The future of Commerce

Issue 1, October 2021

Changes in consumer behaviors seen over the last 18 months have transformed the retail landscape—more so than any other catalyst in history. As former Democratic presidential candidate Andrew Yang put it: “We experienced 10 years of change in just 10 weeks” during the height of the pandemic. And there is no indication that anyone—consumers or retailers—wants to go back to 2019 norms.

What does commerce look like post-pandemic? Most analysts believe we’ll be cleaning up the mess caused by COVID-19 for quite some time. The more optimistic analysts say we will see significant recovery as early as 2023.

Either way, the successful companies will be those who are the most flexible and able to pivot to meet market trends as they emerge.

Here are five popular trends to watch.

1. The Move Towards E-Commerce Will Continue

Early in the pandemic, market conditions fueled the fast-paced rise in e-commerce sales. It was a necessity, rather than a preference, to buy essential items online.

However, the transition to online shopping, or e-commerce, and a growing need to satiate customers’ expectations for very fast and efficient delivery—analysts call this the need for speed, or expectancy of immediacy—actually began before the pandemic and has continued to grow at a significant pace even as COVID restrictions start to lift.

What does this suggest? E-commerce has become the preference, rather than a necessity, especially among Gen Z and millennials. According to a Kibo survey, more than half of the people in these two age groups combined would rather shop from home than in physical stores. And they will soon become the largest consumption demographic, surpassing baby boomers.

The numbers don’t lie. E-retail sales surpassed $4.2 trillion worldwide in 2020. This year, global e-commerce sales are forecast to reach $4.9 trillion, and by 2024, they are expected to grow to $6.4 trillion.

Getting products manufactured overseas, transported to the United States and shipped out to customers globally is still nearly as difficult as it was in 2020 during the heart of the pandemic. In some cases, it is even more difficult. Experts say retailers must move products from multiple geographic locations if they want to survive and thrive in this faster-paced culture.

2. The Need for Speed Will Become Even More Immediate

In most places, there is second-day, next-day and even same-day delivery. Expect faster delivery options going forward, says Ki Bin Kim, managing director, U.S. REIT Equity Research at SunTrust Robinson Humphrey. “In Korea, for instance, you already have 24-hour delivery networks. You can literally get whatever you want, whenever you want. I saw a guy last night come up the stairs in my apartment building at midnight delivering goods.”

Consumers can expect to see the 24-hour concept become the norm in larger cities like Los Angeles, New York and San Francisco within a few years.

3. Hybrid Retail Makes Its Move

Another reason for the forecast growth is the emergence of hybrid retail, a mixture of both e-commerce and in-person shopping.

One of the reasons why online shopping has grown so much over the years is because of the experience that retailers are able to provide to their customers. E-retailers are constantly adding new features and services for online shoppers with the intent of providing a more personal, omnichannel experience.

The last advantage that in-person retailers had was the tactile experience of shopping. “People will still want to shop in person because, in some cases, they view it as a recreation activity, or they want to touch and feel products before purchase,” says John P. Kim, senior analyst covering US REITs for BMO Capital Markets Equity Research.

Hybrid retail, on the other hand, provides the customer with a shopping experience that is wherever you are, whenever you want while also having physical options that meet customers’ emotional needs. Think of it as the omnichannel experience with an in-person twist.

Take Warby Parker. It began in 2010 as a direct-to-consumer, online-only seller of competitively priced sunglasses and prescription eyeglasses. The business model depended on a highly differentiated customer experience. The company offered a home try-on program, where the customer picked five frames online and received them in the mail. Later, the company added an augmented reality app that rendered a pair of glasses on a customer’s face as a live, three-dimensional preview. In 2017, it launched a virtual vision consultation with an optometrist over Google Meet. Each of these options offers a personalized experience that might be adapted for other products and services.

Warby Parker did an incredible job servicing customers and making buying and owning its glasses part of a wonderful customer experience. “But in order to continue their growth trajectory, it was necessary to add the physical retail,” says Tom Catherwood, managing director REIT Equity Research at BTIG. The company started opening retail outlets or galleries where people could come to see the frames, get their eyes checked and order the product through the website. The glasses would be sent to your home, just like any Warby Parker purchasing experience. Warby Parker isn’t alone. Tesla is another example of an online-only brand that has retail outlets called galleries to display its products and offer potential buyers test drives. You can even order a vehicle from these galleries through online kiosks.

Waste is problem; re-commerce is the solution. Businesses and consumers are becoming more conscious of the throwaway culture and taking steps to turn the tide. Take Trove, for instance. It creates a second-hand goods marketplace for brands that lets them benefit from the growing secondhand marketplace.

4. The Rise of Re-commerce

More companies are trying to take greater control of their brands, especially in the used or secondary market. “There are marketplaces that are high profitable reselling products, especially in the luxury segment,” says Gayle Tait, president and COO of Trove, a company that has created an operating system for re-commerce, or circular shopping. “A consignment shop, for instance, can sell a luxury handbag three or four times and the brand that made it isn’t making any money on that transaction.”

In this case and others like it, brands are looking to rein in that practice so they are turning to companies like Trove to help them control the resale and make a profit.

The same concept can be found in the pre-owned automobile market. You are buying a used vehicle that has been brought to like-new condition by the automaker or dealer and receives an extended warranty to prove it. The recertification works to assure the customer they aren’t buying a lemon.

5. Social Commerce Will Have a Greater Impact

Social media platforms are ideal places to find and sell products and services. With e-commerce, you need to head to a specific website to buy or complete a purchase. With social commerce (the blending of social media and e-commerce), the buying process is completed without leaving the social media app. You can be scrolling Instagram, Facebook or Pinterest and suddenly you’re buying something you may or may not necessarily want or need. It seems like a simple impulse buy but it’s a big expansion of when and where we buy, and it will be here for a long time.

“The recommendations inspire people to try something a little bit different than what we’ve been buying,” says Catherwood. “And they are obviously extremely effective. We see it in the investments that advertisers are making—ad spending on social media hit $41.5 billion in 2020, according to a report from the Interactive Advertising Bureau. That’s 30% of all internet ad revenue. And as predictive analytics get better, retailer recommendations will get better and even more pervasive.

In light of these trends that have been shaped, crystallized and executed upon at an accelerated pace over the last 18 months, we can expect in the months and years to come that pioneers will continue to change the way businesses evolve their shopping, ordering and delivery strategies.

Further Reading