COVID-19 Crisis: Ecommerce Grows as Consumer Spending Shifts

Happy Friday. In today’s briefing, we’re covering: 

Reopening guidance

Commerce and consumer spending

Advertising news

Let’s jump in. 

The top news this week, by far, was the Senate Health Committee Hearing in which four administration health officials were called for questioning about the U.S. government’s response to the COVID-19 pandemic. It was the highest-profile congressional testimony in weeks and the first-ever virtual Senate hearing with the committee chair and witnesses appearing remotely. Of those in attendance, Dr. Fauci was the most anticipated in the line of questioning. 

During which, he warned that the “consequences could be really serious” if states moved to reopen too fast, also adding that he believes the actual death toll is higher than the official figures. This hearing occurred after many states reopened over the weekend, and the White House ordered on Monday that all people must wear face coverings in the West Wing after a series of staff members tested positive. 

TL;DR: Senators were visibly frustrated at the lack of federal guidance, similar to the tension seen across the nation from the general public. On more than one occasion, committee members expressed their disappointment in not having clear guidelines for their state, grilling the health officials for a realistic plan (and help) on reopening safely.

Refresher: The White House’s “Opening Up America Again” puts the decision for reopening the U.S. on governors and local officials (likely given varying degrees of community spread). In contrast, the CDC’s guidance called for a coordinated national response within 63 pages of recommendations. The White House rejected the CDC’s reopening advice, and it seemed we are at an impasse. The CDC has since released a checklist for businesses and schools. The back and forth on the national level earlier this month is likely what pushed local officials to reopen and not renew shelter in place measures, despite health officials warning against reopening. 

On the global stage, almost every country continues to approach the pandemic and its economic challenges independently. 

By my tally, 

Wuhan, China ordered all of its 11M citizens to be tested for the virus in the next ten days after a string of new infections hits the original epicenter of the pandemic. 

Russia is reporting the second-largest COVID-19 caseload outside of the U.S.

India’s Narendra Modi announced a $300B rescue package to help soften the economic impact of the country’s lockdowns, set to end May 18th. 

Half a million Australians have lost their jobs (6.2% unemployment rate) as a result of the pandemic, but with New Zealand outlining a $50B rescue fund, the Trans-Tasman countries are on track to share a COVID-safe travel zone within the coming weeks to help fully reopen the two countries. 

The European Commission shared summer travel guidance for the European Union for allowing member states to only permit tourists in from countries “that can prove their coronavirus outbreak is under control.” More provinces opened in Spain this week, and Prime Minister Pedro Sanchez said the country’s best-case scenario is that the country can lift all restrictions by the end of June. 

A new World Economic Situation and Prospects Report from the UN projects that the pandemic will cause the global economy to shrink 3.2% just as the WHO warned this particular coronavirus might never go away. 

The Latest: Over 100 potential COVID-19 vaccines and several clinical trials are underway around the globe. 

With officials locked in disagreements over the necessary protocols for reopening, shopping patterns continue to shift. But before we get to that, the biggest commerce news from the week. 

Source: The Wall Street Journal

From The Wall Street Journal, “Retail spending fell a record 16.4% in April from March, the Commerce Department reported. And in a separate report, the Federal Reserve said industrial production fell 11.2% in April, its steepest monthly fall on record, as the coronavirus response closed factories, sapped demand, froze supply chains. 

“The drop in U.S. retail sales, a measure of purchases at stores, gasoline stations, restaurants, bars, and online, eclipsed a revised 8.3% drop in March sales, which was the steepest month-over-month decline in records dating to 1992.” 

“Retail sales dropped in every major category in April except at nonstore retailers, a category that includes internet merchants such as Amazon.com Inc. Sales at nonstore retailers grew 8.4% month-over-month.”

Before this bombshell, The New York Times released a detailed report on consumer spending behavior across categories that I found quite insightful.

Source: The New York Times x Earnest Research

Of the analysis, a few learnings: 

Over ⅓ of Americans have ordered groceries online, Instacart being a clear winner. Food delivery is also on the upswing, with Grubhub the subject of acquisition talks with Uber this week. Doordash remains the frontrunner of the space. 

No surprises here. Many ecommerce companies will emerge stronger than ever before, with Target and Walmart gaining ground against Amazon (likely also due to Amazon pausing the shipment of nonessential goods at the start of the lockdowns. After shipping delays for nonessential goods, Amazon says its one-day and two-day delivery times for all items will resume in the coming weeks, according to Bloomberg).

Video games sales and consumption continue to surge. 

Leisurewear sales are thriving amid the turbulent clothing and apparel space. 

In summation from The Information, Despite record unemployment (hitting 36.5M this week), “U.S. consumers are spending 20% more online than they did last year and 20% less in-person. Online sales at Target and Walmart surged at the end of April, up around 400% and 200%, respectively, from the year prior.”

Related: OpenTable projects one in four U.S. restaurants will go out of business as a result of the lockdowns. McDonald’s outlined conditions for restaurant reopenings, including cleaning commitments and new purchase orders. 

Per Adobe Analytics, U.S. ecomm sales grew 49% in April. As a result, shipping networks are overwhelmed, with Fedex now limiting shipments from about two dozen major retailers through at least May 18th. The big question now is how much in-store demand will return when doors open, or will customers remain loyal online shoppers?

I don’t have the answer to that, but as major companies like Neiman Marcus, Forever 21, Gold’s Gym, and Modell’s Sporting Goods announce bankruptcy plans, 3,000 store closings have been confirmed this year by other retailers, including GNC, Macy’s and others. And more are expected in the months to come.

Of course, this trend doesn’t hold for every retail chain. As pointed out by the Morning Brew this week, some shoppers are anxious to get back in store. 

Source: Google Trends

What do the most popular chain “reopenings” have in common? Volume, variety, and affordability. 

Related: Keep an eye on foot traffic data over the weekend from SafeGraph. 

For those brands that are willing and able to reopen brick-and-mortar stores, initiatives are popping up designed to give consumers peace of mind and help commerce stay afloat in the meantime. ShopSafely is one such initiative, rounding up countless retailers and their policies in one place to help shoppers understand what they need to know before heading out. 

Source: ShopSafely

Along Main Street, a new study found that more than 100,000 small businesses “have permanently closed since the pandemic was declared in early March.” The Payment Protection Program and other government relief program funds were designed to help these small businesses, but new rule changes have put many companies that took loans (or are considering them) in a difficult position.

From CNN, “At issue is a key rule that says in order for a PPP loan to be forgiven, a small business owner must spend at least 75% of it on payroll expenses in the first eight weeks of the loan. The remaining 25% may be spent on mortgage interest, rent, utilities, and interest on other business-related debt obligations.” 

Word of the complicated rule changes travels fast in local communities and throughout the business world, and as of now, the Payment Protection Program still has funds available. According to The Wall Street Journal, only “around ¾ of the $670B loan program has been allotted” with many companies required to return the funds after not meeting the new criteria.

First comes the decision to open brick-and-mortar locations, then comes the complicated choice to reopen corporate offices around the world. This entire situation has drawn attention to air circulation, interior design, and elements of sanitation and community spaces that I never knew we needed (or wanted!) to know about. (But now we do, and I think we’re better for it.) In a now-viral, straightforward article, one biologist outlined the uncertainties of returning back to public spaces. 

As some of the first to go remote, tech companies are now the first to outline their plans for workers to return. From Protocol, 

Apple: Already beginning to bring some people back to the office, with larger offices starting to fill up in late May and early June.

Google: Planning to start opening offices in June, but told most employees to expect to work from home until the end of 2020.

Facebook: Will open most of its offices starting on July 6th, but also allow employees to work from home through the end of the year.

Salesforce: No specific date recently.

Slack: Not planning to fully reopen offices until at least September 1st.

Amazon: White-collar employees who want to can work from home until at least October 2nd. It’s not clear when offices will first start to open.

Microsoft: No date for office openings yet, but work-from-home is allowed through October.

In a big move this week, Twitter will allow employees to work remotely, indefinitely. 

Consumer behavior is changing, and so is advertising and the digital industry. Surprisingly, with everything going on, consumer sentiment is up. From CNBC, “The University of Michigan’s consumer sentiment index came in at 73.7 for May. That’s up from 71.8 in April and well above a Dow Jones estimate of 65.”

The big advertising news this week focused heavily on TV advertising and the coming upfronts. From Insider Intelligence, “As TV advertisers consider pulling back on existing upfront commitments, they’re also planning ahead to spend approximately 33% less in this year’s coming upfronts, per an Advertiser Perceptions survey shared with Insider Intelligence. According to an IAB survey cited by Adweek, that’s far higher than the 20% who said the same in March. If advertisers ultimately stick to that 33% figure, that would translate to approximately $7 billion in lost ad revenue, per Adweek.” 

On the flipside, livestreaming continues to soar. Among Twitch, YouTube Gaming, Facebook Gaming, and Mixer, total hours watched worldwide jumped by 102% year-over-year (YoY) in April, per StreamElements and Arsenal.gg. Twitch created a new Safety Advisory Council to boost community safety measures, shortly after Facebook, Twitter, and TikTok did the same. Tech platforms continue to struggle with misinformation, especially now with the coronavirus, but many are anticipating a coronavirus ‘infodemic’ in the coming months. 

Related: There’s a growing issue between Silicon Valley tech and news organizations, with France and Australia regulators now trying to force tech companies to pay for the news that is shared on their platforms. In an incredibly insightful piece, Stratechery’s Ben Thompson outlines concerns for that line of thinking. The media industry had a rough week with layoffs at Quartz, Buzzfeed, and more.

On Saturday, all major U.S. TV networks will be broadcasting the mass commencement event, Graduate Together.

Live sports fans rejoice. German soccer picks back up this weekend, and NASCAR is holding its first race back on Sunday. 

Along with a slew of other newsworthy reopenings, the NYSE will partially reopen its trading floor on May 26th. 

Disney is bringing the musical ‘Hamilton’ to Disney+ on July 3rd.

Have a restful weekend.