While companies in the travel and hospitality sector continue to face the brunt of the impact from the COVID-19 pandemic, e-commerce companies have flourished. Consumers are spending more time at home and retail trends continue to shift away from brick and mortar stores towards online shopping.
The Census Bureau of the Department of Commerce announced that U.S. retail e-commerce sales for the third quarter of 2020 (adjusted for seasonal variation but not for price changes), totaled $209.5 billion – that’s a 36.7%increase from the third quarter of 2019. E-commerce sales in the third quarter of 2020 accounted for 14.3 percent of all sales.1 McKinsey reported that millennials and high-income earners are driving the shift to online shopping for both essential and nonessential items. This accounts for increases in purchases of apparel and footwear, at-home entertainment, and food takeout/delivery. Notably, online shopping habits have encouraged 75% of U.S. consumers to change what they buy as well as how they buy, with 36% trying a new brand. Further, 73% of those shoppers plan to continue trying new brands. Of the qualities consumers are looking for during their time stuck at home, availability, convenience and value top the list.2 On that basis it’s no surprise that Amazon’s e-commerce revenue has soared, growing 47% year over year for the second quarter of 2020.3
But safety is also proving a key factor in promoting the e-commerce economy. Concerns over viral infection led to a 52% and 95% decrease in foot traffic on Black Friday and Thanksgiving 2020, respectively, year over year.4 This 2020 holiday season, U.S. consumer spending rose 22% to $9 billion on Black Friday5 while Cyber Monday sales rose 15% to $11 billion in 20206. That figure makes 2020’s Cyber Monday the biggest U.S. online shipping day on record. Overall, experts suggest 2020 will see an additional $40 billion in online holiday revenue across November and December 2020 compared to 2019. Digital holiday shopping had not been expected to reach that threshold until 20247.
Even with the unanticipated growth, the five challenges below are likely to impact e-commerce business in 2021. Businesses that prepare to tackle these tests now will be best positioned to succeed in the new year.
1. Rise of mobile shopping
Shopping through mobile devices, typically a smartphone, will continue to rise in popularity and become a larger portion of total U.S. retail sales. Consider this:
- 45% of global consumers say they’re shopping more on their smartphone since COVID-19 began.8
- People spend around 5 hours a day on their smartphones.
- 70% of web traffic comes from mobile phones.
- 80% of the top-ranked websites are mobile-friendly.
- 61% of users will never return to a website that is not mobile-friendly.
- 80% of smartphone users will buy from companies with mobile sites and apps that are easy to navigate.
- 70% of the searches made on mobile phones lead to online action.9
To take advantage of these market trends, e-commerce retailers need to continue to develop and optimize their mobile-friendly sites. To do so, e-commerce companies should invest in and maintain integrated and up-to-date product information management software.
2. Use of social media
Inserting e-commerce within social media can be a tremendous marketing tool that generates brand recognition by delivering social content to target customers. It’s an easy way for consumers to discover products they want and allows customers to engage with brands they might not normally find. Advertising on social media can be transformative for smaller, less-established brands without the marketing budget for a robust digital advertising campaign.
Given the rise in mobile shopping outlined above, it’s no wonder that global social media ad spend increased by 57% in Q3 2020 from Q2 202010. With social media exposure so closely tied to market relevance, companies should review their social media strategies, paying particular attention to platforms like Facebook, Instagram, Snapchat, Twitter, YouTube, TikTok, etc. Still, these campaigns could be as overt as banner ads or as subtle as search engine optimization or hiring a rising social media influencer as a brand ambassador.
3. Data analysis
As e-commerce retailers continue to grow their social media presence, they may have more data on hand to apply data analytics, which can have a huge impact on business decisions. Retailers may also offer discounts to customers for first-time purchases, referrals or opting into email or text communications. Successful e-commerce retailers are analyzing online purchase activity and looking for patterns that indicate customer preferences, shopping habits, market trends and so on. To enhance sales and take advantage of trends, e-commerce companies should use data analysis to create targeted marketing initiatives designed to increase traffic to their website, optimize the customer experience, improve delivery selections, offer different payment options (see below), etc.
4. Payment options
During COVID-19, contactless payment, including credit cards and mobile wallets, was the preferred method of payment 87% of the time, with 41% of Americans paying less frequently with cash. Further, once the pandemic is over, 77% said they will prefer to continue paying for goods and services using contactless payments . Naturally, this suggests that e-commerce companies will continue to enjoy the favor of consumers. Most e-commerce retailers provide various payment options like credit or debit cards, Amazon Pay, PayPal, Apple Pay, Google Pay and Unified Payment Interface (“UPI”). But the smartest companies (Nordstrom, Sephora, Macy’s) have started to add options to buy now, pay later via platforms like Klarna, Affirm, Afterpay and Pay in 4 by PayPal. These options are particularly attractive to younger consumers or those concerned about falling income levels as they allow buyers to pay for their goods in installments. To avoid consumers abandoning a full cart at checkout, e-commerce companies need to accept a variety of digital payment options.
5. Customer data security
Unfortunately, the success of e-commerce amid the ongoing pandemic has captured the attention of cyber criminals. At the same time, consumers are becoming smarter and more concerned with data privacy and are increasingly weary of security threats like credit card fraud, account acquisition, e-skimming, and malware. Consumers expect that their transactions are secure; so one data breach could destroy your reputation and end your customer’s loyalty. Management at e-commerce companies must make protecting and encrypting its customers’ data a top priority. Additionally, they need to ensure that their business is taking the appropriate precautions to ensure its website or app is well-defended against cyber-attacks. If you have need help to ensure your company and customers are safe from online threats, contact Friedman LLP’s CyZen group today.
Leaders of e-commerce companies face many challenges in 2021. To remain competitive they will need to overcome and navigate new technologies, emergent cyber criminals and an audience that is accessible through social media rather than traditional advertising channels. To begin the conversation about how your business will adapt to succeed in the year ahead, or for tax planning strategies and accounting needs, contact your Friedman advisor today.