The COVID-19 pandemic has disrupted brick-and-mortar retail while improving dynamism in e-commerce across countries and has expanded the scope of e-commerce by shifting from luxury goods and services to everyday necessities. With the advent of m-commerce, social commerce and metaverse, e-commerce is going to be more interactive and fashion brands that do not invest in enhancing shopping experience will be at risk of losing their way.
The e-commerce channel has registered double-digit year-over-year growth for the last two years. In addition, the pandemic has boosted digital transformation in developing countries. Today, the use of digital solutions has become an essential element for the expansion of e-commerce, making remote economic and social activities possible. However, digital transformation needs to be properly addressed as the growth of e-commerce is subdued in many developing countries by a range of barriers in infrastructure, finance, resources, and government policies which results in even greater inequalities within countries.
The COVID-19 pandemic proved to be a changing point for brick-and-mortar retail, restating the need for continuous innovation to adapt and pass-through complications. The lockdown and the travel restrictions amid the pandemic accelerated digitisation and provided a boost to e-commerce. Compared to the brick-and-mortar model, e-commerce enjoys several advantages such as doorstep delivery, various digital payment modes, speed, data-driven consumer insights, and more. Hence, e-commerce epitomises convenience, flexibility, and cost-effectiveness. As e-commerce doesn’t require an investment into offline infrastructure, it has provided an opportunity for several entrepreneurs to adopt an e-commerce-only model for their small-scale companies.
As per UNCTAD data estimated from 66 countries, the average share of internet users who made purchases online increased from 53 per cent before the pandemic to 60 per cent following the onset of the pandemic i.e., during 2020 and 2021. With lockdowns becoming the new normal, businesses and consumers increasingly went digital and purchased more goods and services online, raising e-commerce’s share of global retail trade from 14 per cent in 2019 to about 17 per cent in 2020. The proportion of individuals worldwide engaging with the internet is estimated to have risen from 29.3 per cent in 2010 to 53.6 per cent in 2019. Global Internet Protocol (IP) traffic, a proxy for data flows, grew from about 100 gigabytes per second in 2002 to some 88,000 gigabytes per second in early 2020.
However, the situation prior to the pandemic and the extent of the boost to online shopping experienced vary among various countries. While many developed countries already had relatively high levels of online shopping (above 50 per cent of internet users) before the pandemic, most developing countries had a lower uptake of consumer e-commerce.
China currently makes more than one-half of global retail e-commerce sales of goods and services. It continues to lead the global e-commerce market, accounting for 52.1 per cent of all retail e-commerce sales across the world, with total online sales of more than $2 trillion in 2021. It also has the world’s most digital buyers, 824.5 million, representing 38.5 per cent of the global total.1
According to the United States Census Bureau’s Annual Retail Trade Survey (ARTS), e-commerce sales increased by $244.2 billion or 43 per cent in 2020, the first year of the pandemic, rising from $571.2 billion in 2019 to $815.4 billion in 2020. The US e-commerce market is forecast to reach over $875 billion in 2022, a little over a third of China’s. After China and the US, the third-largest e-commerce market is the United Kingdom, taking up 4.8 per cent of the retail e-commerce sales share. The UK is followed by Japan (3 per cent) and South Korea (2.5 per cent).
The new decade has seen an increasing shift from offline to online buying. In the Middle East and North Africa (MENA) region, e-commerce grew faster than anywhere else in the world with an estimated 209 million consumers transitioning to online shopping during the peak of the pandemic. MENA’s market is expected to reach $49 billion in 2022. Latin America saw $85 billion in e-commerce sales in 2021, up 25 per cent from $68 billion in 2020. Russia, the UK, and the Philippines saw more than 20 per cent e-commerce sales growth in 2021. Indian e-commerce market is expected to grow to $111.4 billion by 2025, up from $46.2 billion in 2020.
The global e-commerce market is expected to total $5.55 trillion in 2022. This figure is estimated to grow further over the next few years, showing that cross-border e-commerce is becoming a lucrative option for online retailers.According to International Trade Administration (ITA), e-commerce’s share was only 13.6 per cent of total global retail sales in 2019. This share is expected to reach 20.4 per cent in 2022.
One of the most noticeable trends in the world of e-commerce is the unprecedented use of mobile devices. M-commerce, or mobile commerce, involves shopping online through a mobile device, like a smartphone or a tablet. In other words, it is a full-fledged online purchase, which is most convenient to make from a mobile device and acts as the main user interface for several services. M-commerce will continue to evolve over the next few years with technological advances like branded shopping apps, 5G wireless, and social shopping making it easier for people to shop on their phones. As the deployment of mobile devices is rapid, especially in regions where there is no other digital infrastructure, mobile integration will continue to enrich the shopping experience in the future. M-commerce is especially popular in Asian countries where up to 65 per cent of total online transactions are generated through mobile traffic.
In 2021, mobile shopping from Shopify merchants captured 71 per cent of online sales via mobile over Black Friday Cyber Monday (BFCM).2 In 2022, smartphone retail e-commerce sales are expected to pass $432 billion, up from $148 billion in 2018. Mobile shopping apps are becoming more popular amongst retailers and shoppers, with one in five US shoppers reporting using them multiple times per day.
The COVID-19 pandemic has substantially increased the use of digital and contactless payments. Consumers have shifted from physical cash to digital and contactless payment instruments at a record rate.
The use of digital financial services is essential for the expansion of e-commerce. In developing countries, transactions in markets with underdeveloped digital financial services have to rely on cash payment upon delivery, which raises the risks and costs of e-commerce. The whole of Asia-Pacific, including China, is undergoing significant changes in the payment industry after the COVID-19 onset, noting a considerable development in online payment modes.
Nowadays, seamless online and offline payments are more preferred by individuals. As a result, retailers are continuously updating and improving their payment infrastructure to provide consumers with smooth shopping and payment experience. The industry is undergoing significant transformation with technological advancements to ensure digital security. With continued support from payment solution providers, the e-commerce industry has grown steadily, especially during the pandemic.
Digital payments have indeed brought a shift in consumer behaviour. E-commerce businesses are partnering with Google Pay, Apple Pay, etc to run promotional deals and discounts that aren’t found on any other platforms, and some have even begun to accept cryptocurrency as a form of payment.
Social Media Shopping
Another aspect of online shopping, social commerce sales are set to triple by 2025. While only 30 per cent of US consumers report purchasing goods through social platforms, nearly half of China’s consumers already shop on social media, generating over $351 billion in sales in 2021.
Several social media platforms took benefit of higher online retail demand by adding more trade elements and features that are enabling buyers of participating online retailers to browse and purchase products without ever leaving the platform. These platforms are normally closely integrated with e-commerce platforms so that e-commerce operators can easily promote their products in multiple locations. According to a Forbes business survey, the majority (~97 per cent) of Gen Z consumers say they use social media as their top source of shopping inspiration.3 Social commerce platforms for Gen Z include Instagram, TikTok, Facebook, and Pinterest. The hashtag #tiktokmademebuyit has more than 2.3 billion views on TikTok, and #amazonfinds has over 6.7 billion views. According to McKinsey’s Gen Z report, nearly 30 per cent of this group say an easy checkout process is important to them in making a purchase.
In 2020, social commerce made up 3.4 per cent of total e-commerce sales, and that percentage is expected to continue increasing.
In some markets, social media is becoming a preferred way of shopping and interacting with brands, as social platforms are increasingly augmented with advanced technology. Undeniably, in China, social commerce from in-app checkouts on social media platforms to sales transactions on live streams is already rising, where apps like WeChat offer various options of functions than just social networking and messaging services. Meanwhile, social media players like Douyin and Xiaohongshu have boosted their e-commerce capabilities. In 2021, sales from social commerce across all sectors in China were over $363 billion, up 35.5 per cent from the previous year. This is roughly 10 times higher than social commerce sales in the US.
Nonetheless, interest in social commerce is accelerating in developed markets like the US, where the number of consumers who make at least one purchase on a social channel in a year is expected to be 50 per cent higher in 2022 than it was in 2019, reaching 96 million customers. In the UK, where people have been more hesitant, compound annual growth rates for social commerce usage are still expected to be more than 15 per cent in 2022 compared to 2019, growing a further 9 per cent in 2023, signifying that at least 15 million people would have made a social commerce transaction during that year.
Snapchat is applying its augmented reality capabilities to facilitate users to virtually try on clothes and accessories from brands such as Prada and Piaget, while TikTok has been expanding trade partnerships and functionality, testing live-streamed shopping with selected brands. In the US, Walmart’s live stream fashion event with TikTok gained seven times more views than expected and grew its TikTok followers by 25 per cent. In 2021, TikTok announced an expansion of its partnership with Shopify including a pilot test of TikTok Shopping with select merchants across the UK, US, and Canada, which could help brands in their social commerce trajectory.
The global fashion industry experienced a severe decline in sales volume after the outbreak of the COVID-19 pandemic in 2020, whereas the digital clothing market accelerated over the year with the consumers’ acceptance of online spending. More than half of the global retail growth is forecast to come from online sales between 2020 and 2025, and around 10 per cent of digital sales are expected to be in the hands of the fashion industry during that period. Companies such as Global Fashion Group and ASOS registered sales growth of 10-20 per cent from 2019 to 2020.4
A significant proportion of countries across the world saw an increase in apparel industry e-commerce sales. For instance, in Japan, the B2C apparel e-commerce market grew faster in 2020 than between 2018 and 2019. South Korea also saw an increase in the value of its sales during the same period, with the apparel sector making the largest contribution to the country’s B2C e-commerce market in 2020. Online retail sales of apparel and accessories in the US increased year-on-year from 2019 to 2020 by nearly 19 per cent, which was the fastest growing product category.
In 2021, Shein was the most visited fashion e-commerce website followed by Nike and H&M, while online apparel sales in the US were dominated by Amazon, followed by Target. In the UK, the most popular industry players were Amazon and ASOS, followed by eBay. In Germany, online-only retailers, such as Zalando and Zooplus, were the most preferred online stores for buying apparel, and following them was Amazon, in 2021.5
Despite extensive staffing shortages and supply chain issues, the fashion and apparel industry saw $180.5 billion in e-commerce revenue in 2021, up from $145 billion in 2020. This figure is estimated to increase to $205 billion in 2022.
Several leading fashion brands have undertaken remarkable initiatives to enhance the shopping experience. For instance, Farfetch, a British-Portuguese fashion brand, has pioneered the use of digital data to personalise the shopping experience. Its new offering ‘Store of the Future’ uses RFID technology to organise customers’ wish lists based on their browsing history, resulting in advanced personalisation of the brick-and-mortar store experience. The brand plans to link augmented reality and suitable payment options to elevate the customer experience.6
According to McKinsey’s The State of Fashion report of 2022, e-commerce is expected to account for one-third of all global fashion sales by 2025, reaching 40 per cent and 45 per cent in the US and China respectively.7
The Metaverse And Interactive Shopping
Brands are wagering on virtual shopping and experimenting with augmented and virtual reality retail on different e-commerce platforms. The metaverse, a 3D virtual world, eliminates borders for shoppers. Customers across the world can experience products in a metaverse no matter where they live.
The metaverse consists of a virtual economy that includes digital currencies and non-fungible tokens (NFTs) that can be used to buy, own, and sell products. Big clothing brands such as Vans, Gucci, Adidas, Zara, H&M, and Alo Yoga are already investing a lot in interactive shopping experiences in the metaverse. These rich, 3D-driven digital spaces generate exactly the type of behaviour that every e-commerce business seeks – encourage shoppers to stay, explore and buy.
Nike, Gucci, and PVH brand Tommy Hilfiger have launched a virtual clothing collection for the multiplayer game Roblox. With the Tommy x Roblox Creators collection, Tommy Hilfiger is demonstrating its investment in providing immersive digital experiences. The entire collection, which includes 30 virtual fashion items, is available to spice up the outfits of Roblox’s avatars of users.
Adidas has launched an NFT collection with the famous Bored Ape Yacht Club and launched interactive experiences on the South Korean social avatar app Zepeto, which already counts numerous partnerships with players in fashion and cosmetics, such as Zara, Louboutin, Ralph Lauren, Gucci, Nars, and Dior Beauty and with many celebrities such as Selena Gomez and the group Blackpink. Balenciaga partnered with Fortnite on an inspired by real-life (IRL) and virtual fashion collection for real-life gamers. Balenciaga is now selling limited-edition Fortnite-themed clothes at typically high prices.
Through these collaborations, businesses are generating good revenue. For example, Gucci’s digital version of its Dionysus Bag sold for over $4,000, i.e., more than the price of the real version. And if forecasts turn out true, the sector could be an $800 billion market opportunity by 2024.
The data-driven nature of shopping in the metaverse opens enormous prospects for e-commerce companies. By applying a blend of AI technology and consumer data, fashion brands will be able to monitor a buyer’s activity, liking, and demographic profile to make data-driven decisions by offering more personalised recommendations than ever before. Browsing beyond time and space gives consumers access to an interactive shopping experience that is entirely customised according to their needs. No wonder then that business investment in the metaverse has more than doubled since 2021 and soared above $120 billion in the first few months of 2022, according to McKinsey’s new report on Metaverse.8
In the coming years, e-commerce in the metaverse is guaranteed to expand. The recent increased interest in augmented reality (AR) and virtual reality (VR) ensures the quality and fit of a product before buying. Normally, e-commerce platforms work in a “browse, choose, click to buy” process. However, the metaverse will change this to “browse, experience to buy”. This means the customers experiencing the metaverse will be able to walk around a store, view product displays, and later make purchases—all from the comfort of their own homes thereby eliminating all the boundaries present in the physical world.
Shopping in metaverse will also result in reduced return rates, as the metaverse-powered e-commerce will help customers try out products before ordering or purchasing them, and the enhanced product visualisation will ensure users make informed choices.
According to research conducted by Google, Singapore’s Temasek, and consultancy firm Bain & Co, e-commerce has become the largest industry in Southeast Asia, with an increase of 63 per cent in 2020. The research also estimates that online shopping would hit $172 billion by 2025 versus a previous $153 billion estimate. McKinsey survey showed that more than 50 per cent of European and American consumers expressed their willingness to continue adhering to their online shopping habits.
Cybercrime is becoming increasingly common in the last two years as customers are shopping online more frequently and enthusiastically, giving businesses access to valuable data in the process. The growth of cyberattacks has let companies become increasingly vulnerable to risks associated with data security, putting their reputation at stake.
In 2020, a high number of cyberattacks took place across the world, resulting in substantial data losses throughout industries.9 Fashion retail was the fourth most-attacked sector with companies across diverse kinds and value segments suffering breaches.
Events compromising the confidentiality, integrity, or availability of data in retail rose by 152 per cent in 2020 compared to 2019, and the number of security breaches rose by 33 per cent. Several textile and apparel manufacturing companies have already experienced severe attacks, such as Hudson’s Bay Company’s Saks Fifth Avenue and Lord & Taylor, which were victims of the theft of more than 5 million credit and debit card numbers in 2018,10 and Neiman Marcus, which more recently suffered a data hack on the personal and payment data of 4.6 million online customers in 2021.
The COVID-19 crisis has accelerated the spread of e-commerce and m-commerce through changes in demand from conventional business processes in international trade to e-commerce. This gave customers easy access to a wide variety of goods without leaving home and allowed companies to continue to operate despite quarantine restrictions and lockdowns. While retail e-commerce sales are likely to continue to grow worldwide, there is a requirement to build an effective mechanism to protect personal and transactional online data, because any leakage of customer information can lead to swindles such as credit card fraud. To increase customer confidence, retailers must strategically build e-commerce platforms and operate in conjunction with offline methods for supplies. If businesses want to protect their e-commerce growth in 2022 and beyond, they must support their cyber defences by reducing data risks throughout the data handling lifecycle, from collection, preparation, analysis, to disposal, and in operations covering the entire value chain.
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