Online grocery, BNPL keep growing after pandemic ecommerce boom
Adobe Analytics looked at how ecommerce shopping habits shifted in 2022.
Photo by KOBU Agency on Unsplash
Adobe Analytics looked at how ecommerce shopping habits shifted in 2022.
Ecommerce is showing staying power with consumers following the pandemic, leaving room for the growth of more product categories and digitally-enabled ways to shop.
That’s the takeaway from new data released by Adobe Analytics this week that offers the latest evidence to help understand shifts in digital shopping behavior that accompanied the lifting of pandemic restrictions in 2022.
While there is evidence that more people returned to stores in 2022, Adobe found continued growth in several areas of ecommerce that spiked during the pandemic, including grocery and Buy Now Pay Later. At the same time, a slowdown in curbside pickup and uptick in mobile shopping offer a reminder that behavior will continue to evolve.
Here's a look at the data:
There are signs that consumers are turning online to buy more types of products. Categories like home furnishings and grocery previously struggled to take off in ecommerce, but both saw notable growth in 2022.
Home furnishings grew 10.2% year-over-year, reaching $126 billion in spend. This continued in February 2023, with 12.9% sales growth to $9.4 billion.
Grocery, which saw a surge during the pandemic, saw continued growth of 10.8% in 2022, reaching $86.8 billion. In February 2023, there was even more pronounced growth of 26.7% YoY, driving $8.4 billion in spending.
Not every category saw such a dramatic uptick. Electronics, which consistently has the largest share of ecommerce spend, grew 4% year-over-year in 2022. Meanwhile, apparel fell 3.8% year-over-year.
“Ecommerce demand has remained resilient in an uncertain economic environment, driven in part by lasting pandemic habits where consumers had no choice but to leverage online food and home furnishing shopping services,” said Vivek Pandya, lead analyst at Adobe Digital Insights, in a statement. “Now consumers have embraced the rich ecommerce experiences that made them feel comfortable getting these necessities delivered to their doorsteps, making these categories new growth drivers in the digital economy.”
The pandemic ecommerce boom also led consumers to embrace new types of digital shopping experiences, from how they paid to how they received items.
In this area, there are also signs of continued expansion. Buy Now Pay Later, which allows shoppers to pay in installments, had a fast rise in 2020 and 2021 amid the ecommerce boom. Expansion continued as a higher cost of living due to inflation left consumers seeking to spread out payments. In 2022, the share of online purchases made with BNPL continued to grow at a rate of 14% year-over-year, while revenue grew 27%.
Adding to evidence of staying power, BNPL is proving to be popular in the categories showing the most growth. In the first two months of 2023, groceries’ share of BNPL grew 40%, while home furnishings grew by 38%.
“The rise of Buy Now Pay Later usage for groceries tells us that consumers are likely making bigger purchases online to take advantage of special promotions and stock up on staples, thus managing living expenses in more flexible ways,” Pandya said. “The strong online growth of home furnishing purchasing is expected to bolster Buy Now Pay Later adoption, given the higher ticket prices in this category.”
Price is also playing a role. According to Adobe’s Digital Price Index data from January 2019 through February 2023, share increased in the cheapest pricing tier for categories such as groceries (35.6%) and electronics (57.1%).
The pandemic also introduced more shoppers to fulfillment methods that blended ecommerce and stores. One of these was curbside pickup, which was a must-have option for retailers amid the health emergency that required distancing. But this practice has seen a slowdown. In 2021, 23% of online orders from retailers who offered curbside pickup used this option. In 2022, it fell to 19%, followed by a further fall to 17% in the first two months of 2023. However, there are still more signs of interest in grocery, which was a prime use of curbside pickup. That category grew 8% year-over-year in early 2023. By contrast, electronics grew only 2%.
Many retailers now have curbside pickup, and that's unlikely to go away. Rather, it is now best considered one of a number of options that retailers are offering consumers who want to have choices, alongside in-store pickup and local delivery.
The return to stores didn't replace ecommerce. Rather, the two channels are now blended more than ever before. As shoppers move across physical and digital retail, they are embracing mobile devices that help to connect the two. Adobe noted that the 2022 holiday season marked a “turning point” for mobile shopping, as a majority (51%) of Cyber Week sales were made using smartphones for the first time. This trend is expected to continue. By December 2023, Adobe expects smartphones to drive the majority of sales every month.
Yet there’s a gap between the largest retailers and smaller retailers in growth. Retailers with over $1 billion in annual sales are driving 38% more visits that result in purchases than retailers making $10-50 million in annual sales. For smaller retailers, share of revenue is also 8.6% lower.
It underscores how there are still plenty of opportunities to expand and improve digital commerce. The pandemic proved to be a great leap forward for retailers introducing ecommerce capabilities, but it is not the end of the expansion.
Sortation centers are helping the retailer build on its stores-as-hubs strategy.
Like many retailers, Target undertook a massive digital buildout during the pandemic as ecommerce demand spiked.
The new capabilities proved to be the launchpad for impressive growth. In 2020, store pickup grew 600%. Same-day fulfillment grew 400% from 2019 to 2021. By 2022, the company was ready to double down on digital. It announced plans to invest up to $5 billion to scale operations, with store-based fulfillment capabilities among the big areas that would receive a boost.
It was an example of how the pandemic’s digital shift left a lasting imprint that would change a retailer’s footprint well into the future. But it’s worth remembering that Target already had the strategy that shaped this operational transformation in place well before COVID-19 arrived.
In the mid-2010s, Target adopted a stores-as-hubs strategy that put brick-and-mortar at the center of all operations, including digital. This meant that ecommerce orders would run through the store, just like in-person shopping. This has remained in place, and only grown. In the first quarter of 2023, more than 97% of sales were fulfilled by stores.
Stores-as-hubs was a radical approach at the time it was introduced. CEO Brian Cornell faced criticism that the two channels would cannibalize each other, and was out-of-step with the massive warehouse-based fulfillment network that Amazon was building. But in the end, Cornell was vindicated. The strategy put Target not only in position to capitalize on the pandemic’s digital shift, but to continue to see its stores be a destination when consumers returned to in-person shopping when restrictions were lifted.
At this point, Target’s nearly 2,000 stores are cemented as the center of ecommerce operations. But as it seeks to gain efficiency and speed in delivery, the retailer is bringing additional facilities into the network.
Now, Target sees opportunity to build ecommerce from the inside out.
This year, evidence is emerging in the form of Target’s sortation centers. Positioned downstream of stores, these facilities combine technology and process logic to triage packages for last-mile delivery by the Target-owned service Shipt. Orders are still picked and packed at the store, but the sortation centers serve as the staging grounds that get packages out the door for delivery.
On the company’s first-quarter earnings call with investors, Target COO John Mulligan stressed that these centers are not highly automated.
“In fact, it's because of the relative simplicity in the design of these buildings and the efforts of an incredibly innovative and energetic team that we've been able to scale the number of these buildings so quickly,” Mulligan said.
Target is placing a big bet on these facilities. In February, it announced plans for a further investment in the supply chain of $100 million, focused on the sortation centers. It is enabling rapid growth. In 2022, the company had three centers, and now has nine. By 2026, it expects to have 15 centers in place.
These facilities are also serving as testing grounds as Target seeks to scale the delivery network.
A new facility in the Atlanta area is serving as an extension of the sortation center that has enabled Target to reach 3 million customers with next-day delivery.
“With this new facility, online orders that have been packed by Atlanta area stores continue to flow to the sortation center, where they're sorted and delivered via our national carrier partners or a ship driver,” Mulligan said. “However, a portion of local orders falling outside the sortation center's last-mile delivery area can now be transferred to the Smyrna extension, where Shipt drivers can pick them up and serve additional neighborhoods.”
Target and Shipt are also refining the path that packages take to reach customers. Shipt vehicles are being shifted to high-capacity models such as SUVs and minivans. These were used in 65% of last-mile deliveries in the first quarter, compared with zero a year ago. The vans service nearly five times as many packages, and enable route optimization that increases the number of packages delivered per hour.
It all adds up to reduced service costs for Target, and the company is continuing to build and refine processes at the sortation centers.
“Based on the success of these efforts, we're developing plans to begin testing high capacity vans at a larger scale,” Mulligan said. “In addition, we're developing a standardized faster way to load those vans, enabling package containerization and easy identification of the correct packages at delivery. In addition to simplifying the load process for the drivers, this new process will enable us to safely move a larger number of Shipt drivers in and out of our sort centers in a given amount of time, expanding our last-mile delivery capacity in these markets.”
To expand this last-mile capability, Target won’t be building massive fulfillment centers like Amazon. It already has large stores that offer proximity to large swaths of the population. Those can be outfitted to serve the same functions as large warehouses, and sortation centers help to expand them. Add in a delivery network via Shipt, and the pieces are in place to continue expanding and optimizing capabilities.
A scaled logistics network on the backend could also improve Target’s ecommerce experience on the frontend. For instance, increasing fast delivery could also open up more opportunities to deliver items with a shorter shelf life such as groceries, which is an area where Target is looking to expand. As Amazon has shown, consumers are also more likely to buy if they receive items in a convenient manner. Target’s stores have long benefitted from customers associating the shopping experience with their affinity for a retailer, just as much as they do the products they buy. Through fulfillment and delivery, it can extend the Tarjay cachet online, as well.
Ecommerce has always held the promise of being able to bring the store home. Target’s logistics strategy is putting that idea into action in a very literal way.