United States / Coronavirus Insights
E-commerce: Opportunities and Challenges

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by Cecilia Fernandez, Lead Industry Research Analyst
May 19 2020

With e-commerce being the main outlet of discretionary consumer spending, the e-commerce industry has experienced a surge in demand.  IBISWorld anticipates e-commerce sales will spike 34.2% in 2020 alone as consumers turn to online retailers since nonessential brick-and-mortar locations remain temporarily closed in order to prevent the spread of the COVID-19 pandemic. Still, essentials are becoming more available online as industry operators try to cater to the surge in demand and provide medical supplies, household staples, among other high priority items. However, the limits of operating a business in the coronavirus era are causing problems, even for online retailers. The pandemic has caused global disruptions in the supply chains, third-party sellers and overall consumer behavior. Industry operators have had to take serious measures in regards to transportation, shipping and fulfillment, warehousing and other logistics capabilities.

The heightened demand is evidenced in Amazon’s recent quarterly filing, which resulted in higher net sales in the United States. Still, the increase has been mitigated slightly by lower consumer spending on discretionary products. However, profit margins for industry operators are anticipated to decrease in 2020 due to higher shipping and fulfillment costs and, in the case of Amazon, increases in labor costs. Supply chain disruption across the world will likely cause a limited amount of inventory stock and shipment delay. As a result, some online operators have halted their distribution of non-essential products.

 

 

Furthermore, the Online Grocery Sales industry (IBISWorld report OD5085) is anticipated to experience a surge in demand as consumers avoid going to supermarkets in order to prevent contact and practice social distancing. Instacart, a grocery delivery company, has solidified its footprint during the pandemic. Instacart works with different grocery store chains, instead of providing their own products, which diminishes the disruption in its inventory and supply chain. Still, retailers that source directly from manufacturers and wholesalers will likely feel the adverse impact of the pandemic as IBISWorld estimates that both the industrial production index and the manufacturing capacity utilization will decrease in 2020 alone, limiting their services and supply.

The spike in demand for online retailers has proved that the e-commerce industry was not as prepared. Online retailers will likely have to hire additional workers to help with shipping, delivery, pick up and customer service in order to keep meeting consumer demand during the crisis. In the near future, the e-commerce Industry (45411a) will likely invest more in expanding its stock capacity, especially on essential items such as food and beverage, home and beauty essentials, baby care, among others. The Public Storage and Warehousing industry (49311) will likely benefit from the trend as online retailers are typically reliant on third-party warehousing services. Companies that have been able to adapt to the new shifts in consumer behavior and to the limits of operating in a pandemic have noticed that these shifts may remain relevant in the long run as consumers continue to adapt to a new way of living.