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November 13, 2020updated 02 Mar 2021 3:53pm

E-commerce cushioned the blow to retail from Covid-19 lockdowns

Analysis by the CEBR reveals the cushioning effect of e-commerce on retail sectors during lockdown. This helps predict which countries will be worst-affected this winter.

By Amy Borrett

Covid-19 has delivered a sharp blow to the retail sector. With lockdowns forcing shops to shut their doors for many months and consumers reluctant to leave the safety of their homes, sales are expected to contract £440bn globally in 2020. But there has been one beacon of hope for retailers despite new lockdowns: an unprecedented surge in e-commerce.

Since the start of the pandemic, online sales have grown at a remarkable rate, the likes of which have not seen “since 2008, when the market was very immature”, says Andy Mulcahy, strategy and insight director at online retail association IMRG.

Indeed, analysis commissioned by payments firm Adyen and undertaken by the Centre for Economics and Business Research (CEBR) found that the retail sectors in countries with greater e-commerce adoption were more resilient than those with less online sales.



This resilience correlates to the availability of infrastructure and the enabling environment required for e-commerce. “A massive factor behind successful e-commerce is the infrastructure and capacity which is in place to support it,” says Sam Miley, economist at the CEBR. “The top performers tend to be the likes of the Scandinavian countries and economies across northern Europe… Tech-heavy economies in the Asia Pacific region, such as Singapore [also] stand out.”

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The beneficial impact of e-commerce adoption on the resilience of a country’s retail sector was substantial, the CEBR’s analysis found. When controlling for the stringency of lockdowns, a one-per cent increase in the proportion of retail sales that take place online was associated with a 0.87 percentage point smaller drop in overall retail revenue during lockdown. That means that in Germany, for example, which has a €552bn retail sector, a hypothetical 5% increase in turnover from e-commerce would boost retail sales by almost €93bn.



The cushioning effect of e-commerce is even more pronounced in the food services market than in retail, according to CEBR’s analysis. It found that a higher score on the UNCTAD e-commerce index translated to even greater resilience of a country’s food services sector to lockdowns. Germany, where the UNCTAD e-commerce score is nine points higher than Portugal, saw food service turnover fall by 12 units less when lockdowns were introduced.

This was a somewhat surprising finding given the importance of in-person experiences in the food service sector, says Miley.

“A big part of food and beverage services is the actual experience of going to a restaurant or a bar,” he says. “But I think the significant drop off that we saw was muted by the massive transition to take away service.”

Steve Hewett, vice-president and global lead for retail customer engagement at Capgemini, suggests that the complete upheaval of existing business models has enabled food retailers to fully embrace the digital disruption triggered by Covid-19.

“Restaurants were hit especially hard, as it is a category for which online is barely a concept,” he says. “This forced the use of digital to do more than just go online or increase online capacity, but to rethink business models to enable customers to experience their products outside of their physical stores.”



As we enter the winter months and restrictions tighten again, the CEBR analysis is a stark warning for retail businesses that have previously put their digital strategy on the backburner.

The retailers likely to be hit hardest are in countries with low levels of e-commerce penetration and aggressive new lockdowns, such as those in southern Europe like Spain and Italy that have already been heavily affected by the spread of coronavirus.

“In the case of Spain, in particular, the infrastructure is not quite the level of the economies in Northern Europe,” says the CEBR’s Miley, adding that this will hamstring attempts to implement the necessary digital upheaval at short notice.



To some degree the hit to retail from new lockdowns should be subdued as retailers have hustled to update their digital strategy since the spring, says Hewett.

“[Since the start of the pandemic] the common thread was a massive increase in urgency and energy on digital transformation and operational transformation – including capacity increase,” he says. “Our recent research suggests that 93% of retailers have taken specific steps to bolster their online offerings through Covid and in the run-up to Christmas.”

The pandemic has mandated the shift to a digital-first mentality, he adds, with the result that soon retailers “may even finally offer the type of omnichannel, digital shopping experiences that consumers have been craving, yet not receiving, for many years”.

New digital strategies are expected to be buoyed by pent-up demand. In the UK, 66% of consumers say that they have made savings this year, either deliberately or unintentionally, according to research by Capgemini.

But there is still a long way to go before digital strategies catch up with online sales volumes, which made three years’ progress overnight, says IMRG’s Mulcahy.

“People aren’t looking through their [digital] strategies at the moment, it’s a bit of a scramble,” he says. “[But] habits have been formed here… you’re going to see a lot of that volume stick online [and] I expect that you will see growth staying in the 15% to 25% up range.”

The rush to shift sales online reflects a complacency about digital transformation among the higher ranks of retail businesses, adds Mulcahy.

“There has been a bit of a problem at board level with the digitisation project,” he says. “To what extent was the mindset properly thinking digital? I’m not sure it was really there… it’s been a bit slow to adapt.”

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