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COVID-19 sent shock waves through most retail and ecommerce based businesses. Between store closures, upended supply chains and consumers turning increasingly to online shopping, both traditional and digital-first retailers have had to remain nimble, throwing out old playbooks and pivoting to face the challenges brought forth by this pandemic.
Everything has been disrupted, but at the same time, demand for ecommerce is at an all-time high. Some retailers I’ve talked with have said that they are seeing Cyber Monday-levels of online activity, every single day. I’m hearing stories of ecommerce businesses that have been accelerated three, five and even ten years ahead of where they expected to be. Despite all of the challenges and uncertainty over the last four months, the latest CommerceNext report, sponsored by Exponea, demonstrates that there is optimism about how ecommerce will be the benefactor of the pandemic disruption and capture huge rewards during this holiday season (Disclosure: I co-founded CommerceNext, the company that conducted the research).
This has required some big pivots by marketers. Just how drastic were these changes? Here are five of the most notable pivots:
- Most retailers are decreasing their marketing budgets due to the pandemic. Fifty-three percent of retailers said they are decreasing their marketing budget due to the pandemic, but this trend weighed much more heavily on traditional retailers vs digital-first retailers. Sixty-three percent of traditional retailers said their budgets decreased compared to 37% of digital-first retailers. This is happening for a couple of reasons. First, while ecommerce is on the rise, losses from physical stores are still substantial, forcing traditional retailers to look for places to cut costs. Second, some of the organic ecommerce growth has overwhelmed ecommerce operations, which has led to retailers cutting marketing spend until their operations can catch up.
- Brand marketing was a top priority before COVID, but has decreased in importance during the pandemic. Pre-COVID, nearly 50% of all retailers expected to distribute their spend portfolios more evenly between brand and performance marketing. Marketers indicated it was becoming harder to generate consistent high growth from maturing performance channels. But in June, this plan had changed and now just 34% of marketers responding to the survey planned to amp up brand marketing investments. The rationale for this was mixed — part of the renewed interest in performance marketing was due to reduced marketing budgets and part of it was due to lower prices in performance channels like Google and Facebook as demand from advertisers waned during COVID-19.
- Retailers started focusing more resources on existing customers vs. new ones. Marketers are taking a more balanced spending approach between acquisition and retention. While acquisition marketing continues to be the top priority for all retailers, 37% of the respondents surveyed post-COVID-19 said they were moving more budget into retention marketing vs. acquisition marketing. This was a trend that began before the pandemic where 32% said they planned to focus more on retention, but was clearly amplified as a result of COVID-19.
- Retailers shifted from testing new channels to focusing on tried-and-true media outlets. There was also some evidence that retailers were preparing to take more risks and try new things in untested channels prior to COVID. In January, 41% of marketers had planned to invest in TikTok and Snap. But in June, that number dropped to 25%. Although TikTok has certainly seen greater popularity since the pandemic started, marketers felt less pressure to experiment given the lower prices they were seeing on Google and Facebook. Ninety-two percent of all marketers said paid search was a top priority in January, but in June, that number rose to 94%. Similarly, 85% of markers had paid social as a priority in January and that number rose to 92% in June.
- Investments in SMS/text messaging, AI and AR increased post-COVID. With more consumers staying at home, marketers are seeking ways to reach them where they are and provide unique at-home customer experiences. Nearly 60% of marketers surveyed increased investment in mobile optimization in June, compared to 45% in January. Investments in augmented or virtual reality increased from 8% to 21% from January to June. And investments in artificial intelligence (AI) jumped five points post-COVID from 51% to 56%.
Retailers Feel Ready for the Holidays
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What is particularly impressive about retailers as we navigate through these challenging times: they are making these remarkable pivots in strategy and spending while experiencing a massive spike in online transactions. With Cyber Monday-levels of ecommerce happening every day in the month of May, it’s amazing that retailers even had a moment to think ahead. But 58% of retailers say they feel either “much more” or “slightly more” prepared for the 2020 holiday season as a result of pandemic-spurred demand. If there is any upside to the crisis we’ve been living through, it’s that retailers are now battle-tested and ready to respond to increased customer demand this holiday shopping season.
This improved preparedness came out of necessity, suggested Mary Lou Kelley, a veteran digital retail executive and Best Buy’s former president of ecommerce, in a recent conversation. Major digital retail projects that once required layers of approvals are being executed at warp speed. Previous obstacles such as internal silos, digital investment as lip service and territorialism have been temporarily torn down in many organizations, allowing the retailers to execute digital transformation more quickly.
Kelley also noted, “A clear ‘reason for being’ will be critical to staying relevant in the long run.
Brand [marketing] answers the question and reminds customers of why a retailer is needed and what a retailer provides that others can’t. Most importantly, brand answers the question, if that retailer went away, would customers have an easy substitute?”
Ultimately, time will tell what the long-term impact of COVID-19 will be on retail and ecommerce, but the one thing I think most can agree on is that the industry will be forever changed as a result of this crisis.