April 9, 2021 – Last year as millions sheltered at home, e-commerce proved crucial to keeping retail sales flowing. Now, as outbreaks begin to subside and mobility returns, e-commerce’s share of total sales has fallen from its 2020 peak, raising questions about the lasting impact of the abrupt shift to e-commerce. Transaction data offer two reasons for optimism that the accelerated uptake in online selling will persist even after the pandemic. First, the digital revolution now extends beyond large digital goods merchants to include more small and medium-sized businesses (SMBs). Second, SMBs that enhanced their digital offerings in 2020 now have a distinct advantage. Expanded sales channels have led to enlarged customer bases and provided a firm basis for the continued development of digital capabilities.
Will the abrupt, pandemic-induced e-commerce shift reshape retail’s future?
Online sales should settle on a new (higher) normal
Evidence from Australia and Singapore indicates that e-commerce gains are sustained even after outbreaks are brought under control. In both countries, local transmission of the novel coronavirus largely ended late last year and consumers’ visits to retail outlets soon recovered. Greater mobility helped brick-and-mortar retail sales to rebound, yet online sales as a share of the total remain 3 to 5 percentage points higher than prior to the pandemic. Achieving a similar expansion in online sales prior to the pandemic would have taken between four to five years based on previous adoption rates in these countries. Years of development were compressed into a single year, leaving consumers more familiar with buying online and merchants with new sales channels.
2020: The year retail merchants of all sizes went digital
According to our analysis of VisaNet data, retail merchants of all sizes across all regions of the world adapted to the lock-downs and pandemic by moving more of their sales online.¹ While the shift was more pronounced for large businesses, SMBs were not far behind. In Canada, for example, while one in three large businesses pivoted to expand their online sales, one in four small businesses did the same. Adaptations to survive the pandemic and investments made last year have opened up new channels for merchants of all sizes to reach consumers in more ways.
Interestingly, transaction data further shows that half of the increase in SMB online sales last year came from businesses that had no or minimal online business before COVID-19. Prior to the pandemic, three out of every five small Visa SMB retailers had no online sales in 2019. Responding to the challenges from the pandemic, 7 percent of these firms made their first online sales in 2020. Though traditional brick-and-mortar retail remains the main channel for sales among small businesses, the pandemic has accelerated the pace of adoption of digital channels.
These first-time participants showed strong returns on the investment, with their sales as much as 20-30 percentage points higher than their peers who did not shift to digital selling. Moreover, digitally-enabled SMBs emerged from the pandemic more resilient to lockdowns. Of these newly-online merchants, 86 percent were able to stay open in 2020 with limited closures, compared to just 70 percent of their peers with offline-only sales who managed to avoid extended periods of inactivity during the year. The secret to their success was in the wider markets these newly digitally-enabled firms enjoyed—markets that were opened to them through e-commerce and electronic payments.
Through digital channels, SMBs reached a larger pool of customers
Digitally-enabled merchants were able to drive stronger sales as the shift online expanded their customer base.² Prior to the pandemic, online sales accounted for less than 20 percent of all sales for the majority of retail SMBs in countries around the world. This limited their reach to customers within a set geographic radius around their physical stores. Moving online opened up markets that previously may have been unreachable before the pandemic.
Within the subset of SMBs that had at most 20 percent of their sales online in 2019, those that increased their online throughput in 2020 experienced a 14 percent increase in customers compared to a 3 percent decline for those that stayed offline, according to the VisaNet analysis. In fact, the growth advantage that small businesses with expanded digital channels have over their peers can be almost entirely attributed to their relative success in attracting new customers. In the United States in particular, SMBs that did not increase their online presence lost about 4 percent of their customers, whereas those that did enjoyed a 1 percent expansion.
This shift to online also coincides with a shift in consumer preferences in favor of online shopping. A recent Cybersource study reported³ that mixed-channel retailers received the highest customer satisfaction scores, compared to merchants that had either exclusively-online or brick-and-mortar sales channels. The COVID year has already left a lasting imprint on small businesses. Vaccine rollout delays or broader spread of new COVID-19 variants would likely only reinforce and accentuate the digital transformation and deep technological shift in retail that was precipitated by the pandemic.
More highlights:
- A few years’ worth of e-commerce gains were compressed in a single year
- Retail’s digital transformation extends to small and medium-sized businesses
- Adding an online channel helped businesses reach a larger set of customers
- COVID-19’s economic Impact Index
Retailers increased their online business in 2020 (share of firms that increased online sales and use of online sales channels relative to 2019, by business size and country)
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