E-commerce and the Wheel of Consumption

2020/04/01

The economic impact of the coronavirus crisis is without precedent in the last 100 years. The situation we are facing is therefore as unfamiliar as it is volatile. We can expect, however, that this crisis will change the behavioral habits of people and companies alike, for example with regard to telecommuting, online learning, and e-commerce.

by Fernando Aparicio, Professor of Systems and Information Technology at IE Business School.

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The digital economy may be the area best positioned to emerge stronger from this crisis, with e-commerce driving changes in traditional consumption patterns. During the first few weeks of the outbreak, we have seen an exponential increase in the demand for consumer products—particularly food and beverages—as well as various other irrational behaviors typical of national emergencies, such as the hoarding of essential products.

It is also clear that the lockdown instituted to mitigate the health crisis will boost online shopping as an alternative to brick-and-mortar stores. Amazon and other delivery services, as well as the online operations of the world’s largest retailers (Target, Walmart, El Corte Inglés, Mercadona, Carrefour), are straining to meet the exorbitant growth in digital demand. As people accept the notion of avoiding crowds in order to prevent the spread of the virus, e-commerce has emerged as an efficient alternative.

New consumption patterns

In a second phase, which we are likely to enter in the coming months, online consumption will be affected by the radical impact of declining demand throughout the economy. The lockdown will minimize purchases of everything except essential goods and job destruction will limit purchasing power.

The possibility of the virus spreading throughout the logistics chain might be another crucial limiting factor. Pressure on Amazon to shut down its activity due to the fear of contagion in its warehouses, for example, prompted the company to halt e-commerce shipments of all but the most essential products, hampering digital operations in every other sector.

In the medium term, uncertainty regarding the duration and magnitude of the unfolding crisis makes it difficult to put forth any sort of forecast. It seems clear, however, that this may not be the last health crisis, so certain behaviors are probably here to stay.

Accelerated e-commerce development

The likely result of this crisis or slowdown will be a decline in brick-and-mortar retail coupled with an increase in e-commerce. The population segments most reluctant to shop online—especially people over 60 years of age—will be forced to convert to a digital shopping pattern.

The advantages of e-commerce will become increasingly evident to newcomers, driving even faster and more strategic development for all businesses. Companies will discover that the hefty sums they once devoted to trade missions, trade fairs, and exhibitions can be reallocated to digital versions of the same. This shift towards digital also means considerable savings on travel and, no less importantly, the alleviation of environmental problems.

Consumption: the backbone of the economy

A number of challenges lie ahead. The coronavirus drama will force individuals and companies alike to adapt to a scenario that may challenge globalization as we know it and accelerate the protectionist tendencies of many countries.

Under such a scenario, societies will have to seriously consider overhauling their income models and introducing an increasingly resonant model—unconditional universal basic income (UBI)—to guarantee the minimum maintenance of a global economy based on household consumption.