scale of this growth to life, as shown in the chart below. Before Covid-19, we were expecting online penetration to experience an increase of 3.3 per cent points in the five years to October 2020, reaching about 9.8 per cent of total retail turnover (including grocery, liquor and hospitality). Breaking double digits would have been an incredible growth story and a coming-of-age moment for Australian online retail.  What transpired in 2020 is beyond even the most bullish of predictions. The catalytic impact of the health crisis effectively delivered an additional five years’ worth of growth in the six months from March – another 3.0 per cent points of penetration to reach 12.9 per cent of total retail turnover for the year to October 2020. Online penetration of non-food retail grew even faster. It reached 22.8 per cent for the 2020 year by October — up from 17.1 per cent in 2019 — to sit almost 10 points ahead of the overall market. More room to Zoom Assuming Australia continues to manage the virus successfully, we will continue to see an exuberant return to physical retail spaces. However, we have now been living, working and shopping differently for a year. It is safe to say that customers have changed as a result of this experience by breaking old habits and loyalties and forming new ones. Yet only time will tell just how much we have changed. Customers of all generations have embraced online shopping for more categories and more of their spend, which has been driven not only by non-essential stores closing and people avoiding busy spaces but also by the shift to working from home. With more people around to receive deliveries, online shopping has become even easier. It has made it possible to order perishable goods such as fresh produce and thereby unlocking new categories for the online shopper.  Given the expectation that working from home will continue, and that people have formed new enduring online shopping habits, we expect that much of this e-commerce growth will stick. While some consumers will revert to their pre-pandemic behaviours, at least half of Australian consumers recently surveyed stated their desire to continue their new online shopping activities. Digital and physical merge Lockdowns virtually transformed the role of online retail overnight. Digital and multi-channel experience investment cases all across Australia clicked over to ‘‘green light’’ status. Agility was embraced all the way to the boardroom, and the industry innovated and experimented at lightning speed. And now that we have reopened, digital is also playing a critical role in enabling shopping and experiences to be Covid Safe. The line between physical and digital is now blurred to the point of being inextricable. We have wanted to say for a while that e-commerce is just commerce, and now that is true in Australia. Consumers are doing as much as possible through digital and contactless channels, even when shopping in-store.  Three growing trends that fuse the digital and physical shopping experience include: Click-and-collect. This service has jumped as a result of physical retail lockdowns and evolved to include contactless options such as drive-and-collect, in which staff deliver goods directly to a customers’ car. Click- or drive-and-collect merge the online and offline worlds by bringing shopping journeys that started online to the physical store, in turn highlighting to people entering the store the convenience of online shopping. It was great to see retailers such as Ikea, Bunnings and Harvey Norman, which have been slow to embrace e-commerce, begin offering the service. As we’ve seen globally, click-and-collect has the potential to remove frictions in the online shopping experience by reducing the cost, uncertainty and time for home delivery.  Same-day deliveries. Having this option brings physical shopping’s instant gratification to online retail. The explosive growth of on-demand food delivery and ride-sharing in Australia made these services a resourceful option for retailers as they faced lockdown. Food delivery companies started delivering non-food retail categories. DoorDash, for example, announced a partnership with The Reject Shop to offer same-day deliveries. Ola, DiDi, Uber and 13cabs also entered the parcel delivery scene.  Digital payment. This was an instant winner. Consumer engagement and momentum for digital payment was robust going into the pandemic but took a giant leap as merchants discouraged the use of cash, based on hygiene grounds. Digital payment in physical stores removes some people’s concerns about the security of digital payments. Being able to test the option offline, confidence in payment security will likely increase online. This should expand the online retail customer base to include older consumers who, as a high-risk group for the virus, have much to gain by shopping online.  Playing catch-up behind the scenes Our challenge now is to re-establish order, stabilise and secure newly introduced processes, and bring forward e-commerce and digital investments by five years. We need to deliver the customer experience planned for 2025 today. Until now, many retailers have struggled to justify the scale of investment required to deliver world-class digital and e-commerce experiences. In large part, this has been due to sub-scale online operations and the cost of last-mile delivery. Traditional retailers looked at profit by channel rather than the end-to-end customer experience.  The five-year leapfrog in sales as a result of the pandemic changes this. If the level of penetration sticks, retailers believe the scale of online penetration will increase by almost 40 per cent in one year. The growth in click-and-collect and improved last-mile delivery drop densities will also reduce the cost of delivery.  The mindset of retailers is the biggest barrier to catching up. A sale is not either online or offline; most are a messy combination of both. We know this, yet we have not meaningfully adapted our financial measures and incentives to acknowledge it. As a result, in many born-physical retailers, it is nigh impossible to stand up a business case to transform. A mindset change is required to take a customer lens rather than a channel lens to performance measures to win online post-Covid.  This was originally published in the 2021 Australian Retail Outlook. To download the report, click here.