COVID-19 Ecommerce Predictions: Our EMEA & APAC View

Misha Pabari

May 5, 2020

COVID-19 ecommerce predictions for EMEA & APAC

In late 2019 we published 2020 ecommerce predictions from our senior leadership team. Fast-forward five months, and so much has changed in the world that we felt it was time to update them to reflect the new realities and opportunities for those who sell goods online.

Global lockdown measures as a result of the pandemic have aggressively shifted consumer behaviour and according to a new Global Shopping Index report, the number of unique digital shoppers rose by 40% year-over-year (YOY).

Our ecommerce experts based in Europe, the Middle East, Asia and Australia highlight what brands and retailers should consider as part of their post-COVID-19 ecommerce strategies for survival, recovery, and future growth.

A shift from offline to online

Pattern’s General Manager for Europe Nicola Hollow predicts that services and products traditionally sold exclusively through independent retailers will shift to ecommerce. “We can expect consumer brands and manufacturers to be hindered by the closure of physical stores and begin to refocus priorities on direct-to-consumer and marketplace channels as they realise how over-reliant they have been on bricks and mortar.

"Countries who have previously been slower to ecommerce such as Italy and Spain will experience a significant boost in ecommerce penetration, as marketplaces become prevalent channels. We’ve seen this trend first-hand through Pattern’s COVID-19 ecommerce trading results in the past two months and expect this will repeat itself across Europe as we continue to witness the COVID-19 ecommerce effect.”

She expects omnichannel retailers to reconfigure their operations in response to the increased pace of the migration of sales online: “Retailers are going to be cash-strapped for the foreseeable future, even those with strong ecommerce businesses. More stores will permanently close, with larger premises potentially being used as dark stores to support the increased demand in ecommerce and lack of warehouse space and availability.

“Pressures on marketing investment will require a refocus to more cost-effective channels such as social media and SEO. With the need for agility, more brands will look to work with flexible resources to allow them to scale without increasing their fixed costs in this time of uncertainty.”

Pattern’s General Manager for ANZ Merline McGregor agrees; she believes there is no longer a choice to be made between physical and digital retail. She says: “Organisational structure and embedding digital acumen within your business will become more important as retailers and brands realise that the depth of their own digital knowledge is very shallow.”

“We can expect that channel diversification will accelerate as the uncertain future of physical retail plays out and brands look for different routes to de-risk their revenue streams. Optimising your D2C site is key to ensure that you are investing in commerce-driving activity.”

Australian-based Principal Consultant Sheriden Baxter adds: “Australia has experienced a significant offline to online shopper migration, and a robust digital marketing acquisition strategy will be paramount in capturing these new customers. We expect loyalty programmes will also be a key focus area to drive repeat purchases both online and offline once physical stores reopen.”

Direct to consumer ecommerce is now more important than ever

Building on this theme, Pattern’s Director of Consulting Kerry Lee advises that retailers and their strategic partners must rethink their ecommerce strategies to establish an omnichannel experience that’s fit for the future. She says: “The ecommerce sites of large retailers have faced stiff competition from smaller, nimble D2C sites that have benefitted significantly from the huge surge in consumer demand. Brands, wholesalers and distributors alike are recognising this, and we can expect to see an increased investment in D2C from brands looking to gain more control over their distribution and alternative routes to market.”

“Those with growing D2C channels during this period, will focus heavily on CRM, in an attempt to retain this new customer base beyond lockdown. Converting offline customers to online targeted customers will be the core strategy for brands looking to sustain their growth.”

“I predict that a new omnichannel experience will be established over time as global digitalisation accelerates. As we come out of lockdown, consumer expectations will recover to pre-COVID levels with quick delivery, site usability and immediate response times to customer service enquiries becoming the norm as they once were.”

COVID-19 crisis plays to Amazon’s & Tmall’s strengths

Pattern's Chief International Officer Chris Vincent believes that the biggest global marketplaces with strong logistics infrastructures - such as Amazon, Tmall and JD – will do even better in 2020 than he would have predicted at the start of the year.  “These marketplaces are positioned to take market share, both through extended lockdown periods, and once countries relax restrictions on their populations. For sure there will be a significant global economic downturn which will impact spending patterns. While we don’t yet know the shape of that, we can start to see the impact of COVID-19 on the global ecommerce market and they play to the strengths of marketplaces: product selection, availability, fulfilment options and price.”

He explains: “Supply chain issues are hurting brands and retailers, who are struggling to manufacture and move product to where it needs to be to fulfil current demand. We know that some retailers and distributors will not survive the next few months. In China we are seeing both the cost of warehousing and fulfilment rising substantially now, and if this trend translates to the West it will prevent brands from expanding their direct-to-consumer web channels as a replacement in the way they may hope. In general, marketplaces’ logistics networks have stood up to the challenge, and are often the quickest replacement for this loss of other routes to market.”

“We are also seeing major brands consolidate their ranges to deal with supply chain issues and a requirement to conserve cash. This, along with brands going bankrupt, will create gaps in selection. Product choice is a key reason for consumers to visit Amazon and Tmall, and they are already excellent at making selection available for purchase cross-border. We expect them to be quick to leverage their global catalogue to fill product gaps that emerge at a country level; as well as potentially launch private label ranges in the case of Amazon."  

“Finally, the scramble for cash means that discounting on non-essential items will increase as brands and retailers chase declining discretionary spend. Again, marketplaces thrive on discounting, and are the online destination of choice for consumers looking for a bargain.”

How Chinese consumers have reacted

Pattern's General Manager for Greater China Arthur Cheung warns Western brands that that there will be a squeeze on their margins when selling online to Chinese consumers for two reasons:

“The cost of ecommerce warehousing and fulfilment has risen sharply in the after match of COVID-19 because manufacturers are using that space to store raw materials and finished products that they cannot export to the West at the moment. Fulfilment costs have also risen as delivery staff are being paid more. Brands must bear these costs and cannot pass them on to the consumer by raising prices at the moment. Not only this, but the end-to-end fulfilment process is likely to be more complex with longer lead times when delivering products cross-border.”

“The other squeeze on margins comes from the need to participate in longer promotions, as the bigger marketplaces try to make up for lost sales earlier in the year. Tmall has announced that it’s promotions for 618 Festival will take place for the whole of June, rather than the two weeks around the 18th June as has occurred in previous years. We expect that JD.com (who created 618 Festival) will also extent its promotions periods. Consumers working in manufacturing jobs particularly are likely to have seen their incomes fall in the last few months, and where they are still making purchases they will be looking for very good deals.”

China was already such a digitally mature market that the changes in customer behaviour expected in Western markets will be less pronounced in China.

He explains: “Grocery sales moved online during the lockdown, and we expect online market share in this category to stay higher than it was before COVID-19. However, in other categories, most people who want to buy online were already doing so, and so there will be no big shift in how people make purchases because it had already occurred before the pandemic.”

Arthur Cheung adds that he believes Alibaba will do everything it can to make Double 11 (Singles’ Day) a success once again, and a focus on selling some unique and high-value products in order to bring excitement to the shopping festival. However, there will be winners and losers within this: “Some brands and Tmall Trade Partners are still not up and running as normal in China, and have either been closed or running a very reduced operation since Chinese New Year."

"They will now struggle to build the trading momentum that is required to be allowed to participate in official Double 11 promotions with Tmall. At the same time, there will be more competition on the platform as Tmall is working hard to recruit new brands and making commitments about the exposure and revenue they will generate in order to get them on board.”

Global expansion: the COVID-19 ecommerce impact

White total retail sales may be down year-on-year in many regions, there are still opportunities for expansion and growth through online channels, particularly marketplaces as they provide a relatively low cost of entry compared to opening stores or launching a localised ecommerce site.

Principal Consultant Sheriden Baxter explains: “Brands and retailers may look to expedite international expansion plans to drive incremental revenue growth. More brands and retailers will look to marketplaces as the point of entry to new markets due to speed to market and cost minimisation.” 

One region with clear marketplace growth opportunities is the Middle East. Pattern's Managing Director for MENA David Quaife believes that brands who can quickly leverage marketplace channels in the region will be able to take market share from those who struggle to adapt to the shift to purchase online.

He explains: “During this time, businesses who can adapt quickly to changes in consumer demand will trump omnichannel retailers who struggle to keep up with the demand on their online channel. This is an exciting time for marketplaces in the MENA region to gain share and new customer bases; with Noon launching Dubai Mall online, Amazon listing more global sellers and planning to launch in Saudi Arabia in the coming months.”

Our latest infographic report provides insights into customer behaviour and Amazon's offer in 12 key markets, including Australia and the UAE. 

COVID-19 and the private equity industry

Chief Commercial Officer Jeremy Wilson who leads our Private Equity Practice predicts how PE funds will behave in response to the pandemic. 

“The vast majority of existing investments will have been hit badly by the lockdown, and for many investors cash preservation will be a key focus. Investors are reviewing their existing portfolios with a view to exiting those investments that are likely to suffer in the longer term from the impact of COVID-19.”

“Costs associated with rent, staff and stock will have all faced scrutiny over the last few months and this will continue as PEs look to diagnose challenges and stabilise portfolios. Business plans post lockdown must be reviewed completely to develop resilience to potential shocks in the future. Anticipating and accounting for future market disruptions will become an essential element of due diligence for private equity firms.”

However, it’s not all bad news for the sector: “We can expect investors to build their investment funds to take advantage of buying opportunities that will arise at the end of lockdown. Several fundamentally sound businesses are currently facing liquidity challenges and require funding from strategic investors.”

He adds: “There will also be a move from investors into the support services around D2C models; recent discussions with third-party logistics providers have indicated large investments into out of town distribution parks and ecommerce warehousing. Similarly, demand for technology that supports or enhances the online buying experience will grow significantly, with retailers such as Curry’s crediting their virtual capabilities as a major factor as to why sales have held up so well.”

The future of ecommerce post-lockdown

Global Head of Marketing Joanna Perry believes that continued social distancing requirements across the world, combined with increased nervousness from consumers about germs, will increase the rate at which retail sales migrate online for some categories.

“Evidence from China and the Middle East - where non-essential stores have already started to re-open - suggests that once consumers are allowed out there can be a bit of a dip in online sales as people enjoy their relative freedom. However, once the novelty of being allowed into stores wears off, the reality of the inconvenience of shopping while observing social distancing regulations will hit home.” 

“In many markets the number of shoppers in store at one time is being policed, shoppers may be required to cover their faces and they will be nervous about touching products, testers and display items that they don’t know who else has touched. For categories such as beauty and fashion in particular, this will take away some of the added value experience of shopping in a store."

"Why travel to visit a store and buy make-up or clothes, if you can’t test the items or try them on before purchase? This increased friction in the offline shopper journey reduces the competitive advantage that stores have over online channels, and will also make some stores increasingly unviable to operate.” 

Brands and retailers must closely assess their online sales channels, to ensure that they are associated with excellent online selling experiences. There is no better time to look at how your business model must change, and mobilise to implement your post-COVID-19 ecommerce strategy.

To discuss how we can help to define your digital strategy, help trade your direct to consumer website or support your marketplace presence please contact us at UK@Pattern.com.

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Improve Your Amazon Advertising Strategy With One Simple Metric: True RoAS
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Improve Your Amazon Advertising Strategy With One Simple Metric: True RoAS

The purpose of advertising on Amazon is simple: increase traffic and conversions. But the approach to get those conversions is not always so simple. Your Amazon advertising strategy is based on current ad data and performance results such as your return on ad spend (RoAS). 

At a minimum, your RoAS number tells you how well you’re maximizing your ad spend. The problem is the RoAS you’re getting from Amazon or an advertising agency isn’t always accurate. 

As a top 3P seller on Amazon, Pattern helps brands improve their Amazon advertising strategy and results by providing them with one simple metric: true RoAS.

Understanding True RoAS

To understand why true RoAS is helpful to brands, you need to understand how Amazon and other agencies calculate and present your RoAS.

The key to growing your brand and maximizing your ad spend is to drive incremental traffic, rather than cannibalizing what has already taken place. For example, if you are selling probiotics, and paying for sponsored ads to win the keyword “probiotics for women”, but also organically ranked in the top results with the same keyword, that’s cannibalization. The RoAS score you would receive from Amazon includes that level of cannibalism, which inflates the number, causing you to pay more on ad spend. The best ads drive incremental growth instead of cannibalizing organic sales. 

At Pattern, we’ve created the acceleration software to make sure brands are getting their “true RoAS”. Pattern’s patented tool applies artificial intelligence to advertising to maximize incremental growth or true return on investment. 

Our software helps brands optimize their efforts by providing live and updated information on where your brand is not organically ranking, and what you should be paying for. If your ranking improves in one area, the ad spend will automatically decrease for those words or phrases until the software detects a drop in ranking, signaling that your ad spend should go up again. This dynamic monitoring of ad spend will help you maximize incremental growth and improve your RoAS.

Improve Your Amazon Ad Strategy with Pattern

Knowing your true RoAS is key to improving your Amazon performance. Advertising agencies and marketplace account managers often give you an inaccurate RoAS ratio or value, which only incentivizes you to spend more on advertising, ultimately increasing revenue for the agencies and/or marketplaces.

At Pattern, a 3P partner on Amazon and other marketplaces, we view our brands just as that: a partnership. When you win, we win. You succeed on Amazon by maximizing your ad spend and we have the data and resources to help you do just that. Accurate, transparent data and reporting will help improve your advertising strategy to drive more traffic to and conversions on your products. 

Ready to finally get your true RoAS? Contact us.   

Slowing Inflation is Music to Consumers’ Ears
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Slowing Inflation is Music to Consumers’ Ears

**Instrument Pricing Changes Tune Amid Record Inflation** Compared to 2022, consumers should expect to pay more for musical instruments, but the rate of inflation shows signs of slowing. **The backstory:** America’s most popular musical instruments saw a notable price increase in 2022 compared to 2021, but the rate of inflation eased in Q4 ’22. **Why it matters:** Slowing inflation within this product category could indicate economic pressures like increased demand, rising labor costs, and supply chain disruptions are easing across the consumer landscape. **What we’re seeing:** The average cost of musical instruments increased 7.5% from 2021 – 2022; however, when analyzing individual increases year over year, some instruments saw price increases as high as 21%. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-02Lwk" src="https://datawrapper.dwcdn.net/02Lwk/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones experienced a 21.73% increase compared to 2021 * Trumpets +20.08% * Flutes +18.6% * Recorders +16.13% * Saxophones +13.63% * Clarinets +10.55% * Drums +5.41% * Ukuleles +5.17% **However:** Inflation among these same instruments was significantly less in Q4 ’22 compared to Q4 ’21. In some cases, prices decreased from Q4 ’21 – Q4 ‘22: <iframe title="Price Change for Instruments — Q4 2022 vs. Q4 2021" aria-label="Bar Chart" id="datawrapper-chart-6X6GZ" src="https://datawrapper.dwcdn.net/6X6GZ/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones +11.23% * Flutes +10.41% * Saxophones +5.94% * Clarinets +5.59% * Trumpets +3.10% * Recorders +2.85% * Drums -2.59% * Ukuleles -8.46% **Moreover:** Certain instruments saw inflation reverse in 2022. On average, prices for melodicas, guitars, and violas saw their prices decrease by 4.41%, 3.19%, and 0.97%, respectively. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-0Tefk" src="https://datawrapper.dwcdn.net/0Tefk/3/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="259" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> **Diving Deeper:** Inflation was more significant when comparing Q4 ’21 to Q4 ’20 than when comparing Q4 ’22 to Q4 ’21, indicating a slowing down of price increases for consumers. <iframe title="YOY Q4 Price Change for Instruments — 2020 – 2022" aria-label="Stacked Bars" id="datawrapper-chart-p6iqt" src="https://datawrapper.dwcdn.net/p6iqt/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="206" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * In Q4 ’21, average prices for all instruments were up 8.89% compared to Q4 ’20. * When comparing Q4 ’22 to Q4 ’21, the average price for all instruments only increased by 2.65%. **The takeaway:** While consumers should expect to pay higher prices for instruments this year, overall inflation impact within this product category appears to be slowing down. With National Ukulele Day coming up on February 2, now is a great time for ecommerce brands to take advantage of slowing economic worries and reach new consumers. * Want Pattern’s data science team to power your brand with consumer insights like these? Contact us to [request more information](https://pattern.com/contact-us/) today.

Slowing Inflation? What Musical Instrument Pricing Tells Us
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Slowing Inflation? What Musical Instrument Pricing Tells Us

It’s safe to say consumers and brands alike are eager for a change to the pattern of rising inflation, steadily increasing in many ecommerce categories . Pattern’s internal team’s data scientists analysis of instrument pricing shows a glimmer of hope that inflation may be slowing, which would be great news for brands selling online.

At Pattern, we’re interested in and monitoring trends and news related to pricing since price is a key factor in a brand’s profitability (as explained in the Ecommerce Equation). When brands are able to optimize their price, conversions, and traffic, they can optimize their profitability. And profitability leads to better allocation of resources, better brand control, and gives leaders the ability to expand their presence to new markets worldwide.

YoY Instrument Pricing Increased at a Slower Pace

When analyzing the pricing changes of instruments from 2021 to 2022, our teams found that prices increased, but at a slower rate than from 2020 to 2021.

As shown below, the year over year Q4 changes show quite a lower rate of increase.

Inflation Improvements Raise Profitability

Because inflation impacts online shopping behaviors, lower inflation can lead to better overall profitability for brands. This idea, of course, is nuanced, but Pattern’s Ecommerce Equation can help illustrate the general principle.

When inflation rises, consumers change their spending habits. Shoppers spend more time researching products, forego premium, higher-priced brands, and buy more in bulk. Brands tend to see a loss of loyalty as they’re forced to raise prices.

Price is a key variable in the Ecommerce Equation: price x conversion x traffic = profitability. As inflation lowers, brands can expect better performance in all of these areas—more traffic as spending habits return to normal, higher conversion from returning customers, and price that better fits consumer demand. As inflation lowers and these variables stabilize, brands will see profitability increase.

Raise Your Profitability with Pattern

As an ecommerce accelerator, Pattern is obsessed with gathering data that helps our brand partners succeed. We’ve created best-in-class technology, models, and analytics to understand changes on the horizon and inform our decisions. With an incredible team of data obsessed Pattern employees, we see what makes the difference in truly great ecommerce performance and apply those learnings for brand partners. 

Ready to improve your profitability? Contact us here.