MasterCard: Global online spending soared by $900 billion last year

Online commerce has grown exponentially over the past year and this trend is likely to continue.

The future growth of online commerce will be driven to a large extent by developing markets as well as by online food and grocery distribution.

According to a report released by the MasterCard Economics Institute on Tuesday, global consumers will spend a full $900 billion more at online retailers in 2020 compared with the trend in the previous two years, according to Tencent Securities.

On the one hand, the outbreak has narrowed the gap between consumer markets in Asia and North America and demonstrated the resilience of Asian consumer markets. On the other hand, household spending on food and drink has still risen by 5 percent in 2020, despite a nearly 4 percent decline in global consumer spending, with online food retailers being the biggest beneficiaries.

For now, though, as the global vaccination campaign gets under way, shoppers are returning to restaurants and buying clothes and shoes in person in brick-and-mortar stores. However, according to the report’s findings, consumers also continue to stock up on food in their refrigerators and search the Internet for good deals, sticky habits developed during the pandemic.

During the COVID-19 pandemic, almost every retailer saw a surge in online sales as shoppers stayed at home. At the time, e-commerce contributed to every five dollars in global retail spending, as a large number of consumers arrived in the parking lots of some major retailers or signed and took couriers with them.

Bricklin Dwyer, chief economist at MasterCard and president of the MasterCard Economics Institute, said in an interview with the financial press: While consumers are stuck at home, thanks to e-commerce, they can still move their dollars around. This has big implications, and those countries and companies that prioritise digitisation will continue to benefit. Analysis shows that even the smallest business clusters will see benefits when they go digital.”

“Approximately 20 to 30 percent of the additional digital spending of 900 billion dollars will continue until 2021 and in the coming years.” Bricklin Dwyer added.

However, the long-term benefits of e-commerce will be uneven and will largely depend on what retailers sell, how they adapt their business models, and how consumers prefer to shop. For some categories, such as clothing, shoppers may be more willing to go back to physical stores because they can try on an outfit in person before buying it. But in some retail categories, such as electronics, online shopping already accounts for a larger share of overall sales, so there is less room for growth.

According to the report, grocery stores and discounters — the so-called “discounters” that include dollar stores, wholesale clubs and other retailers that sell to customers at near wholesale prices — will see the most dramatic and lasting shift to e-commerce. Grocery stores are likely to retain about 70 to 80 percent of the digital sales growth they saw at the height of the outbreak, while discounters will maintain about 40 to 50 percent growth, the report said.

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For both industries, online sales only accounted for a single-digit share of total sales prior to the COVID-19 outbreak, creating opportunities for more significant growth.

Moreover, the franchise model of retail chains is likely to decline further. The report argues that larger franchises are likely to see business shrink as companies in the fashion or luxury sectors shift to serving online orders from abroad and seek more control over pricing and inventory.

According to the report, clothing stores, restaurants, sporting goods and toy stores, the sub-sectors where online sales recorded the largest initial sales increases during the pandemic, will ultimately retain only 10 to 20 percent of their peak sales.

Before the outbreak, electronics and department stores had the highest penetration of online sales, with e-commerce accounting for 55 to 60 percent and 40 to 50 percent of total sales, respectively, according to MasterCard. For both sectors, they expect the permanent shift in online sales to be around 20 to 30 per cent of their peaks.

The current popularity of online shopping, the widespread introduction of digital payments and the growing role of social media in marketing allow retail workers to trade at home without having to invest in renting out shops or office space. In 2020, new business license applications in the U.S. hit an all-time high of 24% year-over-year, with retail sales up 54%, according to the U.S. Census Bureau. Many of these entrepreneurs will rely on online markets to expand and promote their businesses.

The data also showed that international e-commerce was boosted by sales and the number of different countries where buyers ordered during the COVID-19 pandemic. With consumers now having a nearly unlimited number of choices at their fingertips, consumer spending on international e-commerce has increased by about 25% to 30% year-over-year from March 2020 to February 2021.

At the same time, MasterCard’s analysis shows that consumers around the world are shopping on more websites and online marketplaces during the outbreak than ever before, reflecting a wider range of consumer choices. Countries such as Italy and Saudi Arabia saw an average 33% increase in purchases from online stores, followed closely by Russia and the UK.

The US has accelerated the shift to electronic payments as the epidemic has prompted a growing number of consumers to switch from cash payments to contactless payments. Based on MasterCard’s analysis of payment patterns in brick-and-mortar retail stores and restaurants, we see an additional 2.5 percent increase in non-cash payments over the current trend, which accelerated the country’s transition from cash to electronic payments for a full year.