The pandemic has brought at least five years of progress in the transition to shopping online in eight or nine months — or maybe it’s only three years, depending on the analyst.
Whatever the rate of progress is, though, it is agreed that the e-commerce sales surge this year is not temporary.
Twin Cities-based Best Buy Co. and Target Corp. hold the top two spots among the 10 largest U.S. retailers for 2020 e-commerce sales growth, according to a recent ranking by eMarketer Inc. Both should see e-commerce sales more than double this year.
Yet conventional “e-commerce” growth doesn’t quite describe what has been happening, because the term encompasses far more than ordering on a website and then watching for the UPS driver. And it doesn’t represent just one adaptation as the coronavirus pandemic has upended routines.
“The [retail] world has gone through multiple iterations … since we went to remote work” in March, said Archie Black, the chief executive of software provider SPS Commerce.
“What’s fascinating is my first e-mail to employees said we were going to work from home for the next two weeks,” he said. “And nobody thought that was odd.”
It has now been eight months, and the adaptations are still coming, he said. The new ways of doing things that might have felt like an improvisation in May have become proven processes retailers will rely on for the holiday selling season.
Black is a good observer of retailing and supply chains to consult because of the space occupied by SPS Commerce, a technology company based in Minneapolis. SPS provides pieces of the infrastructure that enable efficient e-commerce to happen, though it has not experienced a pandemic-related boom in business this year.
Instead, SPS has seen more steady growth, including having recently reported its 79th straight quarter of revenue growth.
With a value in the stock market last week of more than $3 billion, it is worth more than Tennant Co., H.B. Fuller Co., Deluxe Corp. and other established Minnesota companies you have likely heard about more. The technology of SPS is part of the infrastructure of big industries, but not something consumers would ever see.
SPS has 32,000 or so customers paying a monthly subscription and roughly 90,000 customers in total, with hundreds of thousands of companies connected to each other through its products.
Its technology is used to tie together retailers with their suppliers, including independent logistics companies that might handle moving goods around. This system allows a store operator to instantly communicate error-free with suppliers that might use all kinds of different computer systems.
The point of all this investment is to make these organizations run almost like one big, integrated business.
When a retailer sells an item to a customer, for example, it might order a replacement right away, so in almost real time a new order pops up in the distributor’s system or even the main supplier’s. This would happen even though nobody even clicked a computer mouse.
In March and April, the pandemic’s first chapter, many retailers saw their businesses all but collapse. Callaway Golf Co. is a longtime customer, Black said, and its business just stopped, although it soon perked up again.
Meanwhile, other customers found themselves with demand they could not meet, likely because their suppliers had problems of their own adapting to the health crisis. Costco Wholesale Corp. is as good as any company in setting up a new supplier to start doing business together, Black said, but even Costco was under pressure to move faster.
In part by using SPS technology, Black said, Costco once issued millions of dollars of new orders within hours of selecting a new supplier, having already set up the connections to order, coordinate shipments and so on.
It’s just an example of what Black called “a heightened awareness of efficient supply chains right now” that is really industrywide.
When confronted with all this disruption, retailers wanted to find new suppliers to diversify their sources of products, and they sure didn’t want to have to resort to manual processing like e-mailing orders. Even paper packing slips were thought to be risky to handle in the earliest days of the pandemic.
The turn to e-commerce started to happen right away, too, even for small retailers not well set up for it. Some turned their store backrooms into micro warehouses, and manually boxed up and shipped stuff out to customers. And a practice called drop shipping — having suppliers ship directly to the consumer — has exploded.
Drop shipping is not a perfect solution for retailers, Black said, in part because a customer that might have ordered 10 things will be frustrated if they arrive in 10 different little boxes. Yet it’s one way retailers can serve their customers without having big, highly automated distribution centers already set up.
Even booming Amazon.com’s sales aren’t growing as fast as the e-commerce businesses of more traditional retailers such as Richfield-based Best Buy. These companies have figured out how to bring products to customers at the curb, in parking lots or to their front doors — and about as quickly as Amazon can.
An e-commerce service Minneapolis-based Target calls simply “drive up” is booming. It allows customers to order over a smartphone and drive to the store once all the products are collected into one cart.
Customers alert the store with the smartphone app that they are close, and within a couple of minutes of arriving the cart is walked out to the waiting van.
It’s contactless, fast and easy — and for a student of business, amazing to see even happen. It means one fewer consumer, even masked and careful about distancing, needed to go inside a Target store.
“Amazon’s been threatening this same-day delivery for years,” Black said. “Well now Target does it, Costco does it and at Home Depot I went and picked up things because I drive by one all the time and I needed light bulbs. I went to the curbside, picked them up.”
“That’s going to be permanent,” he said. “Is Best Buy really going to make me go into the store when I don’t want to go into the store?”