The pandemic made for one of the most organic and authentic tests of the world’s progress towards digital innovation, demonstrating how resilient all businesses were. One of the greatest, long-lasting effects of COVID-19 on the retail industry is the digital movement it accelerated.
Businesses that had higher shares of e-commerce before the crisis (i.e., early adopters that already had agile solutions in place), urban areas, and more digitally advanced countries saw greater gains in e-commerce spend — growth that’s expected to continue over the long term. In fact, the “COVID boost,” or expected permanent shift in the share of e-commerce to total retail, is anticipated to be about 20 percent to 30 percent of a country’s peak.
The rush to digital commerce, thanks to rapidly changing new consumer habits and behaviors, has also prompted retailers to evolve. Digital commerce saw exponential growth as it offered more convenient formats and broader marketplaces beyond tried-and-true online stores.
Today’s consumer holds a great deal of power in evolving the product and distribution mix. To adapt to their evolving behaviors and compete with the rise in digital marketplaces, companies need to re-evaluate and restructure innovation strategies in two core ways:
1. Product Innovation to Match New Consumer Behavior
As many businesses rushed to establish or revamp their existing e-commerce presence, they were met with unprecedented competition from all over the world and from all different types of retailers. This resulted in a need to differentiate product offerings and add services.
In the past year, in particular, many businesses have adapted and evolved their product inventory to meet consumers’ new priorities and needs. For example, with people working remotely, many traded in their work clothes and nights on the town in favor of loungewear and Zoom calls. In fact, apparel sales — which have since rebounded well past 2019 levels — were down double-digits during the second quarter of last year, according to Mastercard SpendingPulse, which measures in-store and online sales across all payment types.
During the pandemic, many retailers turned to innovation to retain their customer base as needs changed, as well as appeal to a broader audience.
According to a recent survey, 56 percent of executives — up from 47 percent in 2020 — say their organizations now have capabilities to bring new ideas and solutions to market quickly to meet customers’ evolving expectations. For instance, one clothing retailer that traditionally sells professional work clothes has expanded its SKUs to more casual and comfortable Zoom-friendly designs. In this case, shifts in consumer behavior demanded the retailer re-evaluate and reconfigure its product strategy.
Beyond digital innovations for customers, many companies developed stronger digital capabilities in the back ends of their business to foster or facilitate innovation. Nearly 60 percent of executives now say their organization has the right technology to support innovation initiatives (up 14 percent from a year earlier), and 59 percent say they’re effective in using technology to advance innovation (+10 points).
Remote work will likely remain a long-lasting fixture of post-COVID society. In a study conducted by Fortune with Momentive (formerly known as Survey Monkey), nearly half of workers (49 percent) who are still remote or hybrid say they will look for a new job if their employer forces them back to the office after the pandemic ends. Another report found nine out of 10 executives anticipate they will use a hybrid approach to work post-pandemic. Overall, the majority of companies are taking a hybrid approach. Accenture’s 2021 Future of Work study of 9,000 workers around the world found that a vast majority of employees (83 percent) say a hybrid model would be optimal for a productive and healthy workforce.
In the future, success will derive from agile strategies that enable businesses to keep pace with the accelerated rate of digitalization, anticipate consumer behaviors and needs in real time, and prioritize technology investments based on consumer preferences.
With a majority of the workforce remaining remote, at least partially, retailers of all kinds will need to continue innovating their product strategies even as we continue to contend with the ebbs and flows of the pandemic era.
2. Expanding Access Through E-Commerce and Online Marketplaces
E-commerce erupted in the throes of the pandemic, as its convenience and accessibility proved extremely beneficial to consumers and retailers alike. In fact, Shopify reported in 2020 that over 150 million new shoppers migrated online, with 79 percent of consumers indicating they plan to continue shopping online.
Brick-and-mortar businesses saw many challenges amid the pandemic as many consumers migrated to growing online marketplaces that enabled them to make all their purchases in one convenient place. Businesses that established a digital presence or expanded to existing marketplaces saw tremendous benefits.
One Mastercard study found U.S. businesses with annual revenue under $500,000 that started accepting e-commerce transactions during the pandemic saw an average monthly sales increase of roughly 6 percent compared to a control group of similar businesses that didn’t create a digital presence.
Additionally, marketplaces dominated in 2020, with marketplace sales accounting for 62 percent of global online retail, and the top marketplaces accounting for 95 percent of global marketplace sales. The marketplaces of American e-commerce giants demonstrate how to cater to shopping with a purpose. Real-time payments to reimburse third-party sellers and fast shipping provide an advantage to sellers and consumers who appreciate faster turnaround.
These marketplaces are also ripe for growth, even as some lockdowns are lifted around the world. Channel expansion provided tremendous success for retailers in 2020. While only 40 percent of retailers have merged online and offline channels through omnichannel options such as click-and-collect, an additional 34 percent plan to do so in the coming years. Smaller retailers struggling with e-commerce or wanting to expand quickly will find opportunities with bigger retailers wanting to diversify their offerings.
Additionally, supply chain constraints over the past year have demonstrated the need for further innovation. E-commerce sales can help reduce supply chain costs and restraints by cutting out brick-and-mortar costs and delivering products directly to consumers. New systems and innovation enable companies to keep pace with evolving and growing consumer demands to ensure supply is available.
While some businesses didn’t have the resources to make the transition online or lagged behind their larger counterparts, it’s clear that those that did digitize reaped the benefits during the pandemic and will continue to well after.
As the world slowly begins to transition to a post-pandemic era, we will continue to see that the behaviors adopted by consumers throughout the past year will remain and characterize how all industries structure strategies and innovations moving forward.
In the future, businesses will accelerate digital transformation strategies as consumers continue to rely on the accessibility and convenience of online shopping, be it for groceries, dining, clothing, and much more. By providing consumers a range of products to fit their ever-changing lifestyles and needs in a host of different marketplaces, businesses are more apt to retain their most loyal customers, as well as acquire new ones.