The online rush is on — and the test now is to see if the sector can handle it.
Some brands are offering huge discounts. Others are providing free shipping while brick-and-mortar locations temporarily shut down. That means the capacity for online shopping will be tested in the coming weeks as Internet orders surge.
“This is Amazon’s big moment,” said Gerald Storch, founder and chief executive officer of Storch Advisors, a consumer advisory firm, and former vice chairman of Target and ceo of Hudson’s Bay Co. Inc.. “This is where Amazon shines. They’ve built a whole supply chain to do this.”
That’s partially true. Amazon has moved into nearly every sector of modern life in the last decade — food, fashion, electronics, streaming and basic essentials, to name a few. It bought Whole Foods in 2017. The following year, the company bought PillPack, an online pharmacy. Last summer, Amazon launched its own personal online styling service. There’s talk of the online retailer moving into luxury fashion.
But even e-commerce giants like Amazon need help.
Earlier this week, in the wake of the coronavirus pandemic, Amazon said it is hiring 100,000 people, both full and part time, to work in fulfillment centers and transportation operations, such as people delivering packages, throughout the U.S. That’s a $350 million investment around the globe with the goal of helping people further socially distance themselves.
Then, later in the week, Amazon said it was banning warehouses from stocking nonessential items in warehouses through April 5, so that they could meet the unprecedented demand to restock supplies.
In the midst of this, online shopping is roaring. In 2019’s fourth quarter, e-commerce represented 11.4 percent of all retail sales in the U.S. That’s more than $158 billion of the $1.38 trillion spent, according to the U.S. Census Bureau. Compared to 2018’s fourth quarter, e-commerce sales rose 16.7 percent year-over-year. On an annual basis, online shopping is about 16 percent of total sales. Basically all of retail’s growth is coming from the Internet.
Now the numbers are going even higher.
Craig Johnson, founder of consumer growth partners, a private equity investment and advisory firm, estimated that online shopping will jump to about 20 percent in the coming weeks. (Normally, the needle only increases about half a point a year.)
But both Johnson and Storch said there’s a caveat: the majority of those sales will be in food and other household essentials.
“The consumers’ mind is on the coronavirus,” Storch said. “People are not going to be focused on apparel. If you’re not going to events and you’re not going to the office, and you’re not going out, why would you need fancy clothes?”
The big winners, then, will be the mass merchants, such as Walmart, Target, Costco and CVS.
“Amazon is the biggest benefactor, there’s no doubt whatsoever,” Storch continued. “But there’s an opportunity for all of the retailers that are suddenly shutting their bricks-and-mortar stores. But the opportunity will have to be online.”
Convincing shoppers to buy more clothes online — amid a crisis and while quarantining at home nonetheless — will be tough, even with expansive online businesses already set in place. Some companies and brands have taken to sharp discounting. Macy’s, Kate Spade, Coach, American Eagle Outfitters, Abercrombie & Fitch, the Gap, Chico’s, H&M and Men’s Wearhouse have all had massive discounts on their web sites in the last week. Kiehl’s, Levi’s and Sephora are offering free shipping during their store closures.
Then there are off-pricers like T.J. Maxx, Marshalls and Ross Stores, which are heavily store-centric. In the short-term, anyway, they will likely take the biggest hit.
“The best those apparel retailers can hope for is to come out flat,” Storch said. “We’ve basically missed an entire season.” He added that there might be a slight uptick in things such as basics and loungewear at the big-box retailers that offer clothing, including Target and Walmart.
“People will go there for food and they might look through the clothes if they need something,” Storch said.
Meanwhile, other concerns abound. Such as will sending millions of restaurant and service industry workers home — cutting some of them off from income altogether — in an effort to socially distance them, only to rehire them in warehouses really solve the problem? It’s still unknown exactly how COVID-19 is spread. What officials do know is that it is highly contagious.
Johnson said this shouldn’t be a problem, given the density per person of warehouses, compared with say an office setting.
“If you’ve been in a warehouse, you won’t likely see a lot of people milling around together,” he said. “The way Amazon manages things, it’s heavily automated and with robotics. You still have to have humans there. You just don’t need a million humans.
“The counterpoint is the office,” Johnson continued. “It used to be that everyone had little offices or well-defined cubicles with little walls. Now the trend is toward these open spaces. Well, that’s a perfect way to start spreading germs if someone is coughing or hacking or sneezing.”
Even so, warehouses and distribution centers are not immune to the virus. Just this week, an Amazon employee in its Queens, N.Y., distribution center tested positive for COVID-19. The employee is currently in quarantine and the warehouse is now open after a temporary closure, the company confirmed.
The news comes after reports that Amazon workers in Europe and Brazil have contracted the virus.
Along the Italian countryside, some Amazon workers are now protesting that the company has allegedly been ignoring safety measures in the wake of the ongoing pandemic. (Italy, along with much of Europe, is currently in lockdown until at least March 25.)
A provision in French labor laws says that workers are allowed to stay home — without fear of losing their jobs — if they think their workplace is unsafe. U.S. workers do not have the same protection, although companies with unions can negotiate their own rules.
Amazon logistics workers began circulating an online petition, asking for further protection against coronavirus.
“Despite large workloads, Amazon continues to enforce and raise productivity quotas,” the petition read. “As Amazon employees, we are concerned about the company’s current lack of protective measures.”
A spokesperson for Amazon said the company has increased its cleaning efforts and is working to “maintain social distance” for employees in warehouses. The spokesperson would not comment on the number of applications received for the 100,000 jobs, or whether job applicants have expressed fear of working in Amazon facilities.
Meanwhile, governments around the world continue to encourage social distancing. Just how long it will last is unknown.
But if the situation does draw out, Johnson said more people will start shopping for clothes online simply out of necessity. And for some of them, the habit will stick.
“Let’s say if a company — like Gap or Ann Taylor or Express — has 35 percent online penetration and during this thing it goes up to 50 percent penetration,” he said. “I can guarantee that a certain number of those people in that 15 percent are going to last and be ongoing online shoppers. Not all of them, but a good number of them. Once they’ve tried online shopping — because they had to — for a certain amount of those customers it’s going to stick.”