The COVID-19 pandemic has profoundly impacted the global retail landscape and represented a stress test for the commercial sector as a whole. The lockdowns imposed across the world have exposed the strengths and the weaknesses of the different ways of doing commerce in extraordinary circumstances. While some pure e-commerce companies thrived during the lockdown, benefitting from increased online demand, others found their businesses impacted by the disappearance of whole branches, such as plane or entertainment tickets sales. Traditional retailers were also unevenly impacted: while some grocery chains continued to operate their physical stores and additionally enhanced their delivery and click-and-collect capabilities, retailers in sectors where physical stores have been shut – such as fast fashion, home appliances, bookstores or hobby stores – found little compensation in selling online.
Overall, the pandemic has been a boon for e-commerce companies. Global lockdowns and reluctance to engage in physical interaction have pushed customers to electronic shopping, leading to a substantial increase in the number of orders, as well as in sales volumes and revenues. Profitability has also been boosted, although some companies remain in the red due to continued large-scale investments. The pandemic has stimulated some breakthrough developments among pure e-commerce players: Amazon’s international retail division became profitable for the first time ever, Alibaba increased investment in grocery retail, but Rakuten decided to close its German operations since it did not reach a sufficient size to become profitable.
Although some reports ventured to announce that the pandemic has vaulted forward 10 years in consumer and business digital adoption, we show in this report that the temporary increase in e-commerce due to the pandemic was in fact lower among bigger companies and was slowed down by numerous bottlenecks among traditional retailers with e-commerce branches. Even if the pandemic provided beyond doubt an impetus to online sales, its effects cannot exceed a couple of years if we are to express it in “penetration rates” judging on previous years’ growth rate.
A more significant evolution is that the pandemic has enhanced the structural divide between pure e-commerce companies and traditional retailers in terms of asset utilization. While traditional retailers invest in inventory, plant and property in order to run their operations, e-commerce players have a very important share of their assets held in cash, short term or long-term investments. The trend has been reinforced, as pure players maintained an exceptionally good free cash flow level during the pandemic, not only benefitting from increased sales and margins, but also containing their capital expenditures. Pure players are now richer and more investors are pouring their money into these companies.
In the competition with pure players, traditional retailers were already losing ground before the pandemic struck. Bookstores and toy stores were bleeding for years, and more recently hypermarkets started to feel the pressure from e-commerce retail. Although large hypermarket chains have made efforts to adapt to market trends, competitive pressure from hard discounters, convenience stores and e-commerce has led to a decrease in their revenues, especially in the non-food segment. Their investments in e-commerce branches have not proved to be lucrative, as delivering goods require huge commitments in resources. Recent reports showed that most common online models for grocery retail are running on negative margins and are not sustainable as standalone operations. However, grocery companies continue to invest in their e-commerce branches as this is required by financial market investors and is stimulated by the fear of missing out against competition if one day grocery e-commerce becomes profitable. The case of Ocado in U.K. is illustrative in this respect: the supermarket chain without supermarkets has yet to make a profit since its foundation in 2000, but has become the second most valued grocery retailer in Europe only behind Ahold Delhaize.
Fast-fashion retail was hit particularly hard by the pandemic. Sales dropped dramatically in March-April as physical stores closed. The double- or triple-figure increases in online sales could do little to compensate for the losses, and profitability plunged to unsustainable levels during the lockdown quarter. The fast-fashion business model is based on a stretched supply chain in which goods are travelling fast from factories to stores with very few distribution warehousing capabilities. In this situation, structural bottlenecks limited the possibility to promote and even to service online orders during the lockdown. Indeed, in the fast-fashion retail industry e-commerce is rather seen as a new function of the integrated business model rather than a separate selling channel. Even before the pandemic major retailers from the sector were announcing impressive expenditures for developing omnichannel solutions, and the lockdown has only stimulated their investment appetite.
After COVID-19 passes, retail companies will want to be prepared for future crises and will likely increase their investments in robotics and automation. Higher e-commerce demand during the pandemic led to an increased usage of robots in warehouses and automated checkouts in stores. In these circumstances, pure players seem better placed to succeed in an automated and robotized world, at least because they hold large amounts of cash that can be invested in research and development.
Trends towards working from home stimulated by the pandemic will increase the use of cloud services, and pure e-commerce players such as Amazon and Alibaba will only benefit through their web services divisions. The increased demand for cloud services will bring more cash to e-commerce giants, money that could be channelled into business practices that have little to do with modernization, such as capturing market shares through predatory pricing, destroying competitors and building monopolies that will sooner or later rise prices and capture all the profits.
It has been reported for a long time already that pure players’ labour standards are below acceptable levels. Amazon, which relies on hundreds of thousands of workers in warehouses and delivery services, has notoriously put in place extremely low labour standards to get a comparative advantage against competition. Generally speaking, the explosion of fulfilment capabilities for e-commerce across the world has increased the number of warehouse jobs, but the quality of these jobs is far from satisfactory.
It is believed that e-commerce, automation, digitalization, and artificial intelligence have the potential to increase wealth to unprecedented levels, but the fundamental question is how this wealth is going to be distributed. Unionizing and collectively representing workers in e-commerce has proven to be a difficult task – also due to openly anti-union policies put in place by the tech giants. Digital dividends are almost exclusively collected by executives, shareholders and venture funds, while workers are struggling to deliver under tighter and faster requirements with the added constraints imposed by sanitary regulations.
Besides the question of labour standards, the rise of e-commerce poses another significant societal challenge: online commerce is notorious for its fiscal underperformance, and big tech multinationals are known for their tax avoidance. In the context of the COVID-19 crisis, this issue becomes even more prevalent, as the pandemic has exposed the structural underfinancing of health systems across the globe. In this respect, trade unions are calling not only for respect for the rights of workers in the e-commerce sector, but also for a fairer distribution of digital dividends in society as a whole, promoting a decent level of social protection for all in all circumstances.