Digital Marketing

Digital Transformation is the New Normal

Marwick
June 11, 2021  •   3 min read


By now, we are all familiar with the phrase “new normal,” and we recognize that the events of the past year have had a significant effect on our daily lives. When we take a moment to review, however, it can still be startling just how much of an impact there has been.

Case in point: IBM’s U.S. Retail Index has released data indicating that the adoption of e-commerce has accelerated due to the pandemic. With so many brick and mortar stores having to shut their doors, retailers turned to digital shopping to continue to serve their customers and expand their business. While there was already a trend toward going digital, the closure of physical locations necessitated shifting to digital roughly five years earlier than expected.

With this dramatic shift, department stores and other non-essential retailers experienced a considerable decline in the first quarter of 2020, dropping 25%. Any hopes for a better second quarter were dashed as the decline grew to 75% and a full-year decline of 60% was predicted. At the same time, e-commerce was projected to grow by 20% during 2020 but surpassed that expectation to reach an estimated $791.7 billion, representing an increase of 32.4% over 2019.

According to the study, the pandemic has also provided insight into the consumer mindset by demonstrating which goods are considered essential. As an example, due to the preponderance of students and employees working from home and the rise of social distancing, clothing sales declined. With the general population confined to their homes for long stretches of time, other goods increased, such as groceries (+12%), alcohol (+16%), and materials for home improvement (+14%).

Retailers who adapted quickly were able to pivot and take advantage of these changes, resulting in some smaller businesses closing the gap between themselves and larger competitors. Some other companies have been slower to react. The Retail Index report suggested that retail department stores will need to act more quickly and make the move to omnichannel fulfillment capabilities or risk being unable to compete. Specific recommendations included the need for retailers to drive more traffic to their stores, which might be accomplished through offering services like buying online for curbside pickup. Additionally, greater options for ship-from-store services should be implemented.

Some large retailers have already made excellent use of omnichannel fulfillment and have seen positive results. Walmart and Target, for example, made early investments in e-commerce and this has resulted in considerable growth in earnings. Walmart experienced a 97% increase in e-commerce sales during their second quarter, driven largely by grocery pickup and delivery. Target’s sales also increased dramatically due to the surge in online shopping, reaching a value of $6.19 billion.

Amazon experienced their own gains, of course. In April of this year, they announced that their first-quarter profit has more than tripled from the year before.

With the increase in online spending, the question now turns to how much of the new shopping habits are simply a temporary result of the pandemic, and how much represents a lasting change in preference? It is true that consumers had already been moving away from physical stores prior to the pandemic and that trend was merely accelerated, but will it continue, or will consumers begin to shop in brick-and-mortar establishments again as the opportunity presents itself?

Discretionary spending has increased since the summer of 2020, with some of the categories of goods that had been depressed gradually recovering. According to McKinsey, “more than 50 percent of US consumers expect to spend extra by splurging or treating themselves,” with around half of them intending to “spend soon, particularly on discretionary categories such as apparel, beauty, and electronics.”

How much of that spending will be done online remains to be seen, but having spent so much time shopping online, many consumers are likely to continue to do so.

While IBM’s Retail Index suggests that we have essentially jumped 5 years into the future in terms of e-commerce adoption, others would go even further, with McKinsey suggesting that “10 years of e-commerce adoption was compressed into three months,” even in countries where cash-reliant, in-person shopping was the standard.

According to the Adobe Digital Economy Index, which has measured spending from March 2020 through February 2021, the trend toward online shopping is unlikely to slow down. In the first two months of 2021, consumers have already spent $121 billion online – an increase of 34% over the previous year – and Adobe expects online spending to fall between $850 billion and $930 billion.

Taylor Schreiner, director of Adobe Digital Insights, stated that COVID-19 “has changed who, what, where, how, and how frequently… people engage in commerce on the internet.”

The pandemic has caused more than an acceleration in e-commerce, however. The entirety of consumer behaviour has shifted in a major fashion, which will surely have a ripple effect that spreads through other industries such as shipping, technology, and more, with everyone scrambling to keep up and adapt.

Although it is perhaps a little early to judge the exact ongoing effect of this rapid change brought on by the pandemic, one thing is certain: digital transformation is the new normal.