Consumer Behavior

What economic data tells us about the retail industry in 2020

Megan Higgins, VP/GM, eCommerce and Marketplaces, at Avalara, shares insight on trends and economic changes from the Avalara Commerce Monitor report.

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February 8, 2021 by Megan Higgins — VP and GM, eCommerce and Marketplaces, Avalara

Due to the COVID-19 pandemic, retailers across the globe are being forced to adjust selling methods, marketing strategies, and fulfillment operations to meet the shift in consumer behaviors. With widespread stay at home orders and concerns over the virus, the pandemic quickly accelerated the adoption of e-commerce by consumers and businesses.

Despite the shortcomings of the economy, at Avalara, we've seen numerous trends accelerate throughout the year, including the adoption of e-commerce, at-home subscriptions, and more. The Avalara Commerce Monitor report is designed to derive insights and trends for the U.S. economy across the manufacturing, retail, and services industries based on indexed cohorts of 400 Avalara customers. The indices used to present this data are representative of the country with equal distribution across four key U.S. Census regions: Northeast, Midwest, South, and West. The findings from the January-October 2020 Avalara Commerce Monitor indicates three main trends across the retail industry this year.

Products with an increase in consumer spending

The stay-at-home orders and uncertainty around the pandemic that began in March forced mass retail store closures and halted non-essential in-person retail shopping. Avalara monitored transaction data in March and April, of 2020, to understand the immediate impact of the pandemic and found that e-commerce purchases began to rise and purchases of products for use at home became hot commodities.

From survival equipment to products that can be used to keep kids busy, many industries saw an uptick during our new normal at home. For example, our data showed that the rate of transactions for hobby supplies grew by 188% in March compared to pre-pandemic transactions. Similarly, the rate of transactions of kid's entertainment, like games, pools, bikes, and playground equipment increased by 155% in April, in comparison to pre-pandemic transactions.

Lifted restrictions and e-commerce helped retail sales recover

As expected, retail sales dropped significantly at the onset of the pandemic as stay-at-home orders went into effect and people stayed home. In April, the Avalara Commerce Monitor found total retail sales declined 10% from the baseline, but began to recover over the summer.

Interestingly, the Avalara Commerce Monitor Retail Index also showed the direct impact personal income has on retail spending. In August, total retail sales dropped following a dip in personal income after the U.S. Bureau of Economic Analysis reported a 2.7% drop in personal income following the expiration of a weekly $600 federal supplement to unemployment benefits.

Regionally, our data showed that retail sales recovered well across the U.S. throughout the year. When comparing October sales to March, the Midwest and Northeast regions saw an increase of 18% and 17% in total retail sales, respectively. This positive growth comes as the U.S. Department of Commerce reported an increase of 5.7% in year-over-year U.S. retail sales.

Early start to the holiday shopping season

The spike in sales that we typically see in the days following Thanksgiving, through Black Friday and Cyber Monday, actually happened earlier this year. Retail sales reached a peak of 15% above baseline in October — signaling the start of an earlier than usual holiday shopping season. While many factors contributed to an early start to holiday shopping, many retailers worked to prevent similar interruptions that were experienced early in the pandemic as the impact of the virus wreaked havoc on fulfillment and shipping.

To alleviate the pressure of getting holiday packages to doorsteps on time, retailers released their online holiday sales early in 2020. Doing this not only allowed them to avoid supply chain disruptions but also protected the customer experience by mitigating shipping delays and e-commerce site downtime.

Perhaps the most interesting takeaway for retailers is what happened in manufacturing. Manufacturing sales reached a peak in September — just one month earlier than the peak for retail sales. As a leading indicator for the holiday season, manufacturing sales experience a jump in advance on consumer shopping as distributors and retailers work together to stock shelves and prepare inventories for the holiday rush. With the spikes in manufacturing and retail happening earlier this year, we may be seeing the end of major holiday spikes at the end of November being replaced by steady sales throughout the last quarter of the year as we move forward.

Ultimately, there are a number of takeaways retailers can glean from Avalara Commerce Monitor data. Overall, we found total sales from the beginning of May through September across retail increased by 12%, which reflects positive confidence for retailers going into 2021. It's likely that the rapid adoption of e-commerce and early start to the holiday season has had a positive impact on the industry that was unexpectedly hit hard at the onset of the pandemic.

While the full extent of the impact the holiday shopping season has had on retail is yet to be seen, retailers will continue to face changing consumer behaviors as we move into the New Year. E-commerce is here to stay and retailers will continue to face pressure to expand into new online channels to effectively serve customers online.

Serving customers at home will require additional investments in fulfillment services to ensure that the end of the customer journey keeps customers happy. It's hard to predict what 2021 will bring for retailers, but Avalara will continue to monitor the trends across the industry to help retailers understand the trends impacting their businesses and make informed decisions to best serve customers.

Megan Higgins is VP/GM, e-commerce and Marketplaces, at Avalara