10 minute read 9 Nov 2020
EY - Two woman at a christimas market

US Future Consumer Index Edition 5: An online holiday sets the stage for retail’s future

Authors
Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

Jeff Orschell

EY Americas Consumer Retail Leader

Helping retail clients discover innovation from new sources. Passionate for the outdoors and love spending time with my wonderful wife.

10 minute read 9 Nov 2020

Uncover insights into the holiday shopping season, the future of e-commerce and the state of cities and malls.

In brief

  • Consumers foresee an end to living in fear of COVID.
  • This holiday season, price-conscious consumers will spend on online sales.
  • The rise of ecommerce drives retailers and brands to invest in last mile, D2C and fulfilment capabilities.

Seven months and counting. That’s how long it’s been since COVID-19 was officially declared a global pandemic. Knee-jerk reactions to lockdowns are behind us, the second wave is here and pandemic fatigue has become quite the reality. It’s almost as natural to reach for your mask as it is to reach for your keys.

With holidays on the horizon, this month’s EY Future Consumer Index showcases Americans continued appetite to move on, and they may see the light at the end of the tunnel. More than half (57%) feel it will be a year or less when the fear of COVID-19 no longer impacts the way they live, and another 9% say it’s not currently impacting their lives.

Our segmentation points to the same. In months past, we’ve analyzed consumer sentiment for the now, immediate next and far beyond the pandemic. But, as the current state presses forward, it feels as though the now has become the next. For that reason, we’re now segmenting consumers into two time horizons: how they are responding right now and how they anticipate they will feel and behave in the future.

EY - Four segments describe consumers today

Today, while 1 in 3 (Struggling and worried) are still very concerned about COVID and its long-term effects, most Americans are adapting for what’s to come.

EY - Future consumer

And as we look to the future, more and more consumers continue to prioritize price, as the Affordability First segment increases for another month. In line with the readiness to “get on with it,” it’s clear that the long-term effects of COVID-19 on consumers’ finances are starting to play a larger role than the immediate health and safety concerns. This sentiment is coming through even now, as we try to understand how consumers will shop and buy this holiday season.

Will it be the most wonderful time of the year for retailers?

The retail industry has been one of the most impacted by the pandemic, and that won’t change for the foreseeable future. How do we know? When asked, retail leaders from around the world said the foreseeable future for them wasn’t far beyond the holiday season. Their main concern right now is how to anticipate when, where and how much consumers will shop this season, and the subsequent operating model changes that must take place to accommodate.

What can we expect?

1. Our future segments establish the importance of price, and this holiday season, sales are the hot ticket. While many American consumers (38%) are cutting back on their overall holiday spending as compared with years past, that limited spending will be targeted at deals.

EY - Shopping statistics

Retailers will need to make sure they have a clear holiday promotion and pricing strategy that leverages scenario planning against consumer spending and product category data. Price sensitivity also presents an opportunity for retailers to promote their private label products.

2. Consumer spending isn’t the only unknown. We’re hearing from retailers that they’re also re-evaluating the role of the store and the holiday shopping events we’ve come to know.

This year, we’ll see less push for Black Friday and Cyber Monday in place of earlier and more spread out promotions across the next two months. We’ll see more prevalent online and in-store relationships than ever as retailers push for buy online, pick up or return in store.

These shifts have significant implications for the supply chain, inventory planning and the broader retail ecosystem. The key here is fulfillment. Retailers’ relationships with shippers come into play as consumers test the limits of on-time, last-mile delivery in a constrained logistics network. Curbside or in-store pickup can quickly lose its luster if consumers endure long wait times in a jammed up, snowy parking lot or if they arrive only to find their local store inventory can’t accommodate their online purchases.

We’ll also see a considerable uptick in e-commerce. Accelerated online shopping adoption is nothing new, but the volumes that consumer-facing companies are gearing up to see this holiday season are unprecedented. Of US consumers, 64% say they will do their shopping mostly or only online this year and another 29% say they will shop equally online and in store.

Solving the e-commerce equation

We’ve established across each edition of the Index thus far, as well as for the holiday ahead, that one of the major impacts of the pandemic has been the rapid progression of online shopping across generations and categories. 

Consumer behavior

46%

of US consumers are shopping more online for products they previously bought in stores

Retailers and brands should evaluate three areas to complete their e-commerce picture:

  • 1. The physical and digital relationship

    Despite the 52% that say they are currently visiting physical stores less, there’s a clear relationship between online channels and the store. Stores have become the cornerstone both for fulfillment and experiences.

    • One in three consumers (35%) will buy online and pick up in store more often in the future, meaning the store will play a pivotal role in last-mile delivery.
    • Thirty-seven percent of consumers will do more shopping online and only visit stores that provide great experiences. Winning retailers will adjust their thinking to transition the store from a place to buy or shop to a key experiential touch point along the consumer journey.
  • 2. The category view – the right product mix on the right channels

    E-commerce approaches should differ depending on the needs of different categories. Is the appropriate sales channel still in store for high-touch categories, such as technology, high-end apparel and beauty, where there’s a need to ask questions or compare colors, touch and feel? What are the in-demand categories when staying at home has changed consumption, education, working and family circumstances? How do you maintain food quality and freshness for online last-mile delivery? How do you accommodate subscription-based or automated delivery options for repeat purchases of household and personal care products?

    EY - Online shopping will differ
  • 3. The next set of capabilities

    With the rapid adoption of e-commerce, we’ve sought to understand what consumers say about their own online shopping behaviors and identify the operating model implications and changes necessary to transform.

    To go a step further, we’ve also pinpointed the areas of opportunity for retailers and brands and exactly how they are responding. Using the EY Embryonic platform, which provides an ecosystem view of the flow of funds and M&A transactions to help companies fast-track innovation, we identified key areas where retailers and brands are making early investments to advance their e-commerce capabilities:

    • From May to July 2020, there were approximately $10b in e-commerce investments, acquisitions and partnerships, a significant rise as a result of COVID-19.
    • The supply chain and fulfillment fragility exposed by COVID-19 has led to an increase in investments in digital capabilities to enable e-commerce logistics, last-mile capabilities and asset-light approaches, such as ghost kitchens and dark stores.
    • Both established consumer goods e-commerce (CPG) players and those just entering the space are executing strategic partnerships with suppliers or e-commerce-led platforms to improve distribution and sales capability. In 2020, more than a dozen global CPG companies across categories entered into partnerships with direct-to-consumer (D2C) startups. They are also building D2C platforms to target at-home consumers, enabling food, beverage and on-demand meal delivery, for example.
    • Companies are re-evaluating their product portfolios as we see growth in categories such as groceries, medical products, personal care, on-demand grocery, packaged food and meat. For example, some food retailers have acquired players in the online food delivery space to expand into specific categories or markets.
    • Traditional brick-and-mortar retailers are now strengthening their online channels by investing in strategic technical and digital acquisitions in areas including AI, blockchain and logistics software.

How to capture the real e-commerce opportunity

Read our global point of view for insights on consumers around the world and how to capture the real e-commerce opportunity.

As e-commerce evolves and we consider the role of physical spaces in the current environment, it’s driven many to call it the end for things we’ve become accustomed to but that have suffered at the hands of the pandemic.

The death of…

…the mall?

We keep hearing that the mall is dead. But is it? Maybe not. At least one in five are still shopping at indoor and outdoor shopping centers for personal care (28%), home goods (27%), apparel (22%) and beauty (22%). Behind e-commerce, shopping centers are even more preferred than stand-alone stores for non-food categories, including personal care (18%), home (21%), apparel (12%) and beauty (14%).

When thinking about physical spaces, 52% say it will only take days or weeks for them to feel comfortable going to a mall or shopping center, much faster than things such as sending children back to school and going to a place of religious worship (46% each), exercising in a gym (40%) and going to a bar (35%).

We’ve all seen the decline of the malls in our cities and towns, but what’s clear is that the consumer may not be ready to let them go completely. What’s needed is a reinvention of shopping centers into spaces that satisfy a multitude of consumer needs, whether that’s the integration of essential shopping, such as grocery, the convergence of adjacent industries, such as health care, an experiential destination that acts as part of the consumer journey or something else altogether.

…the city?

Many cities are centered around a “downtown office” culture. Sixty-three percent say they are comfortable going back to their place of work within days or weeks, but many cities depend on public transportation to make that happen. And just 29% of consumers say they will be comfortable traveling on public transport within that same time frame. In fact, 54% say they will use public transport for commuting to work less often in the future. Now that remote working doesn’t require us to be so close to the office, will this drive an exodus from cities? Perhaps.

A growing number of Americans are considering relocation to less densely populated areas, increasing from 23% in April and June to 26% in August and this month. And, what’s more, these numbers are more prevalent when you look at younger generations: 37% of millennials and Gen Z plan to live in less densely populated areas. Home search trends validate this. According to Realtor.com’s quarterly Cross-Market Demand Report, 51% of property searches from residents in the nation’s 100 largest cities were for homes in the suburbs.

The questions for retailers are: When will the trend of leaving cities swing back? How do you plan your physical and digital footprint to accommodate the moves, however temporary, that consumers are currently making? If your digital strategy is using the physical store as a fulfillment center, does your last mile become the last 5 or 10 miles?

As the season of the consumer continues, retailers and brands have a clear “here and now” priority — addressing the holidays ahead. The “COVID-19 consumer” will have lasting effects on buyer behavior and sentiment moving forward, and brands and retailers need to reset their long-term goals (not short-term) to be focused on the holidays of 2020 to survive the long post-holiday winter. As they look to the future, where e-commerce plays a pivotal role in building consumer loyalty, and places and spaces evolve, winning companies will do well to understand the channels, touch points and experiences that create lasting bonds beyond the uncertainty of this season.

Summary

As the season of the consumer continues, retailers and brands have a clear short-term priority – addressing the holidays ahead. But as they look to the future, where e-commerce plays a pivotal role in building consumer loyalty, and places and spaces evolve, winning companies will do well to understand the channels, touchpoints and experiences that create lasting bonds beyond the uncertainty of this season.

About this article

Authors
Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

Jeff Orschell

EY Americas Consumer Retail Leader

Helping retail clients discover innovation from new sources. Passionate for the outdoors and love spending time with my wonderful wife.