Retail: coronavirus accelerates online revolution

The recovery of the retail sector is gathering pace as the economy opens up after lockdown. Revenues in the eurozone are rising sharply. The importance of online sales continues to grow.

The retail sector is beginning to recover from the impact of the coronavirus lockdown. Retail sales for the eurozone published on 6 July 2020 show an increase of 17.8 per cent for May compared with the previous month. This made up for two thirds of the downturn experienced in the collapse between February and April. However, there are substantial differences between individual countries. While France and Spain were not yet able to match their February figures, revenue in Germany was actually above that level. On a price-adjusted basis, the German Federal Statistical Office calculated the rise to be as much as 3.8 per cent year on year, even though there was an extra shopping day in May 2019. This was the strongest increase since records began in 1994.

Retail sales recover, but the pace varies

Retail
Source: Eurostat; as at 10 July 2020.

Marked differences between product groups

Sales volumes for textiles and clothing rose particularly strongly, with an increase of 147 per cent for the eurozone in May compared to April. Eurostat calculated a rise of 38.4 per cent for fuel and 37 per cent for electrical goods and furniture. The monthly rise for food, drink and tobacco goods only amounted to 2.2 per cent. This breakdown of the revenue increase clearly shows that the economic revival is leading to increased demand for goods beyond immediate everyday necessities.

Growth in online sales

In addition to the recovery from the damage inflicted directly on the retail sector by the pandemic, the data points also highlight a structural change, i.e. a move away from traditional sales outlets towards mail order and internet shopping. According to data from Eurostat, revenues for online sales did not go into decline at any point during the entire period of the European lockdown in spring 2020. Furthermore, sales volumes rose by another 7 per cent in May. The re-opening of city centres and shopping malls does not appear to have led to a corresponding drop in revenues for online retailers.

High-frequency data indicates continuing recovery

Nevertheless, the re-opening of the economy is benefiting traditional retailers. High-frequency data indicates that the positive trend seen in May has continued. The German market research company (GfK) estimates that at the height of the lockdown at the end of March, visitor numbers in city centres and shopping malls were reduced to 41 per cent of normal figures. They now appear to be approaching pre-coronavirus levels again, with retail parks in particular back to near normal footfall, according to GfK's analysis. International studies provide similar findings. Wherever restrictions are lifted, people are going shopping again – although perhaps not as often and possibly more cautiously than before the lockdown.

Shift in retail sector accelerates

Essentially, the coronavirus has reinforced a pre-existing trend in shopping behaviour. Although many purchases still take place in bricks-and-mortar outlets, the importance of online sales continues to grow overall. This has implications for Investments.

This process is particularly apparent when looking at the world's largest online retailer, Amazon. The internet giant was able to record substantial share price gains during the first week of July, breaking the US$ 1.5 trillion mark for market capitalisation. Amazon shares have risen more than 70 per cent since the start of 2020.

It's no surprise then that the established players in traditional retail are increasingly shifting their focus online and trying to copy Amazon's recipe for success. The latest example is Walmart. The US market leader in bricks-and-mortar retail and no. 2 in the online segment recently announced plans for a premium delivery service comparable to Amazon Prime. Called 'Walmart +', its aim is to provide online customers with same-day delivery as well as substantial discounts. Walmart shares reacted to the announcement by posting a one-day gain of 7 per cent, just about putting them into positive territory overall since the start of 2020.

Beneficiaries in Germany

There are also some beneficiaries of the online trend in Germany, Zalando being perhaps the most high-profile example. The online retailer sells shoes, fashion and cosmetics, and in April was able to increase customer numbers by 40 per cent year on year. Zalando's sales of sports and beauty products have more than tripled during the lockdown, while volumes in its partner programme, a key business area in terms of margins, have doubled.

But it's not just clothing, other product groups are also seeing a growing appetite for online buying. One beneficiary is Delivery Hero, a Berlin-based operator of various online food ordering platforms around the world. According to its own figures, in the second quarter of 2020 the company was able to almost double its order numbers compared to the previous year.

 

As at 10 July 2020.