CRE Opinion

May 2020 E-Commerce Sales Eclipsed The 2019 Online Holiday Shopping Season

COVID-19 didn't change retail, it just accelerated significant trends affecting the way we shop, says Venture Commercial Real Estate Managing Director and Partner John Zikos.

Long before the coronavirus made its way to the United States, several significant trends were affecting the retail landscape and reshaping the way we shop. The pandemic poured diesel fuel on these trends, which had been evolving over many years.

Obviously, online sales have been growing as a percentage of overall retail sales.  At the start of 2010, e-commerce accounted for 4.2 percent of total retail sales.  By the beginning of 2020, e-commerce had nearly tripled as a percentage of total retail sales at 11.8 percent. As a result of the pandemic, in May 2020 alone, e-commerce sales came in at $82.5 billion, eclipsing the entire online 2019 holiday shopping season numbers and grew 77.8 percent over May 2019.

Over the last 10 years, we have seen a gradual but steady increase in retail bankruptcies and store closures.  This was mainly caused by retailers’ failure to differentiate themselves in terms of product, service, and customer experience. Department stores seemed to be the worst offenders. Another key trend was the growth of the high-end luxury segment, as well as deep discount, while those retailers focusing on serving the middle were disappearing.

Many retailers have had to close during the pandemic, and those that were weak may not have the staying power to re-open as we see in the glut of retail bankruptcies, including Nieman Marcus and JCPenney, as well as J.Crew, GNC, Stage Stores, and Lucky Brand Jeans.

In 2010 there were 3,317 store closures. While some years had more closures than others, the trend grew seeing 9,879 store closures in 2019. Experts are now projecting as many as 25,000 stores closing their doors for good in 2020 by year-end.

John Zikos

Pick-up and delivery in the grocery segment have been growing tremendously over the last several years as technology has evolved and adapted to accommodate this growth.

Since March 11, when the WHO declared the start of the pandemic, grocery store curbside pick-up saw a 90 percent increase with almost twice the amount of shoppers utilizing this service. While shoppers had been slow to adapt to these services, Covid-19 has piqued their interest.

The same shift in grocery delivery has occurred during the pandemic as well.

As of March, the download growth of grocery delivery apps Instacart, Walmart Grocery, and Shipt increased 218 percent, 160 percent, and 124 percent, respectively, from February of this year.

New store growth had slowed significantly over the last three to four years, while grocers spent their money on new technology instead of new stores. Their investment in pick-up and delivery will increase even more rapidly now.

Another major shift in the retail landscape has been the growth of pick-up and delivery in the restaurant industry. From 2015–2019, pick-up and delivery grew almost 20 percent in the restaurant segment.

In 2019, nearly $170 billion in restaurant sales were generated through pick-up and delivery, accounting for 30 percent of overall volume. Restaurant delivery sales were estimated to climb by about 22 percent by the end of 2023, which is about three times the growth projected for dine-in service.

Ghost kitchens, which have been around since 2013, started to proliferate in 2019, and may now be the fastest-growing part of the restaurant industry.

Overall, restaurant volumes have fallen 36 percent during the pandemic with full-service sit-down dining faring much worse. However, during the pandemic, pick-up and delivery volumes jumped 70 percent from pre-pandemic volumes. Ghost kitchens, which have been around since 2013, started to proliferate in 2019, and may now be the fastest-growing part of the restaurant industry as they can accommodate delivery much more efficiently.

When a vaccine is developed, or threat of the virus otherwise diminishes, the rate of growth of these trends will slow to some extent. People will always be social in nature and will want to shop, dine, and be entertained in person.

Some people will still want to see and pick certain items for themselves. Shopping centers had already evolved in many ways, with a significant change in tenant mix to meet the evolving shopping preferences that were forming and will continue to do so.

However, our world has now learned that there is another way of doing things.

The millennials no longer have the market cornered on convenience. Some of us will permanently decide there is never a reason not just to have a 40-pound bag of dog food dropped off on our front porch. Eating a fresh hot meal on our sofa is kind of nice every once in a while. We don’t really miss some of the stores that are now gone forever and are now wondering why they lasted as long as they did.

While change has always been a constant in the retail world, the COVID-19 pandemic accelerated the pace at which these changes occurred.

John Zikos is the Principal and Managing Partner of Venture Commercial Real Estate.

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