As of April 2020, eCommerce year-over-year growth was up 68%, surpassing 40% of total retail sales.
Convenience continues to reign supreme as more than half of consumers reported their willingness to spend more to get what they need.
In 2019, 40% of consumers were willing to pay the same or more for private labels; COVID-19 has further accelerated private brand sales.
Consumers have increased spending on hygiene, sustainable products and organic sales in recent months, with income disparity likely to continue to play a key role in the growth of these categories.
Why this matters
Over the last 20 years, attempting to predict the future of retail and consumer products has become a rite of passage for many industry analysts, experts and pundits. Unfortunately, COVID-19, and its far-reaching impact on the industry, has created an unprecedented disruption that hinders the ability to accurately predict what may come next. Deloitte’s report, “The future is coming … but still one day at a time,” examines a different way to think about the future path of these industries. Through analyzing years’ worth of data, the report identifies a framework of four disruptive forces—consumer preferences, technology advancement, economic pressures and market forces—that have given rise to seven trends likely to shape the future of the retail and consumer products industries.
These trends were built based on analysis done by Deloitte’s InSightsIQ, which actively monitors and aggregates a diverse set of real-time consumer, macro, marketplace, competitive and economic data sets to better predict how and when brands can win in the marketplace.
Convenience is the new battleground
Prior to COVID-19, consumers made it clear that convenience matters and the new normal has further accelerated this trend. According to the report, more than 50% of consumers report spending more on convenience to get what they need, with “convenience” increasingly being defined by contactless shopping, on-demand fulfillment and inventory availability. As such, there has been a surge in mobile payment usage, delivery app downloads and buy-online-pick-up-in-store (BOPIS) adoption. For many, this acceleration is driven by scarcity of other options, while others have opted for these models because they perceive them to be safer and healthier.
Commoditization and premiumization of products
According to the study, as of April 4, consumer spend across all retail categories has decreased by more than 40%, placing significant strain on short-term operating margins. This trend has increased private brand sales in recent months, with price and supply chain constraints playing a key role in this growth, as well as consumers trading brand preference for brand availability amid stockouts. It remains unclear, however, if consumers will emerge with new preferences or lower brand loyalty than observed prior to COVID-19. Either way, income bifurcation will likely continue to play a critical role in the choices consumers make.
Digital sales grow, but achieving success remains complex
COVID-19 has accelerated digital channel growth in recent months. By mid-April, online orders grew 130% year over year, with meaningful gains in categories where digital commerce penetration had been historically low, such as grocery. Plus, with consumer mobility significantly decreased, desktop share of digital traffic has seen a significant uptick as consumers swap their phones for computers while at home. However, it is still difficult to determine exactly how these trends will manifest in the long term as stay-at-home orders are lifted and stores re-open.
Moreover, the spike in digital orders has had significant fulfillment implications for retailers, with order picking and last-mile delivery adding to the cost and complexity of the exercise. While consumers have demonstrated a willingness to pay for on-demand fulfillment in the short term, it remains to be seen if they will continue to offset the cost of delivery in the future. Overall, while digital growth remains strong, the ability to profitably pursue that growth remains under tremendous—and growing—pressure.
Brick and mortar changing its role
As of 2019, stores still accounted for a staggering 85% of retail sales. Not only that, in certain categories, the numbers of physical stores have even grown in recent years. In fact, COVID-19 further demonstrated the importance of the physical store, with many brands and retailers experiencing significant revenue loss from the temporary closure of stores.
The dramatic shift to e-commerce has also hastened the redefined role of the physical store, and many retailers have reimagined their stores to serve as order fulfilment centers to meet digital demand and drive last-mile execution. But, it is not yet clear whether this acceleration will be sustained by consumers maintaining digital shopping behaviors or the sector will see a normalization to pre-COVID trends as restrictions are lifted and stores reopen.
New business models have a growing impact
COVID-19 also has led to the adoption of nontraditional models in “essential” categories such as food, grocery and pharmacy, while at the same time decelerating short-term growth of new models in “non-essential” categories. Among these non-essential categories is apparel, where, according to the report, consumer spend has seen a decline of more than 70% versus last year.
Past trends also reveal that economic uncertainty often results in changing consumption habits and the emergence of new models. Retailers and consumer products companies continue to expand outside of their traditional revenue models to fast-track growth and meet changing consumer preferences. However, depending on the impact from the pandemic, it is likely that proliferation of new models will continue, but it remains unclear which models will sustain impact in the long run.
Health and sustainability growing priorities (for some)
COVID-19 also has substantially altered consumer spending habits for healthy and sustainable products. Consumers have dramatically increased spending on hygiene (e.g., hand sanitizer, medicines), sustainable products and organic sales, but it is unclear how much of this volume increase was driven by consumer choice versus availability of options amid out-of-stock conditions.
Income disparity also is likely to continue playing a key role in the growth of health and sustainability markets, with low- and middle-income households reporting more job losses than upper income households (50% versus 32%). This outsized economic pressure on the discretionary budgets of low- and middle-income households may further bifurcate health and sustainability spending across income levels.
Consolidation in retail and fragmentation of market share
With the closure of “non-essential” physical retail locations due to COVID-19, consumers shifted spending to select physical and e-commerce retailers that could provide essential goods and meet their convenience needs. While it is unclear who will be the ultimate winner, the impact of COVID-19 could accelerate further retail consolidation, creating an environment where a small set of players emerges stronger at the expense of smaller or independent players.
At the same time, the pandemic has accelerated short-term fragmentation of packaged goods, either as a true signal of consumer demand or a temporary behavior driven by supply chain constraints and stockouts. Looking ahead, economic uncertainty could have longer-term implications on fragmentation, as brands become increasingly challenged to overcome decreased consumer spend and increased operational challenges.
Fewer women than men will regain work during COVID-19 recovery
Fewer women will regain jobs lost to the COVID-19 pandemic during the recovery period, than men, according to a new study released on Monday by the UN’s labour agency.
In Building Forward Fairer: Women’s rights to work and at work at the core of the COVID-19 recovery, the International Labour Organization (ILO) highlights that between 2019 and 2020, women’s employment declined by 4.2 per cent globally, representing 54 million jobs, while men suffered a three per cent decline, or 60 million jobs.
This means that there will be 13 million fewer women in employment this year compared to 2019, but the number of men in work will likely recover to levels seen two years ago.
This means that only 43 per cent of the world’s working-age women will be employed in 2021, compared to 69 per cent of their male counterparts.
The ILO paper suggests that women have seen disproportionate job and income losses because they are over-represented in the sectors hit hardest by lockdowns, such as accommodation, food services and manufacturing.
Not all regions have been affected in the same way. For example, the study revealed that women’s employment was hit hardest in the Americas, falling by more than nine per cent.
This was followed by the Arab States at just over four per cent, then Asia-Pacific at 3.8 per cent, Europe at 2.5 per cent and Central Asia at 1.9 per cent.
In Africa, men’s employment dropped by just 0.1 per cent between 2019 and 2020, while women’s employment decreased by 1.9 per cent.
Throughout the pandemic, women faired considerably better in countries that took measures to prevent them from losing their jobs and allowed them to get back into the workforce as early as possible.
In Chile and Colombia, for example, wage subsidies were applied to new hires, with higher subsidy rates for women.
And Colombia and Senegal were among those nations which created or strengthened support for women entrepreneurs.
Meanwhile, in Mexico and Kenya quotas were established to guarantee that women benefited from public employment programmes.
To address these imbalances, gender-responsive strategies must be at the core of recovery efforts, says the agency.
It is essential to invest in the care economy because the health, social work and education sectors are important job generators, especially for women, according to ILO.
Moreover, care leave policies and flexible working arrangements can also encourage a more even division of work at home between women and men.
The current gender gap can also be tackled by working towards universal access to comprehensive, adequate and sustainable social protection.
Promoting equal pay for work of equal value is also a potentially decisive and important step.
Domestic violence and work-related gender-based violence and harassment has worsened during the pandemic – further undermining women’s ability to be in the workforce – and the report highlights the need to eliminate the scourge immediately.
Promoting women’s participation in decision-making bodies, and more effective social dialogue, would also make a major difference, said ILO.
Global electricity demand is growing faster than renewables
Renewables are expanding quickly but not enough to satisfy a strong rebound in global electricity demand this year, resulting in a sharp rise in the use of coal power that risks pushing carbon dioxide emissions from the electricity sector to record levels next year, says a new report from the International Energy Agency.
After falling by about 1% in 2020 due to the impacts of the Covid-19 pandemic, global electricity demand is set to grow by close to 5% in 2021 and 4% in 2022 – driven by the global economic recovery – according to the latest edition of the IEA’s semi-annual Electricity Market Report released today. The majority of the increase in electricity demand is expected to come from the Asia Pacific region, primarily China and India.
Based on current policy settings and economic trends, electricity generation from renewables – including hydropower, wind and solar PV – is on track to grow strongly around the world over the next two years – by 8% in 2021 and by more than 6% in 2022. But even with this strong growth, renewables will only be able to meet around half the projected increase in global electricity demand over those two years, according to the new IEA report.
Fossil fuel-based electricity generation is set to cover 45% of additional demand in 2021 and 40% in 2022, with nuclear power accounting for the rest. As a result, carbon emissions from the electricity sector – which fell in both 2019 and 2020 – are forecast to increase by 3.5% in 2021 and by 2.5% in 2022, which would take them to an all-time high.
Renewable growth has exceeded demand growth in only two years: 2019 and 2020. But in those cases, it was largely due to exceptionally slow or declining demand, suggesting that renewables outpacing the rest of the electricity sector is not yet the new normal.
“Renewable power is growing impressively in many parts of the world, but it still isn’t where it needs to be to put us on a path to reaching net-zero emissions by mid-century,” said Keisuke Sadamori, the IEA Director of Energy Markets and Security. “As economies rebound, we’ve seen a surge in electricity generation from fossil fuels. To shift to a sustainable trajectory, we need to massively step up investment in clean energy technologies – especially renewables and energy efficiency.”
In the pathway set out in IEA’s recent Roadmap to Net Zero by 2050, nearly three-quarters of global emissions reductions between 2020 and 2025 take place in the electricity sector. To achieve this decline, the pathway calls for coal-fired electricity generation to fall by more than 6% a year.
However, coal-fired electricity generation is set to increase by almost 5% this year and by a further 3% in 2022, potentially reaching an all-time high, according to the Electricity Market Report. Gas-fired generation, which declined 2% in 2020, is expected to increase by 1% in 2021 and by nearly 2% in 2022. The growth of gas lags that of coal because it plays a smaller role in the fast-growing economies in the Asia Pacific region and it faces competition from renewables in Europe and North America.
Since the IEA’s last Electricity Market Report in December 2020, extreme cold, heat and drought have caused serious strains and disruptions to electricity systems across the globe – in countries ranging from the United States and Mexico to China and Iraq. In response, the IEA is establishing an Electricity Security Event Scale to track and classify major power outages, based on the duration of the disruption and the number of affected customers. The Texas power crisis in February, where millions of customers were without power for up to four days because of icy weather, was assigned the most severe rating on this scale.
COVID-19 Crisis Lowers Thailand’s Growth, Continued Support for the Poor Needed
Thailand’s economy continues to take a heavy toll due to the COVID-19 pandemic and is projected to expand modestly at 2.2 percent in 2021, revised down from the 3.4 percent growth projected in March, according to the World Bank’s latest Thailand Economic Monitor “The Road to Recovery” published today. Continued assistance to the poor and vulnerable, including informal workers, will be necessary as COVID-19 continues to impact Thailand’s economy.
The weaker outlook reflects the impact of the ongoing third wave of the virus on private consumption, and the likelihood that international tourist arrivals will remain very low through the end of 2021. Thailand recorded 40 million tourist arrivals in 2019, but the expected number of tourist arrivals in 2021 has been revised sharply downward from a previous forecast of 4-5 million to just 0.6 million.
“The economic shock associated with COVID-19 has adversely affected employment, incomes, and poverty, but the government’s comprehensive social protection response has been impressive in mitigating its impact,” said Birgit Hansl, World Bank Country Manager for Thailand. “Thailand’s fiscal space is still sufficient to allow supporting measures to protect the poor and most in need in the months to come.”
Thailand has performed relatively well in terms of the scale and speed of its fiscal response. The government expanded what was previously a relatively modest set of cash transfer programs to implement one of the largest such responses to COVID-19 in the world. Preliminary simulations suggest that more than 780,000 additional people could have fallen into poverty in 2020 if the government had not scaled up social assistance.
“The crisis in 2020 demonstrated Thailand’s ability to leverage its robust and universal digital ID, sophisticated and interoperable digital platform, and a number of administrative databases to filter eligibility for new cash transfer programs. Going forward Thailand would need to consolidate these efforts and be better prepared to respond to crisis through setting up a social registry.” said Francesca Lamanna, Senior Economist at the World Bank.
Economic activity is not expected to return to its pre-pandemic levels until 2022, with the GDP growth rate projected to rise to 5.1 percent. However, the pace of recovery will depend on Thailand’s vaccination progress, the effectiveness of fiscal support, and the extent to which international tourism resumes. Exports of goods are expected to support the Thai economy in 2021, due to recovering global demand for automotive parts, electronics, machinery, and agricultural products. Risks are further tilted to the downside as the COVID-19 recovery might be delayed due to new COVID-19 variants becoming resistant to treatments or vaccines.
“Adequate testing-tracing-isolation and further progress on vaccinations will be necessary to avoid the need for lockdowns, spur a sustained increase in domestic mobility and consumption, and allow the country to reopen to foreign tourists,” according to Kiatipong Ariyapruchya, World Bank Senior Economist for Thailand. “In the long-term, reforms that lower trade costs and barriers could help maximize the benefits of the ongoing recovery of global economic activity.”
The report also recommends that the government will need to invest in strengthening Thailand’s social protection system. In the years to come it should be a priority to provide adequate support to vulnerable people, while ensuring that this support is targeted effectively to limit the overall fiscal burden. The crisis also further underscores the need to ensure that the social protection system covers the large informal sector at all times, not only during crises.
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