Will consumers keep clicking to buy after COVID?

Edward Yruma, Managing Director and Equity Research Analyst with KeyBanc Capital Markets, May 2021

Will consumers keep clicking to buy after COVID?

Consumer behavior can change rapidly, and events like the pandemic had a lasting effect on how people shop. The e-commerce shift was solidified by necessity, but it will be shaped by innovation. Retailers will need to understand what motivates consumers to buy and to keep products.

Consumers had been moving more of their shopping online even before the pandemic, but in 2020, necessity drove the digital shift for retail into hyper speed. Last year, consumers were choosing sweats over dress clothing, nesting with new things for their shelter at home – and they were buying much of it online. Legacy retailers had to quickly pivot their business models, and direct-to-consumer brands saw a boost.

KeyBanc Capital Markets (KBCM) brought together experts in e-commerce during the annual Emerging Technology Summit to discuss how the trends of 2020 might shape the future of consumer behavior. Edward Yruma, KBCM managing director and equity research analyst, led a discussion with Eric Hutchinson, co-founder of home goods and mattress retailer Resident; William Adler, CEO of apparel data platform True Fit; and Jalem Getz, founder and CEO of personal styling service Wantable.

A look back at 2020 in apparel retail

As people largely stayed at home last year, it was reflected in their clothing shopping habits. Overall, the apparel category was down, but the move to digital shopping was dramatic, according to Adler. The digital shift in soft goods followed ones that had already happened in grocery and hard goods.

However, despite consumers heading online for more of their apparel purchases, digital apparel sales were nearly flat, increasing only 4%. Adler attributes this to retailers increasing their promotional activity in 2020, resulting in the average order value (AOV) decreasing. When breaking down the sub-categories of apparel, Adler noted that suits and dresses were unsurprisingly down, while athleisure – clothing for working out or casual wear – “crushed it.”

Adler’s company True Fit, which provides a data aggregation platform for retailers and personalized recommendations for consumers, saw a 152% increase in retailer registrations and grew to 200 million registered members.

Some surprises in 2020 consumer activity

In the midst of the e-commerce acceleration, the panelists noted some trends that stood out. For example, the shift to digital occurred across all age groups, not just younger shoppers. In addition, shoppers who may have previously browsed in store, researched online and then made a purchase in store or online were now spending their whole decision journey on a digital platform.

Hutchinson noted the change from the retailer side as well. Legacy mattress and home goods retailers that were slow to shift their model online were forced to in 2020, but they didn’t have the necessary digital infrastructure to do it well. “It’s surprising how much more competitive the digital ecosystem has become, but not necessarily in an efficient way.”

The return dilemma: getting consumers to keep their purchases

One of the biggest challenges for online retailers is the economic impact of high return rates. With customers unable to see things in person, they’re more likely to overbuy with the expectation of sending some items back. Yruma asked the panelists what answers their businesses had for the issue.

Getz explained that Wantable’s “try-before-you-buy” model anticipates that returns are going to be part of the equation long term. “We’ve built a supply chain around processing returns, accepting them and getting them back into inventory efficiently.”

Hutchinson said the return line item is one of the most important ones Resident manages. He says their long trial window and a cascade of responses to customer satisfaction issues has resulted in low return rates. For example, offering a soft or firm mattress topper for customers who had comfort issues reduced mattress returns by 72%.

Adler says the key to reducing returns is a strategy to get consumers to see the right things upstream. “Buy a lot and keep a lot should become the norm – with a highly curated, productive, buying experience so they see more of the things they love before hitting the product page to purchase.”

Demise of the cookie and what it means for retail

Another issue retailers will have to address is online marketing and ad targeting with the planned phase out of third-party cookies, said Yruma. However, the panelists largely seemed to believe that digital-first retailers are prepared for the transition and will rely on first-party cookies, which are directly stored by the website you visit, along with other optimization and data models to market to customers.

“If all competitors are in the same boat [with regards to third-party cookies], everyone is going to have the same hit of visibility,” said Getz.

Adler noted that transparency is key. “When you sign up for something, 81% of consumers are still happy to share information as long as there is transparency and a benefit to them.

“As long as you’re transparent and deliver on trust, the future is fine and clear. For those who don’t fall into that category, there’ll be more transparency on potential bad actors. We’ll be clarifying the future of commerce as we go,” he added.

Shopping in a post-pandemic world

While uncertainty is still hovering over the retail marketplace, some reasons for optimism and some paths forward have emerged. The panel revealed:

  • Experts believe retail will rebound – particularly in the second part of the year – as more people are vaccinated and return to public life, needing clothes for work and gatherings after a year of wearing active and leisure wear said Getz.
  • The trend toward “nesting” or investing in home goods is expected to have a long tail, but investors are debating how sustainable the trend is once people move outside their homes more.
  • Mobile commerce is increasing in share and will continue to do so. Adler shared data that “traveling” daily users on True Fit are up 321%.
  • Technology that actually changes the product will be a trend of the future, said Hutchinson. Heart rate and other health data collected to gauge the quality of sleep and adjust the mattress accordingly, for example, will be used.
  • Online shopping will move away from thumbnail browsing and toward personalized recommendations and more visual experiences.
  • Retailers will become brands, and brands will become retailers. The model of a department store standing between consumers and brands will continue to fade.
  • Gen Z and millennial shoppers – who are more brand agnostic – will search for quality, great experiences and sustainability when they shop. “They want to have a different relationship with brands. Expect the brand to say something, and this population segment wants to understand and relate to that,” said Hutchinson.

Tailored retail insights from KeyBanc Capital Markets Technology

Consumer behavior can change rapidly, and events like the pandemic not only had an immediate impact, but a lasting effect on how people shop. The e-commerce shift was solidified by necessity, but it will be shaped by innovation. Retailers will need to understand what motivates consumers to buy and to keep products.

To learn more, reach out to your investment banker.

This article is for general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual person or entity.

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A.

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