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Black Friday: E-Commerce Is the Headline but There’s More to the Story

After months of anticipation, the event that used to signal the beginning of holiday shopping is here: Black Friday. This year, however, Amazon Prime Day (in October) kicked off the Q4 shopping season for millions of Americans.

E-commerce spending in 2020 is projected to reach a new high. The pandemic is driving large numbers of people to spend much if not most of their holiday budgets online because of new lockdowns and concerns about in-store safety. According to a November survey from consultancy Deloitte, a majority of those who said they were reducing shopping this year indicated “concerns about COVID-19 exposure” as the main reason.

Consensus financial analyst estimates expect e-commerce to make up as much as 30% to 40% of holiday retail sales. There are also outliers with even more aggressive estimates. And consumer survey data from multiple sources indicate that between 60% and 70% of Americans will do some if not most of their holiday shopping online.

According to the U.S. Census Bureau, e-commerce spending was 16% in Q2 and 14% of total U.S. retail spending in Q3. It will be much closer to 20% of overall retail in Q4.

In terms of consumer-spending predictions, the data are all over the map. Some surveys suggest shoppers will be cautious; others say the majority of Americans will spend an equal or greater amount than last year. And even though there’s still considerable economic hardship and uncertainty, we can probably expect robust holiday spending numbers. 

Online Visibility and Product Inventory

As people think about where to shop this season, many will turn to familiar retailers such as Walmart, Target and Best Buy. In addition to their brand awareness, these retailers are aggressively discounting and have the advantage of store locations that can double as fulfillment and return centers. All three have recently all beaten Wall Street earnings forecasts and posted triple-digit online growth – with roughly 40% of online orders picked up from local stores. 

Unlike in many past years, many consumers are casting a wider shopping net and becoming more agnostic about where they buy. Surveys from Q1 and Q2 this year show consumers are more willing to try new brands/retailers and loyalty has diminished in some categories. According to an early 2020 survey from Google and IPSOS, 70% of US shoppers “said they were open to buying from new retailers.”

Consistent with that sentiment, there’s a lot more searching and pre-purchase research going on this year, given that people are reluctant to simply head into stores to shop as they might once have. That means online visibility -- especially online product availability -- is more important now than in the past.

Retailers and product manufacturers that utilize product-based local landing pages, merchant inventory feeds, paid-search inventory ads and shopping-related attributes (e.g., curbside pickup) will be rewarded with more online and in-store sales. In May, Google said that “searches for ‘available near me’ have grown globally by over 100%” year over year. 

People are trying to be more efficient with their shopping trips and don’t want to risk a fruitless outing to the store. They’re also frustrated by shipping delays and out-of-stock items online. 

Online shoppers are now conscious of potential supply chain issues and disruptions, which were a bigger problem in Q1. Nonetheless, according to research vendor Suzy, “62% of Americans think their packages will take longer than normal to arrive.” That may translate into hesitation, especially in mid-December, to rely on traditional e-commerce shipping and motivate online buyers to opt for local-store pickup. 

The Role of the Store: BOPIS and BORIS

The primary value of click and collect or “buy online, pick up in store” (BOPIS) is immediacy and convenience for the consumer. The primary value for the retailer is avoiding shipping fees. But we’ve already written extensively about BOPIS:

What we haven’t written as much about is BORIS (buy online, return in store), the companion to BOPIS. (The UK term “click and collect” is much less awkward.)

Each year there are hundreds of millions of dollars of post-holiday shopping returns. If consumers like the immediacy of same day or next day local pickup, they arguably like the convenience of local returns even more. Shipping something back to an online merchant can be frustrating and inconvenient.  

In September we surveyed 500 U.S. adults and asked them whether or not they agreed with the statement: “I’m more likely to buy something online that I haven’t seen in person if I can return it to a local store.” Nearly three-fourths (71%) said yes, while only 9% disagreed and 21% were unsure. This is another way that stores support e-commerce. 

Local returns can give online shoppers added confidence to buy without having seen or touched a product. And positive return experiences can boost loyalty and repeat business. Beyond this, physical stores increase brand awareness, credibility and trust. That’s why many direct-to-consumer brands have opened stores over the last several years. 

In-store returns were historically a tedious process. But there’s some interesting innovation happening in part because of the pandemic. One example is Navar, which operates return concierge pop-up locations on behalf of retailers. Consumers fill out an online form and receive QR-coded receipts that they give to an associate at the offline pop-up location, along with the merchandise. Similarly, I previously wrote about a great Amazon return experience at Kohl’s.

As these examples illustrate, offline locations remain an important part of the overall retail value proposition. BOPIS and BORIS deliver convenience and increase confidence in online shopping. Stores also increasingly operate as showrooms for later online purchases. This is not to say that stores don’t need to evolve, but retailers must understand that convenience is now a fundamental key to success and be much more agnostic about where the consumer transaction happens. And that is in fact happening. 

Small Businesses Saturday and Beyond

Among major retailers, there will be winners and losers as the pandemic lifts in 2021. Some will emerge stronger from COVID, having modernized their operations and marketing, others will go out of business. But as challenged as the retail sector seems right now there’s even more uncertainty and pressure surrounding small businesses (SMBs). U.S. Census Bureau survey data shows that just under 75% of U.S. SMBs have seen a negative economic impact from COVID. 

U.S. consumers have become sensitized this year to the existential situation most SMBs face. Well intentioned shoppers have reflected in multiple surveys that they intend to spend more money with independent local businesses. Accordingly, Google research found that “66% of US consumers who plan to shop this holiday season said they will shop more at local small businesses.”

There is comparable data from Accenture and McKinsey that reflects increased consumer interest in supporting local businesses. But a worrisome October survey of 5,000 U.S. adults from business networking site Alignable found that 68% of respondents intended to spend most of their money online. (That’s consistent with much of the data presented above.) Big box stores, familiar retail brands and Amazon will be the main beneficiaries of that behavior. 

To make it through the quarter, which is make or break for many, small businesses will have to use every digital tool at their disposal (i.e., digital presence, reviews, social media, video, ads) to generate awareness and showcase their products or services. There’s a lot they need to do well. But through the crucible of COVID, the survivors will hopefully emerge stronger and more digitally sophisticated. 

For the U.S. retail industry, and perhaps globally, 2020 will be seen as an “inflection point.” Although, it may be more accurate to say long-term consumer and industry trends were simply accelerated by COVID-19. But however we choose to describe this year, it’s increasingly clear that 2020 represents a bright dividing line between the past and the future of retail.

Posted by Greg Sterling