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Can E-Commerce Save Retail?

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October 19, 2020 7 min read

Opinions expressed by Entrepreneur contributors are their own.

In the span of a few short weeks, the coronavirus pandemic completely reshaped and left many retailers struggling to survive. , , J. Crew, and other popular chains filed for bankruptcy. According to a report from , 60 percent of listed businesses that shut their doors during the pandemic have closed for good, including 48 percent of retail stores.

At the same time, the crisis is opening up opportunities for retail to evolve. It has disrupted  when, where, and how people shop, creating space to rebuild and reimagine relationships with customers. Three-quarters of consumers have tried a new shopping brand or method since the pandemic started, and most plan to continue it going forward.

As companies try to navigate this new landscape, many business leaders are placing their hope in to help them reach customers in the era of social distancing. But is enough to rescue retail? My years of research on shopping and suggest that digital technologies alone are not the savior of retail some have made them out to be. Companies must integrate the digital, physical, and social aspects of shopping to satisfy the majority of their customers.

The three faces of shopping: digital, physical, and social

A has certainly been a boon for retailers in recent months. Online grocery sales surged to $7.2 billion a month this summer, up from $1.6 billion last summer. Consumers have eagerly experimented with new shopping methods like curbside pickup and delivery apps. These adaptations build on existing trends, as retailers have been moving further into the digital realm for years. Yet my research suggests that, for many customers, digital can never fully replace the social and physical aspects of shopping.

Even in the midst of a pandemic, people want to physically experience many kinds of products before committing to purchase them. Shoppers want to touch fabrics, assess colors without the filter of a screen, and test the comfort of furniture. Stores know this and are doing everything they can to get customers back in the door, from mask requirements and fever checks to shopping by appointment. As they stress cleanliness, close fitting rooms, and discourage touching the merchandise, stores are taking a page out of the Zappos playbook and extending return policies so people can get a feel for the products at home.

Related: 5 Effective Strategies to Grow Your Retail Business

Shopping is also an intrinsically social activity. People browse stores in groups, peruse online reviews from fellow customers, and text their friends for advice on what to buy. Customers “co-create” their shopping experiences through interactions with employees, forming relationships with their favorite barista or store clerk. While some of the social aspects of shopping now happen online – from Yelp reviews to “unboxing” videos – they remain rooted in experiences with real people and products.

The importance of integration

The best way for companies to please the most customers is to integrate the physical, social, and digital aspects of shopping. This is particularly important in a time of crisis when many consumers are seeking reassurance and security. As retailers rush online in response to social distancing, they shouldn’t ignore the need to restore trust and rebuild relationships with customers that have been disrupted by the pandemic.

Successful integration is why has been able to weather the coronavirus pandemic with minimal damage, maintaining around 80 percent of its sales compared to the same time last year. Over the past decade, the company defied expectations that it would be destroyed by Amazon and other online retailers by strengthening and coordinating its presence in the digital, physical, and social realms.

Best Buy introduced its popular Geek Squad support staff and launched an app with social components such as the ability to access live support and make appointments. The company linked warehouse and store inventory so that local stores can fulfill online orders (a practice known as “webrooming”) and hired in-store consultants to help customers discover products on site and then buy them online (known as “showrooming”). They also began offering free in-home consultations to build trust in their brand and become the preferred supplier.

These features helped create strong, faithful relationships with customers who don’t want to navigate electronics purchases alone – even during a pandemic. At the start of the nationwide lockdowns, Best Buy moved all its stores to curbside pickup, an easy switch given their integrated inventory system. Even as they furloughed over 50,000 employees, the company retained the vast majority of their In-Home Advisors and Geek Squad Agents, who serve as brand representatives and key contact points for customers.

Related: How to Remain Competitive in a Saturated Online Retail Market

Best Buy’s integrated strategy has served them well during the pandemic, helping them stand out against competitors that are more heavily digital, like Amazon, or have a weaker online presence, such as local appliance stores. Their experience shows that digital technology can be most effective when it serves as a complement to physical and social interactions, rather than trying to replace them entirely. For example, their app allows customers to digitally access live support, but it comes from a person, not an AI chatbot. Rather than funneling customers solely into online purchasing, they offer the choice to mix and match where items are discovered, purchased, and delivered – at home, in store, or curbside.

The limits of a digital-only strategy

As the pandemic has shown the value of an integrated strategy like Best Buy’s, it has also demonstrated the limitations of operating primarily online. Airbnb, for instance, has struggled to reassure customers it’s safe to stay in the home of a stranger right now, and the digital-forward company has little control over the customer experience on the ground. Meanwhile, traditional hotels have capitalized on their physical presence and longstanding relationships with guests to reassure customers.

Marriott, for example, launched a Global Cleanliness Council to develop new cleaning procedures for its properties and instituted requirements for all guests and staff to wear masks in public spaces. They released a suite of digital tools to help event organizers looking to host conferences safely. Their latest marketing efforts highlight the interconnection between the digital, physical, and social elements of their business, featuring montages of employees cleaning hotel properties, guests using technology to maintain social distancing, and narration from chairman Bill Marriott himself.

Related: What Comes Next for Ecommerce and Digital Retail?

Marriott is drawing on the social and physical aspects of its business to reassure customers in a way that companies that live primarily in the digital realm would struggle to achieve. While bookings are still down, they have begun to bounce back and the company recently announced that it is optimistic about what the future holds.

Digital technologies have been essential for retailers to adapt and survive during the coronavirus pandemic. Yet just as a Zoom call isn’t a perfect substitute for a night out with friends, retailers need to balance how to benefit from digital technologies while maintaining the sort of warm, tangible, personalized experience that builds brand loyalty. As they are pushed to incorporate technology more quickly than expected, retailers should work to integrate the digital, physical, and social realms, as this is where the future of retail truly lies. Source

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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