Online shopping concept,Mask Concept.
In April 2020, as retailers were coming to grips with the potential impact of Covid-19, uncertainty abounded. Most retailers implemented austerity measures to brace against what they feared would be a very challenging year. Prognosticators quickly predicted the decline of brick-and-mortar retail, as shoppers permanently went online for their essential goods. McKinsey published the pithy headline “Ten Years of (e-commerce) Growth in 90 days,” predicting that more than 33% of all retail sales would be online.
Now that the U.S. Department of Commerce has released its retail sales data for the complete year, we can see the true impact of Covid-19 on retail in 2020. Retail as a whole experienced healthy growth of 3.4% versus 3.5% in 2019.
According to the Retail Indicators Branch of the U.S. Census Bureau, retail sales in 2020 were $5.6T, representing 27% of the U.S. GDP. Retail sales suffered a sharp one-month decline in April, and equally sharp recovery in May, finishing the year at a historical high.
US Retail Sales
The topline growth of retail belies the fact that 2020 was a year of bifurcation, with distinct winners and losers. Grocery stores, DIY, and sporting goods retailers were clear winners in the pandemic, while traditional department stores, apparel stores and gas stations suffered.
Retail growth by category
The winners and losers were largely determined by the impact of a huge shift in consumer spending from services to products. For example, consumers spent considerably less on services related to vacation travel, and instead invested those funds in products for their home. The most prominent version of this shift was spending from restaurants to grocery stores. Prior to the pandemic, grocery stores and restaurants enjoyed an almost equal share of the consumer’s wallet, but in April, grocery spending peaked at 70% of consumers’ food budget and finished the year with a 57% share of wallet. That’s $195B in spending that shifted from restaurants to grocery stores. The entire restaurant category was down 16% for the year, but full-service restaurants were hit particularly hard, finishing the year with sales 92% lower than 2019.
Food sales in grocery versus restaurants
While the shift from services to products determined the year’s winners and losers, no retail trend had a more prominent impact than the transition to digital shopping. While brick-and-mortar stores were essentially flat for the year, e-commerce grew 32% to $792B in sales, this growth was twice as fast as the previous year, when e-commerce grew by 15%.
Growth versus previous year
E-commerce was 11% of retail sales in 2019, in April of 2020 it peaked to high of 18.4%, and finished 2020 with 14% of total sales. A healthy acceleration for e-commerce but hardly the 33% we were warned to expect.
US Retail Sales 2020
The shift to e-commerce spending disproportionately benefited retailers who had invested in digital prior to the pandemic, and to larger retailers who were better able to invest in digital amenities.
In many cases, the growth of e-commerce was due to shoppers who ordered online but picked-up their purchases curbside from a store—blurring the lines between in-store and online sales. Counting e-commerce and store sales separately becomes less relevant as customers are giving preference to retailers that can seamlessly blend the channels.
What is clear is that purchase decisions are increasingly being made via digital touch-points, with the mobile phone now representing the front door of many retail shopping experiences. This new reality has a profound impact on how shoppers make purchase decisions, how retailers enable impulse and unplanned purchases, and the role of the shopping list in shopper marketing.
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