April 16, 2020
COVID-19 is certainly changing the business world, with different industries feeling an impact in different ways. Recently, Moody’s published a heat map that broke industry sectors into high, moderate, and low exposure zones based on economic disruption. As you might expect, tourism, passenger airlines, automotive, and general retail were subject to high exposure. Interestingly enough, food retail was low exposure. This begs the question: How does this economic exposure translate into digital activity, especially as businesses pivot to predominantly digital channels? How is consumer behavior changing?
When it comes to digital commerce, one of the best measures of consumer activity is site traffic. While some will say it is too high-level of a metric to mean anything, it is undeniable that traffic is a leading indicator and proxy of market activity. When consumer activity online is heavy, site traffic is high. When consumer activity online is bearish, site traffic is low.
What we know is that a site's traffic pulse is relatively elastic and influenced by external factors both at the macro and the micro level. Driving traffic to eCommerce websites is a required step in customer acquisition, so when a merchant runs a promotion, it would expect site traffic to jump. At the macro level, nationwide holidays and celebrations also drive activity. This is all important because a dramatic increase or decrease in traffic can impact online merchants in many ways — from website stability (which impacts the shopping experience) to fewer opportunities for sales.
So what kind of activity did we see in March as COVID-19 became a global pandemic? The team here at Magento saw a surge in site traffic that nearly matched the peak of Black Friday and Cyber Monday. While it did not surpass them, the pinnacle week of March 16 came within 2.6% of the holiday peak. In what almost seemed instantaneous, consumer web activity skyrocketed to nearly meet the levels of the undisputed busiest shopping period of the year — one that consumers anticipate and businesses spend months preparing for.
Based on our aggregated data, over the course of the month, page views steadily increased, with an average increase of about 30% since February. Industries with a spike around mid-March in comparison to the February average included retail (8% increase) and consumer goods (21% increase). This aligns with Moody’s analysis as these industries were identified as “high exposure.”
Following this traffic spike, stories vary. For example, while non-food retail activity continued to increase and grow week over week in March, consumer goods reverted to pre-peak levels. Interestingly, those reverted levels still represent an increase over previous months, suggesting a new normal in the making.
These new trend lines and fluctuations are leaving many businesses wondering what course this sets them on for the remainder of 2020. How should they plan? How can they find clarity in this uncertain time? If we have learned anything, it is that companies must be acutely tuned in to their data — now more than ever. Even with a directional measure like page views providing a solid proxy as to the amount of traffic to a merchant’s site, businesses need to analyze the impact. How is this proxy of activity (or lack thereof) translating into revenue, the stability metric that matters most? Businesses need to get back to the fundamentals.
The reason it is important to focus on the fundamentals is because we see shopper behavior becoming less predictable and being driven largely by macro forces. As a result, we are seeing consumers who’ve not traditionally shopped online flock to digital channels, and customers being very targeted in their purchases. As a result, a business that thought it knew its customers may no longer have that confidence. Data-driven fundamentals are required in order to regain that confidence.
In the past, if a merchant was seeing a spike in page views, it was typically predictable based on its customer acquisition activities. However, a spike in page views now needs to be scrutinized. The merchant now needs to evaluate the impact on its actual business performance. Businesses need to look at order counts and the average order value (AOV) for the recent spike in comparison to a previous benchmark. What does that show? If it is lower, what does that mean to your margins when you take into account the cost to acquire that customer?
For example, at the start of COVID-19, a retail merchant that saw a large spike in page views may have been optimistic. This increase in activity meant opportunities to increase sales. However, a look at the data uncovered something else entirely. In comparison to previous months, in March there was only about a 7% increase in revenue even though page views were up over 50%. Upon further investigation, it was discovered that the AOV was about 30% less than previous months. This hypothetical merchant was seeing a pattern of “new” customer behavior arise — at least for the immediate future. To take it a step further, ideally that business should also be monitoring the average time between orders. Perhaps customers are spending less each order but coming back more frequently?
Every business needs to be diving into their data to understand the evolution of customer dynamics happening week over week — and, if possible, daily. Here are some key points:
• Web analytics will shed light on things like what channels shoppers are coming from, what pages are getting the most attention, etc., and how this compares to previous months.
• Understanding how key eCommerce metrics, such as traffic, AOV, time between orders, customer lifetime value, acquisition costs, etc., are trending can inform decisions being made by humans. This way, as a company you can understand things like, can we really afford to offer free shipping right now? What average order threshold do we need to set in order to offer free shipping? Lastly, having the right technology in place to help make this possible is imperative. Reporting on a daily basis is not realistic to accomplish manually, especially now as businesses need to operate more efficiently.
• Ideally, businesses have a solution that allows them to easily take data from various systems, consolidate it, and build reports from it that update automatically. This will save time and provide the most accurate data-driven view to guide decision making.
While it can be challenging to shift into a data-driven mindset, it can help you make the best decisions for your business today and set yourself up for future success.