10 minute read 14 May 2020
How COVID-19 Is Transforming E-Commerce

Ecommerce during COVID-19: Preparing for now, next and beyond

10 minute read 14 May 2020
Related topics COVID-19 Start-ups Growth
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An EY perspective on the resilience strategies adopted by the ecommerce sector during COVID-19 and what companies must do to reframe the future.

Considering the serious nature of the crisis at hand, there's comfort in the fact that companies are rising to the challenge in unprecedented ways to address the business and humanitarian aspects of these testing times. This is especially remarkable and commendable given there is no playbook for such an event, and everyone’s working on first principle basis to build and sustain. The biggest challenge lies in the world of start-ups — they have an opportunity to help provide solutions to survive and thrive. The first big boost to the digital ecosystem was to access to low cost mobile data at scale, this event is certainly the second. 

A global response: a segue into an e-commerce way of life

There are a few interesting themes emerging across major ecommerce markets globally in response to the pandemic, which possibly represent what the new normal could look like. While the sudden surge in consumer demand for e-commerce services could be due to the implementation of social distancing norms and lockdown measures countries have taken to contain the pandemic, these new norms are finding increasing acceptance amongst consumers and adoption by traditional businesses. Segments such as on-demand delivery services related to fresh produce, online education, social engagement platforms from gaming to OTT platforms, online collaborative tools, e-pharmacies, online consultations are a few areas that may have found their turning point to a highway. Companies in these mentioned segments have witnessed triple digit growth, with millions of new customers onboarding their platform in the last couple of months to cope in dealing with this crisis.  

Apart from the surge in online services, many businesses are also adopting different approaches to respond to the crisis both from a cash generation as well as engaging and maintaining customer interest. Businesses have doubled-down on digital initiatives, including increased online promotions, contextualized online/social/media/messenger campaigns, online-to-offline and omnichannel sales, social commerce and pure e-commerce approaches. This is also a time, where service businesses such as in retail are coming together and sharing employees and resources to meet the growing demand in on-demand/home delivery online shopping platforms are partnering with businesses that specialize in delivery fulfilment. Private equity firms and venture capitalists are also actively supporting their portfolios in overcoming the crisis by providing runway for specific and targeted action plans.

A test of resilience – an Indian response

Some underlying principles that are helping ecommerce companies overcome these testing times include the advantage of having a portfolio of essential goods and services, cloud based businesses that customers can continue to access regardless of the where they are, efficient ways to distribute products to consumers in limited-contact way and easily discoverable online presence that seamlessly help the need of the consumers. A quick look below at the various categories of ecommerce and how they are responding:

  • Essential supplies

    Food and milk immediately became sought after and while fulfilment remains a challenge, a lot of players jumped into it by moving from offline to online as also new players with established capabilities jumping into the fray. The definition of essential products continued to change as did the mix of products for most players.

  • Categories expansion

    Product masks, sanitizers and disinfectants have become a priceless commodity and while they were a natural products for some players (including extension of current range), a lot of new players will come into the fray; be it community support or sustained businesses only time will tell but a new hygiene standard for post COVID era has been set.

  • Home health

    While this was already a trend that was picking up pre-COVID, it has received the necessary stimulus for the populace to bring it front and center of their priority. e-pharmacies, telemedicine and online consultations are all witnessing a surge in usage. Home testing is also expected to pick up.

  • Online education

    It’s growing fast and the outbreak is leading to many new users shifting from classroom to online learning. Long-term monetization of increased customer base will play a key role in the sustainability of the growth trajectory.

  • OTT

    Video streaming, mobile gaming and other digital services are witnessing a significant spike, as people remain restricted to their homes. Companies are also providing freemium services to lure customers to try their services. However, time will reveal if media platforms will be able to maintain sustained interest on their platforms once lockdown comes to an end.

  • Mobility

    The segment that has come to a complete halt post lockdown with revenues dipping to zero overnight. However, the industry is expected to make a return as the lockdown ends, making health, safety, security and sanitation key focus areas to bring customer confidence back into the industry.

  • Fintech

    Lending companies have been significantly affected as people are starting to conserve more cash or can’t repay loans increasing the delinquency rates in-turn impacting supply-demand balance. Companies also need to have a look relook into their credit risk modelling, considering the current health crisis impacts everyone from gig workers to salaried professional across industries and segments. One fintech segment likely to see a sharp rise is the sales on online insurance, which has an edge over traditional insurance companies given the speed and convenience.

  • Business-to-consumer

    We will have to wait for demand side to pick up as consumer sentiment on discretionary spends in categories like beauty and fashion is expected to be muted for some time to come. Both incumbents and challengers have witnessed an erosion of their immediate cash flows, but also need to defend their positions once lockdown ends. These companies will need to adapt to the new spending trends that consumers are likely to gravitate towards.

  • Retail and restaurants

    With the retail industry coming to a standstill as malls, theatres and restaurants shut, these segments will take some time to revive given the social distancing measures in effect along with the fear factor amongst consumers. We are likely to witness an increased digital play with retail stores adopting omni-channel presence and increase in the number of cloud kitchens with delivery through online channels.

  • Travel and hospitality

    This segment has been hit hard and will even by conservative estimates take 12-18 months to come to normal levels. Considering the overall workforce employed by the segment directly and indirectly, it is crucial that companies come up with innovative solutions to overcome this hurdle.

Based on the defined approach of what companies must do, not only to overcome this crisis but also prepare for future disruptive events, below are a few steps they should consider adopting:

  • Increased digitization in supply chain

    The fractured supply chain has hindered the ability to fulfil deliveries of online purchases, suggesting digitalization effort needs to certainly accelerate soon. Supply chain will see significant upgrade and digitization will remove some of the inefficiencies that exist but at the same time add tremendous value for retailers and kirana stores.

  • Responding to supply chain disruption

    A need for a diversified supply chain network to bring in the ability to cope with the current restrictions and future surge.

  • Data is an integral asset and differentiator

    Companies have to move towards better monetization of it as there is an immense opportunity there and we are seeing significant adoptions in the area.

  • New talent model

    Innovative strategies need to be adopted to keep pace with demand coming out of the lockdown, considering companies will need to account for shortage in gig workforce due to labor migration which will take some time to stabilize.

  • Going deeper into services

    We are currently witnessing a lot of companies venturing into providing essential services and accelerating their expansion into categories months and years in advance at the same time these players will need to play a balancing act of identifying which is a near/short term arrangement to tide over or deserving of a fixture in their portfolio of goods and services.

  • Pause and reset across the board

    Companies can use this downtime to reassess their business and iron out the bugs, giving rise to new and more innovative solutions to challenges we are facing.

  • Address the problem of trust

    Innovative solutions such as e-onboarding of employees, increasing the confidence of customers to increasing transparency especially in the online delivery models, hygiene and safety measures.

  • Restructuring

    Restructuring business and teams to adapt to COVID learnings and adapt to the new normal.

  • Retain and build talent

    With the current market unfortunately there are job losses on the horizon, however it also provides opportunity to tap into the immense talent pool available to build a robust team coming out of the corona curve.

  • Optimizing cash and costs

    Plan for maximizing runway with current cash reserves to revisit unit economics, check for revenue leakages and identify additional sources of revenue that the company can generate. Companies will need plan conservatively for the year ahead, especially players in the non-essential’s category.

  • Cost management to maximize runway

    A need to relook and re-evaluated existing commitments to keep a control on the cash burn.

  • Keep the inertia

    This unprecedented event has given digital adoption the inertia, but the challenge is to keep the momentum. What demonetization did to fintech platforms, is what coronavirus can do for the e-commerce space.

  • Testing assumptions of business and preparing action plans

    For likely and extreme situations - with a likely W recovery curve these situations will be tested.

  • Digital validation

    Fintech players need to adapt to newer risk models and evaluations, and focus on cash flow generation vs past credit-based lending.

  • Preparing for future black swan events

    This is a leveler of sorts, so the starting gun will be the same for all companies. Best time to innovate and stay relevant is now.

We are already witnessing the rapid adoption of online education, cloud kitchens, diners shifting from eating out to eating in, online communities catering to various needs to the customer especially in the health and wellness segment; consumption in online entertainment, groceries shopping shifted from offline to online, telemedicine and online consultations, big brands ramping online efforts to a more omnichannel approach.  The need for on-demand and to-the-door delivery services may be gaining permanent market share in these unusual times. While the benefits to consumers of on-demand services are relatively obvious, it also helps provide thrust to gig workers while providing flexibility to many.

Our collective reaction to this health crisis which has transformed the way we live our lives and how businesses are run, underscores the adaptive nature we live and thrive in. Individuals and businesses alike are embracing digital transformation and adopting innovative approaches in response to a volatile, uncertain, complex and ambiguous situation.

Summary

Once the dust has settled, some consumers may return to their old habits, but many who have found value and satisfaction with their online experiences will persist with their online consumption. In the long-term, this will be inflection point for digital transformation across ecosystems.

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Related topics COVID-19 Start-ups Growth
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