Did our online binge during lockdowns forever change how we shop for goods and services? Five debates for investors to watch in 2021.
As the COVID-19 pandemic took hold in 2020, the Internet served as a critical lifeline as many of us turned to the safety of the online world. We ordered groceries, not just take-out, bought clothing we couldn’t try on for size, streamed movies we might have preferred to watch in a theatre, or binged on videogames during long days of lockdown.
But now, as the vaccination drive gathers speed, will those behaviours stick or will we go back to our old habits and real-world experiences? The answer depends on the subsector, but regardless of the short-term rebound, COVID-19 has no doubt accelerated a transition to new digital behaviours.
Here are five areas of debate for 2021, along with some potential outcomes:
Before COVID-19, some consumers may have resisted letting a stranger shop for their groceries, or felt leery of buying clothes they weren’t sure would fit. But the necessity of at-home shopping drove consumers to embrace the convenience of ordering goods online with rapid delivery. We now estimate that the pandemic fast-forwarded e-commerce adoption by three years.
Could reopening reverse that trend? We don’t believe so. We do expect slower growth in 2021, with consumers eager to spend again on experiences such as travel and restaurants, but the rising trendline for online adoption should continue. We estimate that e-commerce grew by about 40%, or US$240 billion, in 2020—three times more than in 2018 and 2019. For 2021, after accounting for the anticipated release of pent-up spending for travel and other live experiences, we expect e-commerce to grow by roughly 9%.
It’s also worth noting that post-pandemic retail could be a shadow of its former glory. My colleagues Richard Hill (real-estate investment trusts), Kimberly Greenberger (apparel sector) and Simeon Gutman (hardlines, broadlines and food retail sectors) estimate that malls could shrink anywhere from 25%-45% of their square footage over the next 5-10 years, due to COVID-related business pressures and the growing adoption of online shopping.
The battle lines for last-mile logistics—getting packages from a delivery hub to the consumer—are forming. Increasingly, consumers expect on-demand (same day or 90-minute) delivery for their online orders, fed by the surge in e-commerce and food delivery services that bridge brick and mortar retail with online shoppers.
Shared mobility, e-commerce, food apps and grocery delivery leaders have already opened up a significant total addressable market—perhaps as large as $2.6 trillion in offline U.S. consumer spending. Execution and real-time tracking will matter and the platforms with subscription offerings and product bundles could see an advantage in the race to drive retention/frequency.
Last year also pulled forward about four years of video-game user growth, adding a higher percentage of U.S. players in 2020 (31%) than in the previous three years combined. Other key metrics of video-gamer behaviour, such as time spent and in-game revenues, also surged.
Looking ahead, we believe that it will be increasingly important for video-game publishers to keep their new and existing in-game content fresh (updates, new adventures) to engage these players as the real world reopens. Publishers’ ability to personalise in-game experiences, new content and items to purchase, based on player data, could also yield difference levels of performance, as consumers have more options for what to do with their time.
As the U.S. moves to reopen, the line between hotels and home-sharing platforms could blur even more. Even amid the pandemic, 2020 saw an increase in first-time bookings for alternative accommodations, possibly due to the desire for socially distanced lodging options. Additionally, survey data from AlphaWise, the proprietary survey and data arm of Morgan Stanley Research, suggests that Gen Z and Millennials are twice as likely to choose short-term housing rentals for vacations vs traditional hotels, in what may be a multiyear demographic swing.
We expect this trend to disrupt the roughly US$800 billion global lodging market, benefiting both pure-play alternative accommodations platforms and general booking sites with exposure to short-term housing rentals.
The roughly 7% of nominal U.S. GDP growth combined with strong e-commerce growth could be strong tailwinds for online advertising, leading to 20% overall ad growth this year, vs. 16% in 2019 and 11% in 2020.
One key reason: Lockdowns changed ad buyer behaviour. As more of their audiences moved to online platforms with powerful tools to target specific segments and measure return on investment, advertisers grew more willing, and perhaps felt more urgently the need, to experiment and shift spend toward digital channels. We see this as a key driver of online ad growth for years to come.
Shopping via social media also matured in 2020. A survey we conducted last fall with AlphaWise highlighted how a rising percentage of Americans are now shopping through social networks. In particular, the growing popularity of short-form social video platforms, combined with advertisers’ increasing interest in reaching video audiences, could help these platforms find novel paths to monetisation.
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