eCommerce in a recession: silver linings, ESOV and DTC

In early April I wrote a piece for WARC, looking at the lessons from past recessions and what, if anything, we could learn and bring to this recession/depression in the context of eCommerce. The piece is here but I was also lucky enough to have a chat with David Tiltman as part of their Marketing in the COVID-19 crisis series.

Below is the video plus a slightly polished up version of my remarks.

Are we right to think that e-commerce players should do well out of this lockdown?

It depends. There are many different players out there. Established Pureplay, fragile pure-plays, omnichannel ecommerce, brands with DTC. Each has different circumstances, pros and cons.

The lockdown is not so much changing everything as greatly accelerating trends that were already happening. Changes that might have taken 10 or 15 years, simply because of the stickiness of the status quo, are happening in months.

US online grocery penetration is now 9% almost double what it was at the start of the year. It could be 12% by the end of the year. E-commerce may double its share of total retail. In many non-essential categories ecommerce is the only game in town.

There’s a famous quote by Sam Walton, “I was asked what I thought about the recession. I thought about it and decided not to take part.” It was the SARs epidemic in Asia that helped accelerate eCommerce infrastructure and adoption ahead of the western countries. And already some ecommerce players are being aggressive. eCommerce sites as a whole have already doubled ad spend.

The pure play eCommerce players that are already positioned to do well and what we are seeing is the Matthew Principle play out. “For to him who has will more be given”

There runs the risk that smaller businesses will collapse and the consolidation or worse “Amazonification” of everything will be complete. Omnichannel eCommerce players are having more challenges in the lockdown. Stores drive online traffic and a ton of inventory is locked up in those closed stores. Even if they are experiencing increase demand they can’t fulfil it and then they have the challenge that when lockdown is released, will the inventory still be relevant or in a saleable condition?

Those who do well need to start by getting back to basics and focus on the most viable and sustainable offerings.

Having a strong handle on overheads, unit economics and their existing propositions, with the ability toput data behind where the business should invest.

Brands in particular should take an honest inventory and ask the key questions about Product, Proposition, Place, Pack/Price and People.

Then fundamentally they need the tech and supply chain to deliver appropriately, both literally and metaphorically, in this recession.

Meanwhile other brands are playing catch up but if they’re sensible they will:

1. Move fast; begin with best practices– Given current global events as of Q2 2020, the strategy is to move rapidly into the market

2. Use a scrappy, experiment-driven approach– Learn what does and does not work at smaller scale and with lower risk. Share learnings and data to rapidly scale success to additional product lines. Coach employees on this way of working to build overall agility and resilience.

3. Maintain operational efficiency by defaulting to shared resources– leverage common platforms and shared resources across engineering, logistics, customer service, etc. until proven otherwise

4. Innovate and experiment on propositions, value chain, network, etc

What new behaviours are you seeing in e-commerce?

A survey by Retail Economics found that two-thirds of shoppers said they had switched to purchasing products online that they have always previously purchased in-store. Well that’s not surprising when the stores are shut down or hard to get into.

There is already evidence of willingness to try new services or ways of purchasing. In China, 84% said they bought a new product or service when in lockdown. Most shopping occurs on autopilot, this disruption to routines and re-evalution creates opportunities.

What is interesting is the large increase in clicks on Buy it Now buttons on individual brand sites. Normally people buy from larger or preferred retail platforms, your Amazons and Tescos of the world, but they’ve have been struggling to get on or get a delivery.

And they’ve turned to Brand sites.

Owned assets are growing in importancewithwebsites, maps listings, social becoming a primary point of customer contact. Brands should prioritise reassuring, comprehensive answers to customer FAQ.

Surveys like GWI show that people can’t relate wider impacts to personal impacts yet! But it is coming and people are moderating purchase behaviour.

But even the winners in ecommerce like ASOS or Boohoo, where their competitors have vanished and target market is teenagers at home with theoretically fewer money worries, are running 70% off sales to clear inventory.

People are shopping online more and are appreciating the efforts of brands:

· 37% say they are shopping online more

· 36% say they would like essential stores (food etc.) to allow they to order online and collect from the store

· 38% say they would like essential stores (food etc.) to pre-book a time to visit the store so they don’t have to wait inline

· 81% approve of brands providing practical information

· 62% approve of brands selling non-essential products via websites

You talk about brands stealing excess share of voice in the current situation — what do you mean by that?

As competitors and others cut back on spend there is an opportunity for brands to achieve ESOV in e-commerce and steal share. For those brands faced with declining sales and reduced LTV, customer acquisition spend can seem hard to justify despite evidence of its continuing importance,but this is not the time to cut back on customer acquisition in e-commerce because we are operating in the unprecedented circumstances of mass-store closures and social distancing.

In previous recessions a rule of thumb was that when stores closed, sales dispersed. Approximately 30% of sales generated in the closed store were still captured with maybe 15% moving online, and 15% moving to adjacent stores. These are not normal times and adjacent stores are also closed. If 30% of closed store sales move online then e-commerce becomes vital to maintain brands for as long as possible until stores re-open.

How will this affect the rise of DTC — does it give them advantages over established players?

Established players may have deeper pockets and more resilience.

For the last few years the story in e-commerce has been of the changing dynamics of DTC and Digitally Native Brands. The pressure on DTC brands will increase as the cheap VC money that was already drying up, is turned off completely and people retreat to familiar brands in CPG. In this case the opportunity lies with bigger brands to use e-commerce to continue to trial innovation in a time of COVID-19 and win back share from the insurgents and fulfil that DTC ‘treat and discovery’ need-state.

Also in this recession preparation for more time at home means less fashionable CPG brands are front-of-mind. Currently retailers have asked brands to narrow down and focus on supplying the core of their core products to both (still open) stores and e-commerce. That creates an opportunity in DTC to focus on innovation.