Physical retail on the brink of extinction? Why 2020 has given online shopping another leap forward
Another flagship of retail is sinking. The well-known British department store, Debenhams, has filed for bankruptcy in April 2020. Since then, there have been talks of rescuing the company that has been in business since 1778.
Currently, Debenhams is negotiating a “potential rescue transaction” with the Frasers Group after talks with other companies collapsed. However, time is running out and if no agreement is reached, another centuries-old retail company and over 12,000 jobs are on the line.
Debenhams is the latest big name in a line of mammoth retail corporations that were forced to close their doors, or at least a significant amount of their brick-and-mortar stores. Sears, Macy’s, Toys R Us, and J.C. Penney are just a few of the most well-known chain stores in the US that have gradually closed down the majority of their physical stores.
While the phenomenon already started in the early 2010s, it reached a new level in 2017/18 that earned the name The Great Retail Meltdown or even Apocalypse. One look at the numbers proves that this label is not melodramatic at all.
By 2019, the number of closures sank to 8,500, but the industry was not out of the woods: as we know, the coronavirus pandemic was already lurking around the corner.
The meltdown didn’t stop in the US; in fact, many other countries experienced great shocks when reliable, familiar companies started closing their doors.
Like Galeria Karstadt Kaufhof in Germany. The company has been through costly mergers and insolvency procedures that forced the closure of 40 shops, resulting in the loss of over 4000 jobs. Now, the department store chain is hoping for a fresh start. But, due to steadily growing E-Commerce and the COVID lockdown that causes at least part of the loss of vital Christmas sales, the future looks less than promising.
Less brick-and-mortar, more E-Commerce
In comparison, E-commerce and its various subdivisions, including social and mobile commerce have steadily been on the rise. Currently, the E-Commerce market around the globe is worth $3.53 trillion and around 1.92 billion people shopped online (mind you, this number doesn’t yet include data from 2020 where lockdown measures forced many more people to shop via E-Commerce). The upward trend seems to continue: by 2023, E-Commerce is projected to reach 22% of global retail sales (currently, that number is 14.1%).
The rise in E-Commerce forced many traditional retailers to rethink their strategies. Well-known brands that originally started out with brick-and-mortar stores like H&M, C&A, and Walmart have opened their online stores to keep up with the trends. However, beating E-Commerce giants like Amazon, eBay, or AliExpress on their own turf is not easy. Amazon, for example, owns about 75% of all online E-Commerce searches.
To sum it up, physical retail stores have been struggling for years while E-Commerce kept growing steadily. And into that landscape crash-landed the coronavirus.
Retail vs COVID
It’s probably safe to say that not a person, nor any industry remained untouched by the coronavirus pandemic that brought the whole world to its knees in a matter of weeks. Ever since the start of the pandemic in early 2020, both the virus itself and the drastic measures meant to counter it have adversely affected people, businesses, even whole countries. In fact, the entire world economy is projected to shrink by 5.2% in 2020.
The closure of shops in March (and in many countries, once again in October/November) caused a 5.7% decline in global retail sales for 2020. In the EU alone, that percentage amounts to a loss of 3.2 billion euros.
In contrast, E-Commerce clearly profited from the closure of brick-and-mortar shops. Amazon, for example, has seen a gain of 47% in the second quarter of 2020 compared to the same period of last year.
The growth of E-Commerce has definitely accelerated because of the pandemic; in the US alone, online sales grew by 32.7% this year. E-Commerce was supposed to grow, but not this fast: a pre-COVID survey predicted a 18% growth.
An OECD report found a 30% increase in home deliveries in the early months of 2020, while at the same time all retail sales shrank by 17.9% compared to the previous year. This sums up the situation pretty nicely: people shop less, but when they do shop, it increasingly happens online.
Besides E-Commerce giants, this new phenomenon clearly benefits brick-and-mortar stores that already have a well-functioning online shop. Surging demand had many shopping apps crippled and retailers scrambling to fulfill customers’ orders.
However, offering products online has many pitfalls for brands. Besides the obvious challenges (meeting the ever rising demand, storage and packaging, getting the products to customers, etc.) brands have to face threats posed by online counterfeits, grey markets, copyright infringements, and much more. These threats are not to be taken lightly, because they can cause serious damage to a brand.
Christmas sales as the saviour of retail?
All-in-all, it seems that 2020 has been a disastrous year for brick-and-mortar retail. With lockdowns in place all over the world, many retailers were hoping for the Christmas sales to salvage what was left of 2020. After all, the Christmas period usually provides a big boost to retailers: around 30% of their annual sales occur during the last few months of the year.
However, this year is very different, and pre-Holiday shopping is no exception. For example, lockdowns forced non-essential stores closed again for the better part of the Autumn in many countries.
But even where shops are open, customers’ shopping experience greatly differs from the usual happy hunt for Christmas presents. Instead of taking the time to make the best selections while listening to cheery Holiday tunes, shoppers are encouraged to hurry, wear masks and keep their distance from other people.
While definite numbers won’t be available until early 2021, brick-and-mortar retailers fear that diminishing Christmas sales will put them in an even more difficult position. Once again, online shopping will benefit from the lucrative pre-Holiday shopping period: some predict that E-Commerce will take up to 35% of all Christmas shopping this year. In previous years, that number was around 10-15%.
Online shopping threats
Just like brands, customers also have to face a lot of challenges when shopping online. Not being able to try the item before buying, or waiting a long time for delivery are just the tip of the iceberg.
Nowadays, it’s easier than ever to buy goods from trashy marketplaces that don’t shy away from distributing counterfeits and poor quality goods. Thanks to their aggressive campaigns on well-known social media platforms, people are often duped into buying products from them. After all, you’ve seen the advert on Facebook. What could go wrong?
Well, a lot of things. You could be getting a counterfeit, or a product sold without the consent of the brand that produced it. In the worst case, you could even have your credit card data stolen.
Since individual customers can only do so much to keep themselves safe from counterfeiters, it’s up to companies to take up the fight and protect their brands as well as their customers from the unseen dangers of online shopping.
globaleyez’s take on the situation
As we can see, the trend of rising E-Commerce and shrinking physical retail has already been in place for about a decade. This phenomenon is now accelerated by the coronavirus lockdowns and people’s increasing reluctance to spend time in crowded stores.
While we can’t predict the future, we at globaleyez believe that the popularity of E-Commerce and online shopping will not diminish even after the COVID pandemic is over. The convenience of shopping from the sofa, having access to many marketplaces, and getting the goods delivered is too tempting for many consumers.
However, more online shopping means many more dangers. If E-Commerce continues its victory march in retail, brands and consumers alike have to recognize these dangers and protect themselves from them.
While "offline" commerce is in decrease, the online sales are taking over and this will not change again after the covid pandemic. This gives room for increasing threats like counterfeiting, image theft, grey markets, or other issues that surely can hurt your brand and sales.
Trashy marketplaces - counterfeiting, bad quality, and grey markets
Access to marketplaces like Wish or Aliexpress means that Western consumers can buy very cheap products, usually from Asia. Although these marketplaces say they do everything in their power to fight counterfeits, it’s still a possibility that a few fake products slip through the cracks, causing both brands and consumers a lot of damage.
But even if you’re not buying fakes, chances are that the cheap products from Wish are not exactly the quality you’re used to. As our test purchases from Wish show, consumers don’t always get the product they’ve seen advertised.
Besides counterfeits and the competition they get from cheap Asian marketplaces, brands also have to face the challenge of grey marketers. How does a brand know where its products are sold?
Large brands with highly diversified distribution channels can’t keep an eye on every single shipment and every seller, especially on the other side of the globe. But this is exactly the situation where shipments fall through the cracks, and some time later, genuine products appear on marketplaces that aren’t authorized to sell them.
The loss of revenue is devastating for brands, but even worse is the loss of image. Although your genuine products are on offer, would you want a trashy marketplace to sell them?
This is where our various brand protection services come into play. With marketplace monitoring, for example, you decide which countries and marketplaces you want us to cover. Our software, traxster crawls the marketplaces of your choice and lets you know who and where is selling your products.
Image monitoring, on the other hand, helps us find copyright infringers who use your brand imagery without your consent on the internet. And when we find those responsible, we don’t just hand you the information without a word; in fact, you can engage our enforcement service that ensures the takedown of infringing listings and counterfeits.
Brand protection isn’t a luxury that only a few brands can or should indulge in. In fact, with the rise of E-Commerce and trashy marketplaces, brand protection is becoming a necessity that brands can’t operate without enduring serious damage. Whether counterfeits, grey markets, copyright infringement, or even the non-compliance of trade partners, brands have a lot to protect themselves from.