands To Benefit?

The likes of Shopify look like they will benefit from a lot of small and medium-sized businesses going more towards e-commerce. Shopify is a one stop shop for these businesses when it comes to their online needs, providing everything from the online store itself to acting as a payment processor.

Large e-commerce marketplaces such as Amazon will also use this pandemic as an opportunity to further cement their position in the market. The company is continually investing in its infrastructure and plans to be completely looking after its own deliveries in the future, replacing UPS as its main shipping provider.

Leaner e-commerce stores that focus on clothing will also likely benefit, such as Lululemon and Boohoo. These sites have been running with minimal costs and in recent years have seen continual explosions in growth. With many retail clothing chains likely to seriously struggle and even go out of business, this will present a golden opportunity for these e-commerce kickstarters.

The likes of Visa look well-positioned to benefit in a lucrative fashion from the transition over to a cashless society. It is cemented as the market leader in debit and credit cards with 60% market share. The financial position of the company is extremely stable and it has numerous competitive advantages.