Enabling E-Commerce Expansion: COVID-19 Case Studies
By Snigdha Thatikonda and Grace Hurren, 9/19/2020
The Indian Perspective
As lockdown measures during the COVID-19 epidemic persist, the effects on individual and international economies are monumental. With most civilians attempting to limit their offline spending, a sudden dependency on e-commerce arises, with the Indian market being no exception. Before global shutdowns, India had an internet user base of around 475 million and had essentially transformed business culture. The largest e-commerce companies were Flipkart and Snapdeal along with Amazon as a multinational corporation. E-commerce and consumer internet companies in India received more than 4.32 billion USD in private equity and venture capital in 2019, and the market itself is expected to grow to 200 billion USD by 2026. The rise of e-commerce in India is mainly due to the waves of digital transformation that expand the potential user base, as smart phones and internet access becomes more widespread. The Indian government funded a BharatNet Project to help provide broadband services, since the development of e-commerce in India not only enables its position in the international economy, but also builds industries for other business markets. However, the COVID-19 pandemic has caused significant changes to the economic patterns of several institutions, thus altering the previous projections of e-commerce and subsequent developments.
An article from S&P Global notes the aforementioned market leaders Flipkart and Amazon are expecting major losses since their operative abilities are being limited. Indian online retailers were forced to suspend operations, thus becoming vulnerable to the effects of increased product demand once resuming production. The backlog of essential items introduces several constraints on both executives and employees, as several staff members are called upon to work longer hours. India has lost roughly 1 billion USD in online sales, a situation that is vastly different from other large e-commerce markets like China and the US (both of which have seen tremendous growth in online activity). The original projection for the Indian e-commerce market of 5% is now expected to fall flat.
One of the major factors in this decrease is the ban on high-margin non-essential goods that are major among e-commerce companies, such as electronic tools which are essential when working or studying from home, and which accounted for over half of all online sales last year. This has alienated hundreds of potential clients, especially since the sale of nonessential items account for 90% of sales for both Amazon and Flipkart. As the larger e-commerce companies call upon the Indian government to expand the list of essential items, the combination of pent-up demand and high unemployment rates is leading to a very limited economic environment. Yet, there is still some growth demonstrated within specific e-commerce sectors. Online grocery shopping in India is traditionally hyper-localized, but starting from last year, companies have seen massive growth with each quarter, prompting interest in investment and consolidation into niche delivery platforms. Local companies are actually thriving within current limitations, as the number of small retailers that are providing service akin to e-commerce, but with more personalized services, has increased.
For companies to deal with the ongoing crisis and prepare for further disruptive events, they need to make changes to their current infrastructure. As supply chains have begun to slow down, digitization efforts need to be improved in order to improve the efficiency of the transaction process. Businesses also need to utilize a diversified supply chain network in order to continue operations when faced with supply chain disruption. A new talent model also needs to be developed to keep pace with the demands and restrictions brought on by lockdown. Anything that isn’t essential to the performance of companies during this time needs to be reevaluated to keep control over outgoing expenses. There needs to be a plan to maximize the benefits of current cash reserves, including the identification of revenue leaks and potential sources of additional revenue. Several of the Global 500 have branched into providing essential services because of the demand in that market right now, accelerating their expansion plans years aheads of schedule, but depending on how these players navigate their acquisitions, the expansion might turn into a short-term arrangement instead of a long-term investment. Companies need to be incredibly conservative during this time while looking at their current performance to profit once COVID-19 is resolved. The reliance on e-commerce has given the market significant momentum, and in order for businesses to stay in pace with consumers once lockdown measures are lifted, they need to keep that momentum going and build off of it. The companies that persist in their online engagement will benefit from this current turning point for digital transformation.
Consumer brands are expected to utilize direct distribution over the next few months, and as dependency on online sales grow to the projected 64%, a greater cultural awareness in safety measures and supply chain visibility is expected to occur. India is making a conscious shift to direct consumer engagement, which seems to benefit local companies rather than larger corporations. The impact of COVID-19 extends beyond the healthcare industry and due to the interdependence of the Indian economy, it is imperative for governmental fiscal policy and operating companies to take action and to recognize the importance of localized production and supply chain visibility in the coming years.
An article from S&P Global notes the aforementioned market leaders Flipkart and Amazon are expecting major losses since their operative abilities are being limited. Indian online retailers were forced to suspend operations, thus becoming vulnerable to the effects of increased product demand once resuming production. The backlog of essential items introduces several constraints on both executives and employees, as several staff members are called upon to work longer hours. India has lost roughly 1 billion USD in online sales, a situation that is vastly different from other large e-commerce markets like China and the US (both of which have seen tremendous growth in online activity). The original projection for the Indian e-commerce market of 5% is now expected to fall flat.
One of the major factors in this decrease is the ban on high-margin non-essential goods that are major among e-commerce companies, such as electronic tools which are essential when working or studying from home, and which accounted for over half of all online sales last year. This has alienated hundreds of potential clients, especially since the sale of nonessential items account for 90% of sales for both Amazon and Flipkart. As the larger e-commerce companies call upon the Indian government to expand the list of essential items, the combination of pent-up demand and high unemployment rates is leading to a very limited economic environment. Yet, there is still some growth demonstrated within specific e-commerce sectors. Online grocery shopping in India is traditionally hyper-localized, but starting from last year, companies have seen massive growth with each quarter, prompting interest in investment and consolidation into niche delivery platforms. Local companies are actually thriving within current limitations, as the number of small retailers that are providing service akin to e-commerce, but with more personalized services, has increased.
For companies to deal with the ongoing crisis and prepare for further disruptive events, they need to make changes to their current infrastructure. As supply chains have begun to slow down, digitization efforts need to be improved in order to improve the efficiency of the transaction process. Businesses also need to utilize a diversified supply chain network in order to continue operations when faced with supply chain disruption. A new talent model also needs to be developed to keep pace with the demands and restrictions brought on by lockdown. Anything that isn’t essential to the performance of companies during this time needs to be reevaluated to keep control over outgoing expenses. There needs to be a plan to maximize the benefits of current cash reserves, including the identification of revenue leaks and potential sources of additional revenue. Several of the Global 500 have branched into providing essential services because of the demand in that market right now, accelerating their expansion plans years aheads of schedule, but depending on how these players navigate their acquisitions, the expansion might turn into a short-term arrangement instead of a long-term investment. Companies need to be incredibly conservative during this time while looking at their current performance to profit once COVID-19 is resolved. The reliance on e-commerce has given the market significant momentum, and in order for businesses to stay in pace with consumers once lockdown measures are lifted, they need to keep that momentum going and build off of it. The companies that persist in their online engagement will benefit from this current turning point for digital transformation.
Consumer brands are expected to utilize direct distribution over the next few months, and as dependency on online sales grow to the projected 64%, a greater cultural awareness in safety measures and supply chain visibility is expected to occur. India is making a conscious shift to direct consumer engagement, which seems to benefit local companies rather than larger corporations. The impact of COVID-19 extends beyond the healthcare industry and due to the interdependence of the Indian economy, it is imperative for governmental fiscal policy and operating companies to take action and to recognize the importance of localized production and supply chain visibility in the coming years.
Perspective: The United States
In the midst of the coronavirus pandemic, the economy has fallen, but e-commerce is on the rise. E-commerce is defined as any economic activity that occurs over the internet. This can be any transaction online from purchasing goods to transferring money through a virtual mediator. As a result of COVID-19, e-commerce in the United States has increased exponentially, and is set to have a tremendous impact on the methods in consumer spending.
Due to COVID-19, 95% of the US population has been affected by stay-at-home orders. Businesses have closed temporarily, transitioned to alternative distribution techniques like “curbside pickups” or “mobile orders,” or have exclusively offered purchasing online. This has resulted in a dramatic change in consumers’ method of spending. According to Forbes, as of April 21, year-over-year growth in U.S. & Canadian e-commerce orders has increased by 129%, in addition to 146% growth in all online retail orders. This spike in e-commerce is a direct result of consumers forced to spend their money online due to the lack of access to offline shopping. Amazon, the e-commerce giant who leads their No.2 competitor by 33.7 percentage points of the market share, showed an increase of net sales by 26% to account at $75.5 billion in the first quarter, compared to their 2019 first quarter of $59.7 billion. Although Amazon is the standout company, their sales are representative of the general trend of increasing online spending rather than offline consumption.
Although stay-at-home orders are temporary and eventually consumers will be able to purchase goods in person, the projected trend deems e-commerce to continue to grow. In 2019, mobile e-commerce sales were $2.32 trillion for the year. However, as a result of COVID-19, sales are set to increase by 25.4% to $2.91 trillion. E-commerce enables more efficient consumer purchasing without sacrificing physical safety for the experience of shopping. It also provides a simple way for consumers to purchase without having to come in contact with other people, risking their health. By saving time and energy whilst still allowing consumers to obtain the necessary goods, e-commerce has established itself as a suitable comparison to offline shopping. As a result, COVID-19 has set the stage for e-commerce to take over the realm of spending in the post-pandemic United States.
Due to COVID-19, 95% of the US population has been affected by stay-at-home orders. Businesses have closed temporarily, transitioned to alternative distribution techniques like “curbside pickups” or “mobile orders,” or have exclusively offered purchasing online. This has resulted in a dramatic change in consumers’ method of spending. According to Forbes, as of April 21, year-over-year growth in U.S. & Canadian e-commerce orders has increased by 129%, in addition to 146% growth in all online retail orders. This spike in e-commerce is a direct result of consumers forced to spend their money online due to the lack of access to offline shopping. Amazon, the e-commerce giant who leads their No.2 competitor by 33.7 percentage points of the market share, showed an increase of net sales by 26% to account at $75.5 billion in the first quarter, compared to their 2019 first quarter of $59.7 billion. Although Amazon is the standout company, their sales are representative of the general trend of increasing online spending rather than offline consumption.
Although stay-at-home orders are temporary and eventually consumers will be able to purchase goods in person, the projected trend deems e-commerce to continue to grow. In 2019, mobile e-commerce sales were $2.32 trillion for the year. However, as a result of COVID-19, sales are set to increase by 25.4% to $2.91 trillion. E-commerce enables more efficient consumer purchasing without sacrificing physical safety for the experience of shopping. It also provides a simple way for consumers to purchase without having to come in contact with other people, risking their health. By saving time and energy whilst still allowing consumers to obtain the necessary goods, e-commerce has established itself as a suitable comparison to offline shopping. As a result, COVID-19 has set the stage for e-commerce to take over the realm of spending in the post-pandemic United States.
