This year, I’m going to take my own advice and stick to what academics do best – asking big questions that don’t have clear answers. I’ll start with a particularly interesting one that has strong voices on either side: what proportion of sales will be online in 2022?
Last year, I interviewed Jonathan Reeves from Eagle Eye for my Shopology show and he predicted that online would account for half of retail sales by 2030. In fact, he was predicting that as early as 2017, when online was under 5 per cent. Now it doesn’t seem so far out of reach. We’ve all seen the massive increase in online shopping, and those of us in Melbourne have lived with it as our only method for most of the year. We’ve also heard the discussions about Covid-19 and lockdowns merely speeding up the existing growth of online, whether that be by two years, five years, or somewhere in between.
Yet we’ve also seen consumers in locked down states line up for hours to access physical retail as it reopened. We’ve heard that online will ‘regress to the mean’ with time. So which is it? Will online keep growing? Or will it shrink back to early-Covid or even pre-Covid levels? Well, it’s a complicated question with multiple factors at play. So let me dive into some of the reasons online shopping may shrink, and some others why it may grow, to see if we can make sense of it all.
Why online will shrink: the end of lockdowns
Covid, and particularly lockdowns, have clearly affected online shopping. The ABS Retail Trade data shows a clear pattern. Pre-Covid, online sales were around 5-7 per cent of the total industry and were increasing around 1 percentage point a year. Then, in April 2020, as restrictions started, they jumped to 11.1 per cent clearly showing the impact of Covid restrictions. This rate then stayed between 9 per cent and 11 per cent through 2020 and the first half of 2021, increasing when large states went into lockdowns, and then decreasing again when restrictions eased.
Recently there has been another spike. In the ABS’s latest figures for September, online sales accounted for 15.3 per cent of the industry, and 25.5 cent for non-food categories. This correlates with arguably the harshest restrictions on retail across the country. So, the ABS Retail Trade data shows the clear impact of lockdowns and general Covid restrictions. At times when restrictions increased, so did online shopping. Conversely, as restrictions eased, the online share of retail trade shrank. So, this suggests that as we move towards post-Covid (hopefully for real this time), we will see online shrink as well.
But there’s more to the story.
Why online will grow: consumer trial
As I’ve written about previously for Inside Retail, we humans are quite habitual creatures. Given the option, we generally like sticking to behaviours we have done before – with a few variety-seeking experiences sprinkled in. There are a few reasons for this. It’s mentally easier, as we don’t have to decide how to do something every time. We also learn and become better at doing something the more we do it. So, we tend to develop relatively strong preferences and habits that can be hard to break.
This tendency towards repeating behaviours applies to the channels we shop through as well. A large-scale academic study1 investigated how consumers’ channel choices evolve over time, and what influences these changes. They found that when consumers first approach a new shopping option, they do so in a trial phase. In the trial phase, consumers experiment with different ways of shopping and are quite influenced by external factors like marketing. With experience, consumers move to a post-trial phase where their preferences become stronger and they are less likely to change through external factors or influence.
This is quite relevant to the state of online shopping. Covid forced many consumers to trial new ways of shopping they may not have otherwise. For example, many of us had to break out of established habits and try online or click-and-collect options for the first time. In some cases, those experiences have been positive and could lead to permanent changes in behaviour. Personally, I so enjoyed having Who Gives a Crap delivered and avoiding panic buyers that we now do all our toilet paper orders online.
The result could be many consumers permanently converting to online shoppers in new categories. So beyond just accelerating the existing growth of online, Covid may have fundamentally changed it, by breaking consumers out of their existing habits and forcing them to trial online options. Chalk this one up as a point for online growth.
Shrink: revenge shopping
While some consumers have had positive experiences with new online ways of shopping, many others have not. Shipping and delivery delays have been well documented, and have led to many frustrated consumers. I’ve become conditioned to expect online deliveries to take 2-3 times longer than quoted. The idea of just walking into a store and buying something myself sounds appealing by comparison.
Similarly, many consumers will have missed the social and experiential aspects of physical retail. As we know, retail is so much more than buying things. It’s the experience of doing so, the interactions with staff, the social aspects, and so on. All these things are nearly impossible to replicate properly online, and many consumers have missed them.
So, we’ve seen what is being called revenge shopping – consumers who have been stuck at home with no one to see and nowhere to travel treating themselves through lavish purchases. Coupled with the challenges many consumers have experienced online, we could see a big swing back towards physical retail environments particularly over Christmas. Point to shrink.
Grow: retail investment
Finally, it is not just consumers who have had to adapt. Retailers of all sizes were forced to quickly ramp up their online offers and fulfilment options. It quickly became apparent which brands were behind the curve, with some having to enlist digital queues to catch up with demand, and others frequently unable to process orders. At the same time, brands like JB Hi-Fi were already well positioned, and set record sales as a result.
The overall quality of e-commerce offers from Australian retailers improved. Many now offer click-and-collect options that never did before. Innovations like Providoor emerged and found a valuable niche that looks set to stay. Even small brands invested in social presences to reach a broader network of customers.
This investment means Australian retailers are now better placed to facilitate online orders, and can even push these options more widely to consumers. This could have a positive circular effect on online sales, as consumers are increasingly encouraged to shop online and have an increasingly better experience doing so.
So, another point to the ‘grow’ prediction.
Final score: a draw?
In trying to unpack the major factors at play that will impact the growth or decline of online for 2022, we’ve arrived at a draw. Two reasons it may grow, two reasons it may shrink. So what’s the answer? Will online grow or shrink in 2022? Well, going against my own advice, I’ll make a prediction and say – both. Looking at the trends, it will have to shrink from its September level due to lockdowns ending, and consumers wanting to get back in store for holiday shopping. But, I also see the rate of growth from that point being quicker than pre- (and even during) covid levels, due to permanent shifts in consumer behaviour and increased retailer investment.
So what exact per cent will online reach in 2022? Could it climb back to 15 per cent, or even above, before the end of the year? I’ll leave that prediction to others, like Jonathan Reeves, but I can’t wait to find out!