Weathering the storm

Weathering the storm

The pandemic has permanently altered consumer behavior and there is no going back to the pre-pandemic world for consumer brands. With a wider variety of options and the convenience of sitting at home to shop, more consumers are choosing to shop online.

As the new year begins, COVID-19 cases are continuing to grow around the world, especially in India. Vaccination is facing distribution difficulties and a new strain of the pandemic is spreading.

Now more than ever, it is important for consumers and consumer electronics, home appliances, and air conditioners companies and retailers to understand the coronavirus trends that are having a major impact on society.

The pandemic has taken three megatrends – income inequality, logistics improvement, and technology – and accelerated them dramatically. At the same time, the physical problem of actually entering a store, either due to fear of contracting the virus or government restrictions, hammered retailers’ cash flows.

Further complicating the picture, consumers’ needs for products shifted overnight, adding a sector-by-sector plus or minus to the whole equation. The result, obviously, has been the single largest disruption to brick-and-mortar retail ever.

Retail has always been a very competitive industry where the chase for margins is unpredictable. Customers hop from one player to the other in search for the best deals. The pandemic is further challenging the status quo with reduced footfalls, disrupted supply chains, and a distant recovery having its overhang on the sector.

While overall consumer demand is yet to recover to pre-pandemic levels, retailers with a physical-only presence face greater challenges with customers shifting online at an unprecedented rate.

Overall, the impact of COVID-19 on the e-commerce sector has been positive in terms of sales value. This is being driven by the emergence of new business and operational models, and increased penetration of players in the online space.

Seismic shifts in consumer behavior
Consumer needs are changing as a result of the pandemic. The way people interact with brands, and how they view themselves as consumers, is fundamentally different than it was pre-quarantine. Coming out of the pandemic, people are thinking about their role as consumers differently, which is forcing brands to make larger fundamental changes to anticipate new consumer needs.

Restricted to their homes, consumers are adapting to the new normal by making use of appliances to support them in their daily chores. They are rethinking the role of home appliances now play. Not only do appliances need to work, but people have other considerations as well, such as: Is my washing machine quiet enough to have a Zoom call in the next room? Does the vacuum cleaner deep enough to remove germs? Where are appliance materials sourced from?

The pandemic has permanently altered consumer behavior in India and they are making lasting changes to how they live, work and shop, and there is no going back to the pre-pandemic world for consumer brands. With a wider variety of options and the convenience of sitting at home to shop, more and more customers are choosing to shop online.

Online shopping has accelerated by nearly 2 years, with 2020 sales matching those previously not anticipated until 2022. A larger number of customers are ordering their purchases online irrespective of the nature of goods being bought (discretionary versus essential items). Moreover, with the number of infections rising, the preference for online purchases is going up.

Large-ticket items like consumer appliances saw consumers deferring purchases. Once the consumers started, they continued to look for high quality goods at reasonable prices. This is also substantiated by the fact that consumers have greater willingness to pay more for convenience amongst Indian consumers. This has resulted in favorable growth in the Indian e-commerce industry even after the easing of restrictions.

Impact on consumer electronics and appliances sales
Categories with standardized, boxed, and sealed products like consumer electronics have seen ready acceptance over the last decade. Immersive online reviews, unboxing videos, standardized product specification comparisons and product recommendations have been helpful in bridging the gap between online and offline retail experience for such categories.

The resulting growth in e-commerce share for such categories is readily evident. For example, in 2019, 42 percent of all mobile and accessories sales were through e-commerce. Other traditionally retail-led fast moving consumer durable (FMCD) segments have also seen an uptick in online share: 24–25 percent for televisions, 12–13 percent for washing machines, and 5-6 percent for refrigerators in 2019. Consequently, large FMCD retail chains have built their own e-commerce websites as well over the past few years.

Consumer appliances companies found themselves in an uncharted territory after the lockdown was announced. At the time of Unlock-I, companies were unable to quickly move production lines or ramp up manufacturing to match the demand. Online demand for products was rising, but companies were unable to rapidly adapt channel partnerships.

In the current scenario, any player in the consumer electronics and appliances industry cannot afford to have a weak online presence. With the increasing penetration of internet connectivity, companies are not limiting themselves to just brick-and-mortar stores. Some consumers are following the research online and buy offline trend for home appliances by comparing prices online and reading through user comments, but then physically visiting the store to purchase the product.

Every business crisis disrupts normality and pushes companies out of their comfort zone; it also offers opportunities to reinvent business models to make them fitter for the new world. While preparing for the resilience strategies, companies are taking hard look at their operations to cull out inefficiencies and reorient the business to drive future growth.

Existing companies have a strong foothold in the Indian market. They cater to urban and Tier-II and Tier-III cities. Being closer to customers, these companies have an edge over competition. They are looking at setting up an e-commerce marketplace platform to enable sale of goods through their own platforms where they could enlist their existing distributors and retailers as sellers.

The idea is to drive B2C and facilitate B2B sales through this platform. Using a robust supply chain, companies can also provide value add services, such as logistics and credit. The move will make it easy for the distribution chain and customers to transact and buy products.
Some follow the research offline and buy online trend for certain other products where high online discounts are available by looking at product details in open stores and ordering online. Hence, companies are exploring the possibility of a multi-channel strategy. New models such as brick-and-click can help gain customers while maintaining convenience.

Omnichannel convergence will become inevitable in the near future, helping OEMs convert customer engagements to sales. Web-to-store and brick-and-click models will become widely popular. With the rise of research online, buy offline and research offline, buy online trends, more brands are launching their exclusive web stores. They are expanding their online product portfolio and launching exclusive products to compete in the online space.

Alterations in e-commerce amidst the pandemic
E-commerce seems to have weathered the storm. Measures such as social distancing and lockdown (undertaken by authorities to contain the spread of the virus and address supply shortage at local shops) have pushed consumers toward online shopping. Consumers are flooding e-commerce sites to purchase even heavy appliances.

Massive online marketing campaigns and promotions by e-tailers suggest that retail has entered a new era where e-commerce and technology bellwethers like Flipkart and Amazon have created a new ground for consumer expectations. The online retail market is on a growth trajectory due to the expansion of the internet with an increase in mobile connectivity.

Several operational models and distribution channels have emerged globally, as companies have been making efforts to adapt delivery, minimize contact, and achieve operational efficiency. In India, the e-commerce trend has been dominant as consumers have gravitated toward reducing exposure to infection by avoiding point-of-sale terminals and cash transactions.

After-sales service is considered to be a key differentiator for online sales. Companies are providing easy and safe financing options for online purchases through secure payment gateways, payment through eWallets, EMIs, and cash on delivery, which is encouraging online purchases.
They are also focusing on targeted and personalized digital and social media marketing to acquire new and repeat customers by integrating the seller’s mobile application with the consumer’s social media profile.

Subscription services have become an effective way to build a loyal customer base for e-commerce firms. It adds value by having prospective buyers close to their own website. Subscription services within online retailing include a wide range of appliances, building a loyal customer base with the help of strategic customer outreach programs like contests, forums, social media engagement, and insightful content on portals.

The industry’s technology trends indicate that personalized subscription services will continue to take center stage in online shopping. For instance, online platforms have introduced loyalty programs by providing points, which can be converted to cash on future payments. Amazon’s monthly and annual subscriptions, called Prime, enhance the customer experience with additional features such as first preference for new product launches, quick and free delivery, and among others.

Hence, the future of retailing is heavily dependent on online platforms. Apart from the metros in the urban market, Tier-II and Tier-III cities have the maximum penetration potential for online consumer products. The total online retailing market is dominated by the consumer electronics and appliances segment. More users are participating in online shopping and will continue in the coming years, especially in this segment.
What is here to stay?

The COVID-19 situation is still evolving, and it is difficult to quantify the impact on the consumer electronics and appliances industry. The current pandemic, coupled with the disruption of livelihood and businesses, has given rise to a new normal. This is leading to transformation of the value chain and operating models. The new normal is expected to be in the form of acceleration of digital transformation.

The pace of digitalization of the future consumer will be advanced by years. As consumers continue to be concerned about the pandemic and social distancing protocols, they are growing more and more to dislike standing in checkout lines. Now more than ever, it is crucial for brick-and-mortar stores to provide a checkout experience that is as quick and contactless as possible. Hence, local stores are venturing into digital platforms and expanding their reach. They are collaborating with delivery aggregators to provide last mile delivery solutions.

Companies that will evolve their portfolio of products built around health, immunity, and protection – stand to gain in the future. Use of automation will significantly rise to minimize human contact in office spaces, warehouses, and retail establishments. Companies are looking at innovating ways and using technological platforms to address the challenges posed by the pandemic. Personalized marketing and shopping experience are the new normal with reduced mass marketing and campaigns.

E-commerce companies use AI to gather real-time shopping data and provide recommendations based on customers’ shopping journey. Social commerce is expected to grow extensively to enhance the outreach, and promote product and services.

With an indeterminate future, the Government of India is focusing on health and well-being, and reviving the economy. It has introduced a slew of measures to promote social distancing and enhance online activities. The Department for Promotion of Industry and Internal Trade (DPIIT) has drafted a national e-commerce policy to promote online shopping, integrate offline channels with online channels, and provide a platform and level playing field for local stores. The formulation of the policy will play a key role in the uptake of e-commerce activities in India.

The government is further enhancing e-commerce activities in the country by promoting online shopping in the form of easing of FDI norms, providing tax reforms, and simplifying tax structures for the ease of doing business.

Now, the question arises if there will be evolution of e-commerce models post COVID-19? This is one of the most dynamic sectors even otherwise. E-commerce is one business channel that will emerge stronger after COVID-19. More traditional businesses will want to go online.

New operating models would emerge and e-commerce models would evolve after the pandemic. Cross sectors are expected to collaborate more than ever to meet the increasing demand and fill the gap created by contagion. Moreover, businesses will expand into various verticals to provide multi-fold services and broader options to consumers.

COVID-19 is a reminder to the industry about the fragility in ways of doing business. It will be a game-changer for companies that will focus on evolving business models and transformational change with new and emerging technology.

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