Consumer Buying Shifts to Online Stores

Most of us have pushed the unpleasant experience of the Covid19 pandemic behind us, The daily reminders of mask wearing and the incessant polarising debates about vaccines are now moot.

At the time of writing we are paying the price for the stimulus packages that many governments foisted on us in those troubled times. These costs were financed largely by policies and practices of quantitative easing. In layman’s terms that means printing of money. History has taught us when governments print a lot of money inflation sets in with a vengeance.

Central banks, as they always do, rapidly raise prime lending rates and all indebted people feel the pinch. Other factors such as war and geopolitics exacerbate the situation.

But the biggest legacy and challenge for most businesses from the pandemic has been a consumer shift.

For businesses trying to manage the effects of the pandemic the early 2020’s was an era of great pruning and also of great innovation.  A time where business people had to reevaluate their offerings and in many cases pivot to meet consumers needs and fears of the time. Certainly at the beginning of the pandemic most consumers were frightened by Covid 19 and took extraordinary steps to try to ensure their safety. For those that did not the consequences were dire. Literally. 

Online shopping was probably one of the biggest methods of mitigating the risk and the inconvenience of shopping under Covid regulations.

Let’s be honest here. In some parts of the first world, particularly parts of the developed world, online purchases had achieved pretty good adoption by consumers already at this stage. It may be said that in terms of the “law of diffusion of innovations“  that the bridge between early adopters of online shopping (the magical 13,5%) and and the early majority had been breached.  That is to say that enough consumers were regularly buying online to entrench the practice of online shopping in the market.

Evidence that this consumer behaviour change was entrenched in the USA was that as early as 2007 no new shopping malls were built in the USA. This was the first time in 50 years that this had happened.

But in other parts of the world and in developing economies such as South Africa, shopping malls continued to be built. There were too many impediments for online store success. Deliveries and payments were some of the issues that needed to be addressed.

Legislation giving the Government owned South African Post office a monopoly on the delivery of small parcels was a huge impediment as the Post Office’s ability to deliver mail on time was questionable to say the least.  Even Amazon.com USA had to stop delivering to South Africa because they deemed the risk too great.

The Covid 19 pandemic changed all that. Post pandemic the private courier and delivery services grew exponentially.  Local online stores such as Takealot.com grew massively. Takealot through their holding company acquired a delivery service (Mr D) and invested heavily in software systems to enhance the delivery process. Consumers driven by fear of infection had reached their burning platform moment and plunged into online purchases. They gained confidence in online payments. 

Parallel to the growth of Takealot, grocer chains such as Checkers, Pick N Pay and Woolworths scrambled to implement online sales based on their own location based apps. 

These consumer behaviour experiences were mirrored in many other countries around the world.

Evidence of the change in behaviour in these markets could be seen in  the 2020 Takealot group revenue which grew by 65% to $606 million. A significant shift in a relatively small economy.

Other South African retail chains who could not pivot fast enough were put under huge financial pressure and some battled to keep their doors open. Edgars, Game and others come to mind.

From an international perspective the New York Times reported that Amazon experienced a 220% growth driven by the pandemic.

Ìt’s important to note that these increases in turnover weren’t as a result of market growth but rather a shift in buying patterns from physical stores to online stores.

This shift in consumer behaviour has put shopping Malls under strain. In South Africa, a significant owner of retail mall space Rebosis, a listed company, was placed in voluntary business rescue. The reasons given by the company for this business rescue decision do not touch on the online consumer shift, showing the resistance by business to accept this international trend. The foot traffic tells another story.

South Africans have been watching YouTube video’s of abandoned malls in America for years in wonder but have obviously never given much thought to the causes. South African property developers continued to build malls and banks have backed their operations. All these role-players have obviously been oblivious to the consumer behaviour shift or they discounted it entirely.

With the benefit of hindsight it is easy to see that developers (and financiers) should have foreseen this consumer shift.  Quite frankly the building of malls is akin to opening video hire business’s in the 2020’s.

But the unthinkable has happened. 

The tide has turned.

Digital trade is on the ascendancy and physical presence is either declining or changing dramatically.