- Experts say the 2003 SARS epidemic played a valuable role in shaping consumer shopping habits and highlighting how valuable online shopping could be, which ultimately helped to propel China’s e-commerce market forward.
- In 2003, e-commerce was still in its infancy in China but in the decade that followed, it grew at a rapid pace, overtaking the US in 2013.
- In the past few months, parallels have been drawn between the impact that SARS had on China and the impact that coronavirus is having on the US.
- Online sales have surged during the lockdown and experts are now wondering whether this will stick long-term and who’s best and worst positioned if it does.
- Visit Business Insider’s homepage for more stories.
When the 2003 SARS epidemic struck, e-commerce was still in its infancy in China.
Online superpower Alibaba existed only as a business-to-business marketplace for US buyers looking for Chinese suppliers and JD.com, its main competitor, merely consisted of a dozen brick-and-mortar electronics stores in Beijing with no online presence.
Major cities around China turned into ghost towns as millions of people were trapped at home for days and weeks on end shielding themselves from the virus.
This period is often seen as a turning point for these two companies, and for the e-commerce sector in general in China, as it played a valuable role in shaping consumer shopping habits and in showing JD.com and Alibaba executives just how valuable online shopping could become.
The rapid rise of online shopping wouldn’t have been possible if other factors weren’t at play, however. Specifically, that SARS coincided with the increased availability and falling cost of broadband connections, which bought the internet into more people’s homes after previously being reserved to internet cafes and offices.
It “came to represent the turning point when the Internet emerged as a truly mass medium in China,” Duncan Clark writes in his book, “The House That Jack Ma Built,” which tells the story of the rise of Alibaba.
It “convinced millions of people, afraid to go outside, to try shopping online instead,” he said.
JD.com, or as it was formerly known – 360buy, saw sales quickly plummet and was forced to shutter stores when the SARS epidemic hit. When this happened, founder Richard Liu started to ship electronics directly to customers and took the company online in 2004. Liu admitted in a 2012 interview with The Financial Times that he “wouldn’t have entered e-commerce hadn’t it been for SARS.”
“SARS marked a new era,” and “set the scene for the take-off of e-commerce,” Clark said in an email to Business Insider.
At that time, Alibaba was spurred on to launch Taobao, a consumer-to-consumer marketplace that is often compared to eBay and that would become paramount to its future success. “Alibaba’s business grew 50% that year and was seeing daily revenues skyrocket,” Brian Walker, chief strategy officer at digital commerce experience software provider Bloomreach, wrote in an email to Business Insider.
“At the time, the number one e-commerce marketplace in China was eBay, but within two years, Alibaba was #1, and JD.com #2.
“The rest is history,” he said.
In the decade that followed, China’s e-commerce market grew at a rapid pace, overtaking the US in 2013, to become the world’s largest. Today, online retail sales in China make up around $1.5 trillion a year. By comparison, the US sees around $600 billion in online sales.
Over the past few months, experts have drawn parallels between the impact that the SARS epidemic had on China nearly two decades ago and the impact that the coronavirus pandemic is having on the US currently.
Online sales have surged in the US in the past few months as shoppers that are trapped at home, or unwilling to visit stores, shift to shopping online in droves. Experts are speculating as to whether we will begin to see a permanent shift in consumer shopping habits after the country emerges out of lockdown and ultimately whether this will turbocharge the already growing e-commerce market in the US over the next few years.
‘The growth we’re seeing is unlike anything we have seen since the early days of the Internet’
Before COVID-19 hit the US, online retail was in growth mode – rising gradually over the past decade to account for 16% of total retail sales in 2019.
But since stay-at-home restrictions have been in place, online sales have surged. According to Adobe’s Digital Economy Index, e-commerce sales were up 49% in the US in April versus early March before the lockdown started.
E-commerce marketing platform Klaviyo said that it’s anticipating the sector to top more than $1.1 trillion this year based on data from Digital Commerce 360, whose pre-pandemic estimate for online sales in the US for the year was $691 billion. That translates as a nearly 60% increase of what was previously expected.
“There’s no doubt that COVID-19 is propelling the e-commerce market in the US,” Walker told Business Insider. “The growth we’re seeing is unlike anything we have seen since the early days of the Internet.”
The US online grocery sector has been one of the biggest beneficiaries of the coronavirus-driven shift to online commerce. Before the pandemic started, online grocery sales in the US accounted for a small portion of overall sales – around 3% of grocery spend occurred online and around 10% of US consumers were using these services frequently. In a recent deep-dive into the industry, Business Insider Intelligence estimated that by the end of June 2020 as many as 43% of US consumers will have purchased groceries online, up from 24% at the start of the year.
The spike in online grocery sales has already seen some of the major players in the market – Amazon, Walmart, Instacart, and Target – scramble to meet demand in recent months.
In a recent interview with Credit Suisse, Instacart president Nilam Ganenthiran compared the demand on its app during the month of April as being the equivalent of Black Friday every day. “We are now achieving our biggest days every day,” he said, adding that order volumes were at levels that the company had previously forecasted for the next two to four years.
Consumer shopping habits are ingrained in the US
When SARS hit, China was in a completely different position to that of the US pre-COVID-19. Alibaba’s consumer-facing Taobao launched during the SARS outbreak when consumers were trying out online shopping for the very first time.
It “was more of an embryonic, fast-growing consumer economy,” Neil Saunders, managing director of GlobalData Retail, told Business Insider. “That meant changes and habits were established very quickly and there were lots of opportunities for companies to exploit.”
Meanwhile, the US is considered to be a mature retail market where consumer shopping habits are ingrained and the default retail model is still brick-and-mortar. So while the online market has been growing, there is less room for explosive growth.
It’s also not yet clear whether Americans will keep clicking to buy once lockdown restrictions ease.
“The honest answer is some of it will [stick] and some of it won’t,” Saunders said. “The idea that e-commerce penetration will remain at the levels seen when almost all non-essential stores were closed is a non-starter. However, there is also no doubt that online penetration will be higher than it was before this crisis hit.”
Much of this depends on the user experience and whether online providers can offer a smooth shopping experience to keep these shoppers loyal. This will be especially important for non-traditional e-commerce players, who have the added pressure of adapting their business model and infrastructure to meet this new demand.
While the larger retailers had massive warehousing, shipping, and delivery infrastructure in place before the pandemic. For smaller retailers, shifting to online businesses can be costly.
“If not managed well, this could be the determining factor for the survival of traditional retailers,” Chengyi Lin, an affiliate professor of strategy at INSEAD business school, told Business Insider.
Some retailers are using ‘make-shift’ methods to meet the demand at the moment, he said: “For example, instead of digital warehouse technologies, store employees pick and pack items by hand, which is both costly and slow. These may continue to widen the gap between pure e-commerce players and traditional retailers.”
Companies that enable retailers to sell online are well-positioned
Like Alibaba and JD.com in China, e-commerce giants like Amazon have dominated the US market. But now, smaller retailers are also looking for ways to scalably shift their businesses online. And to compete, retailers need to provide consumers with the same levels of speed and convenience they’ve grown accustomed to with the likes of Amazon.
“Amazon and Shopify, as well as the merchants selling on those platforms, are clear winners because they’ve invested in e-commerce infrastructure and the right tools for quite some time already,” Ker Zheng, an international marketing and partnership manager at Azoya, which helps international retailers expand into China, told Business Insider.
E-commerce enabling players, like Shopify, for one, are well-positioned to grow as the tech platforms that power smaller retailers.
Shopify has long been known for powering the online stores for brands like Allbirds, Bombas, and Rebecca Minkoff. It offers plug-and-play platforms to launch e-commerce websites and in-store point-of-sale tech. As of 2019, Shopify supports over one million merchants.
And Shopify has been on a product launching spree. In the last month, it rolled out a new point-of-sale that helps brick-and-mortar retailers adapt to omnichannel sales — meaning a seamless experience between online and in-store shopping. It also launched a consumer-facing brand discovery app called Shop and a business bank account for its merchants.
While Shopify’s merchants saw in-store purchases decline by 71% between March 13 and April 24, they were able to make up 94% of those lost in-person sales with online transactions, according to Shopify’s first-quarter earnings. Shopify’s stock is up 50% at $730 since the beginning of March.
Not-so-glamorous delivery and fulfillment tech are an area to watch
Beyond helping merchants launch online stores, startups that offer back-end retail tech, from warehouse management and order fulfillment to one-click checkouts, are also well-positioned to gain customers.
“Anyone that can streamline your backend is going to be super well-positioned, and there aren’t many of them,” Steve Sarracino, founder and partner at Activant Capital, told Business Insider.
Sarracino’s investing focuses on commerce infrastructure, which was a well-established space for incumbents and startups, alike. Activant’s portfolio includes companies like one-click checkout startup Bolt and payments-as-a-service fintech Finix.
Now, Sarracino is expecting investors to start eyeing the space a bit sooner than anticipated. Fast, another one-click checkout startup, raised $20 million in March. And payments players AvidXchange and Stripe both raised capital in April.
“I don’t think there’s going to be any cataclysmic change on the e-commerce tech side. It’s just going to really compress what we thought would be a 40-year run,” said Sarracino.
“I was looking at the next 10 years of investing in some of the best assets, and now we only have two or three years before everyone else is going to catch up, if they haven’t already, in terms of other investors.”
Social media platforms, too, are eyeing online shopping
Social media, too, has become an increasingly important way for retailers to reach consumers. And while advertising and influencer marketing spend has dropped amid the coronavirus pandemic, these platforms still have massive user bases and are looking for ways to monetize beyond advertising.
In May, Facebook launched Shops, where retailers can set up online stores on the platforms (both on Facebook and Instagram) where users can shop without having to leave the apps.
While shopping directly on social media hasn’t yet caught on in the US, in markets like China, live commerce on social media platforms is surging. Apps like Alibaba’s Taobao, China’s largest e-commerce platform, and Douyin, the Chinese version of TikTok allow brands and influencers to stream video featuring products for sale, from apparel to cosmetics to food. And influencers’ effectiveness can easily be measured through user engagement with the videos and real-time purchasing in the apps.
“It allows someone who already has an audience to now monetize that outside of traditional brand sponsorship or ads,” Connie Chan, general partner at Andreessen Horowitz, told Business Insider.
China’s mobile-centric market paved the way for these app-based live streams to catch on. While the US is still a very PC-centric market, social media apps are well-positioned to enter the live commerce space.
And the entertainment factor is key, Chan said. Live commerce is not typically designed for users to search for specific products. Rather, it’s more like the experience of window shopping in a mall.
“Live streaming is a very natural evolution of that because it is doing something that’s transactional in nature, but making it very entertaining,” Chan said.
While timelines for the adoption of live commerce in the US are unknown, it’s clear that it could be a natural next step in the changing ways that consumers shop.
Read more:
- Here are 8 companies, from giants like Shopify to seed-stage startups, that are getting a massive boost as shops and restaurants embrace curbside pickup
- Shopify’s CEO says his team had to ‘delete’ all existing plans amid COVID-19 because the future of retail just arrived 10 years early
- Dollar General’s strategy was to go where Walmart wasn’t, and it’s paid off massively during the pandemic
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