Op-Ed: What Reopening the Economy Means for Ecommerce Brands | Coronavirus Series

the end of stores?

Editor’s Note: This article is part of a series that explores the impact the coronavirus crisis is having on the world of ecommerce. Explore daily insights surrounding the coronavirus crisis or check out these additional resources to help you navigate your marketing strategy during this time.

Author’s Note: This article is full of predictions. Many of them may turn out to be wrong. The goal is to provide some directional perspective so brands can use this as input when making decisions.

Key Takeaways:

  • The United States reopening will be a slow trickle.
  • Pent-up demand and seasonality will drive all-time highs in consumer spending despite high unemployment rates.
  • Massive competition for wallet share in consumer spending will drive growth in advertising and discounted prices in retail.
  • Ecommerce brands will benefit until stores can fully reopen. Then, they’ll see big drops in sales.

 

One thing is certain: this pandemic won’t last forever. But when it will pass is the big question on everyone’s mind.

Over the course of April, a few countries have started to slowly reopen their economy and America has grown increasingly impatient. New York has seen a decrease of cases and the President has stated his intention to help guide the country to open by May 1. Some states, like Georgia, are aiming to follow suit.

While we don’t know whether that intention is realistic or optimistic, it’s evident that people are looking forward to, and even planning for, the day that some of these government-imposed bans will finally be lifted.

How will the United States reopen?

The restoration of our lives won’t be like flipping a light switch. It’ll be much more akin to slowly filling a bathtub—add some water, check the temperature, adjust. If it’s true that not everything will open at once, what will open first?

How has China reopened?

On April 8, Wuhan finally declared reopening—it took 76 days of lockdown before they made that commitment. At the time of this writing, much of the US has been in lockdown for only 39 days—precisely half as long as Wuhan’s lockdown. If we followed the same timeline as China, we’d continue our lockdown until May 23. Also, note that China’s reported containment of the coronavirus had a faster flattening than the US.

Starting around March 27, some Chinese citizens were allowed to go back to work—those who were healthy and whose employers vouched for their importance.

“Residents with a government-assigned green QR code on their mobile phones—meaning they’re healthy and safe to travel—have been allowed to go back to work as long as their employers issue them a letter,” CNN reported. “In residential communities where no new cases have been reported for 14 days, one person per household with a green QR code can leave the compounds two hours per day.”

On March 25, public buses started running again. Shortly thereafter, public trains began operating as well. By April 8, 92 percent of Wuhan’s businesses were open (with only 60 percent of employees turning up for work).

But life didn’t fully return to normal in China.

In order to leave compounds, residents must continue to show a QR code from a government-issued app on their phone showing that they are healthy. This app was created by Alibaba and WeChat.

“By March 1, Beijing launched its version of the three-colored QR code, accessible via both Alipay and Wechat,” reported CNN. “In addition to providing their name and ID number, users also need to register with facial recognition to obtain their colored code.”

This app is the backbone of China’s re-opening. Residents can’t leave home without demonstrating they are healthy. People can’t board public transit without a green QR code. Chances are, some stores won’t let you in without a green QR code showing you’re healthy. Everyone wears a mask.

China changed its state and federal information sharing for this to work.

The central government has launched a national “epidemic prevention code.” China uploaded a nationwide database of confirmed and suspected coronavirus cases and their close contacts on a centralized platform, hoping that local governments would recognize each other’s health codes through data sharing, according to Mao Qunan, an official with the National Health Commission.

The government has also extended its centralized database of private citizens data to make it possible to verify health and find potential hot spots where new cases may emerge.

China has responded with massive, centralized oversight and, so far, it appears to be working.

President Trump’s plan

The United States is expressly unlike China. Americans loathe governmental overinvolvement. Americans demand their privacy and they don’t like being told what to do.

Trump proposed a rollout that he’s asking governors to follow:

  • Phase 1: All vulnerable individuals (elderly or with underlying conditions) continue to self-isolate. Gatherings over 10 should be generally avoided. Non-essential travel is minimized. Schools and bars should remain closed. Large venues like restaurants, movie theaters, and gyms can reopen if they follow strict hygienic protocols.
  • Phase 2: Vulnerable individuals continue shelter-at-home. Gatherings over 50 should be generally avoided. Schools can reopen. Elective surgeries can resume. Bars can now reopen with “diminished standing-room occupancy, where applicable and appropriate.”
  • Phase 3: Vulnerable individuals can leave their homes cautiously. All public gatherings allowed.

 

The gating of Trump’s rollout plan is measured by a downward trend in coronavirus-positive test results and hospitals being equipped to handle all cases. This begs the question, when will we have sufficient infrastructure in place for those conditions to be true?

Georgia seems to think it’ll be sooner than later. Governor Brian Kemp announced on Monday, April 20 his intention to open Georgia on Monday April 27. He cited “favorable data, enhanced testing and approval of our health care professionals” marking his confidence that Georgia is on track to hit the requirements for Phase 1.

For the rest of the country, there are three barriers in place preventing the United States from fully opening:

  1. Having a sufficiently sensitive rapid test that works.
  2. Having enough tests that anyone can take that test to prove they’re healthy.
  3. The public trusting test results.

 

The initial effort to get rapid tests on the market has created a flood of tests that aren’t sufficiently sensitive enough to produce an accurate result. Thousands of tests are being imported from overseas manufacturers, primarily in China, but are not passing quality bars. This is seeding doubt in the mind of the American public.

“Experts believe nearly one in three infected patients are nevertheless getting negative test results, “ wrote Christopher Weaver for the Wall Street Journal.

Though there remains uncertainty on how quickly business can reopen, the picture for consumer spending is more clear. How people spend money will be affected by how the country opens and will also evolve with public health.

Consumers will change how they spend

The period of partial re-opening is going to create new purchasing needs. People will visit friends and relatives. They’ll go back to their favorite restaurants. They’ll spend more time outside, visiting nearby states and attractions that they couldn’t go to before. Some will go back to work.

People will increase spending on recreational activities as they go outside more to play. With summer around the corner, beach traffic will be at an all time high this year. I predict bathing suit/mask combos being sold and purchased.

People will increase spending on clothing—they’ll want to look put-together when they go out in public for the first time in months. Cosmetics sales will boom for the same reason. Appearances will be a massive driver of spending.

Consumers will also increase spending on big-ticket items that make them feel good, almost as a reward for being isolated. Motorcycle and automotive sales will explode. People will buy boats. Home purchases will go up. More people will take up new hobbies outside—sporting equipment, like golf clubs, and hobbies, like model rockets, will explode.

“Perhaps most importantly,” observes Aaron Orendorff, vice president of marketing at Common Thread Collective, “shoppers will be buying for upcoming holidays in the midst of this transition back to normalcy. Even if purchase habits shift back to in-store retail overtime—likely normalizing (or finding a ‘new’ normal) in early 2021—2020’s seasonal events will be dominated by ecommerce.”

These seasonal events create opportunities for retailers who are able to sell. Consider the upcoming holidays: Cinco de Mayo (May 5), National Nurses Day (May 6), Mother’s Day (May 10), Memorial Day (May 25), Father’s Day (June 21), Independence Day (July 4) and Labor Day (September 7).

Consumers will be planning for these events more than ever, looking for reasons to let out a little steam and celebrate. They’ll be buying for spring and summer. They’ll be buying for birthdays, anniversaries, and other personal occasions. Their lives will continue.

Consumers won’t rush back to stores

Despite these new purchase occasions and potential increase in spending overall, spending in brick-and-mortar stores will be slower to rise.

Health concerns will drive most of what consumers do and don’t do. While stores will open, they’ll only be successful if consumers feel safe going to them.

Through a consumer poll conducted on April 20, 2020, 26 percent of respondents said they plan to continue to stay at home after the stay-at-home orders are lifted. One respondent shared, “[I’ll] shop online mostly… I don’t feel comfortable going out in public until there are real treatments available for COVID.”

Limited inventory and health restrictions will drive ecommerce sales

With this newfound need to spend, pent up demand will pop and lead to a surge in spending on apparel and accessories, jewelry, luxury items, and cosmetics.

Stores will not be able to fully open their doors, though. The same strict protocols being applied to grocery stores will likely extend to other stores.

Consumers, impatient and concerned about inventory, will turn online. Ecommerce sales will spike and inventory availability and shipping times will drive purchase decisions. Consumers won’t be price sensitive.

Retailers, physical and virtual, will be aware of this explosion in purchasing and they’ll spend on advertising to get a piece of it. Digital ad prices will skyrocket. Our television, facing a dearth of new content and a surge in demand from advertisers for airtime, will increase the percentage of air time dedicated to advertising. The script will be all about looking healthy, feeling fresh, and showing off your best self.

Of course, availability will be in short supply due to delayed shipping times from overseas manufacturers, so the retailers that have inventory will be spending money to tell you they have it.

Brick-and-mortar retailers will have exceptional sales and low prices in an effort to drive people back to their stores so they can pay rent and stay in business. This will hamper ecommerce sales dramatically.

Consumer financial companies will increase their advertising spending to get consumers to finance this new purchasing on their products. We’ll see new credit cards with deferred payment terms and mortgage companies offering home equity loans. Auto insurance companies will be promoting policies for your new car. Regional tourism spending will reach an all-time high from states and countries whose revenue had been depleted. Airplane travel will likely lag behind, so states will advertise in adjoining states and offer compelling reasons for consumers to visit.

We’ll be barraged with invitations to go, do, and buy.

Estimated timeline

The reopening of America will evolve with each passing month. Below are predictions on five important categories and what we predict to be true by month.

Month Quarantine Policy Testing Policy Driver of Purchases Digital Advertising Impact Ecommerce Implication
April Everyone is home Far below demand Comfort at home Historically low CPM/CPC Sales up, new customer acquisition up
May Everyone is home Far below demand Optimism of being out of or soon to be out of lockdown Rates start to rise, some large brands start advertising again Sales up, new customer acquisition up
June Majority of people are at home Meeting demand for front line workers Summer, being out of lockdown Most large brands start advertising again Sales up, new customer acquisition up
July Half of workforce is at home Meeting demand for some areas Summer, being out of lockdown All advertisers back with increased spending Sales flat as consumers start to shop in stores, new customer acquisition flat
August More than half of people are at work Meeting demand for most areas Return to work/school All time high for advertising Sales flat, new customer acquisition flat
September Large majority of people are at work Meeting demand for all areas Return to work/school All time high for advertising Sales down from previous highs, new customer acquisition down
October Nearly all people are at work Meeting demand for all areas Return to work/school Advertising starts to return to normal levels Sales down from previous highs, new customer acquisition way down
November Everyone is at work Meeting demand for all areas Holidays Seasonal increase in ad spend Sales down from previous highs, new customer acquisition zero

What about unemployment?

For the coming months, unemployment in America will continue to rise. While it’s not out of the question to see a 30 percent unemployment rate, most consumers will remain financially unaffected and will continue to buy. 

Unemployment will sustain high rates for a few months and the overwhelming optimism on the future of the country will keep the economy mostly in check. If America fails to contain a second wave of outbreak, this could throw the country into a deeper financial rut.

Businesses that sell discount items and big-box retailers will suffer most from unemployment. Those brands that can sell online and are easily discoverable to consumers who have the means to buy will thrive.

What does this mean for ecommerce brands?

There are a few key strategies ecommerce brands should follow to set themselves up for success in the coming months.

Invest in new customer acquisition now

Digital advertising is historically cheap. The more new customers you acquire now, the less reliant you’ll be on ad spend for growth later.

As your customer base grows, you can use owned marketing channels—including email, mobile, and your website—to communicate with them and drive repeat purchases.

Andrew Faris, CEO of 4×400, a company that owns and manages several ecommerce brands is taking advantage of this trend. 

I’ve never seen another time where cost per impressions (CPMs) on ad networks have dropped so drastically so quickly, and the only thing I’m certain about is that it won’t last, so my team is investing every dollar we can afford right now in acquiring as many new customers as possible,” he said.  “That’s paying off a little bit now, but what really excites me about it is the downstream effects at, say, Black Friday or holiday in general.”

Consider increasing inventory of best-selling products

There’s going to be an increase in demand on manufacturers as large brands stock up for imminent increases in consumer demand. Shipping is going to be delayed and access to inventory is going to become the most important shopping criteria for consumers—they’ll overpay to get what they want right away.

As people emerge from their homes, they’re going to want to feel and look their best and will stop at no cost to make sure that is true. Make sure you’re the one who can serve them.

Prepare for lower cash flow later in the year

With increased competition from large retailers reopening and compelling offers to come in store, consumers will shift dollars back to brick-and-mortar.

The surge of consumer spending will pull back to normal levels. There will be a permanent upward shift towards ecommerce spending overall, but there will be a dip later this year if stores start to reopen.

As consumers get more comfortable with shopping in stores, more of their spending will shift back to brick-and-mortar stores. This will scare ecommerce businesses and cause many to wonder if ecommerce will lose during the holiday season. They won’t, it’ll just feel scary. 

Prepare for poor customer acquisition later in the year

Increased ad spend from retailers that re-emerge and reopen stores is going to make new customer acquisition costly.

Consumers will have more message saturation than ever before—the noisy environment will make it difficult to be discovered. Downward pressure on prices will put pressure on return on ad spend (ROAS) and make it hard to run a cash flow positive business and acquire new customers.

The brands that over-invest in acquisition now will make it through that period due to increased customer bases they can remarket to. This should set them up for a record holiday season.

Final thoughts

“By the time America is open for business again, more consumers will be comfortable shopping online, for clothes as well as for food,” summarizes the Economist.  

“Safety concerns may drive them to continue shopping from home long after shops have reopened. And Americans’ taste for discount shopping, whetted during the last recession, will have deepened too.” 

It is imperative that ecommerce brands consider the opportunity in front of them and take appropriate risks. Warren Buffet famously said, “Be fearful when others are greedy and to be greedy only when others are fearful.”

This is an unprecedented time and the ecommerce brands who are able to get ahead of the market today will likely fare well in the future. 

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