We are on the precipice of four consecutive quarters of massive digital adoption by consumers around the globe. Without skipping a beat from the 56% growth we observed in Q4 globally, Q1 2021 same site digital sales grew 58% year over year, according to data from the Salesforce Shopping Index. This increase was primarily driven by online traffic (27% higher than last year) and the amount shoppers spent per visit (31% higher that last year). What factors, aside from the shuttering of physical stores, drove this unprecedented growth? And what clues does it give us to help accurately report on comparable store sales, or comps, and forecast future demand?
In other words, how do we “Comp COVID”? Here we explore what’s happening based on data from more than a billion global shoppers.
The last weeks of Q1 gave us the biggest clue
As stated above, global online revenue grew by 58% in the first quarter of 2021, marking another record-breaking quarter since COVID hit. But it’s important to remember that the majority of last year’s first quarter was considered pre-COVID for most of the world. Lockdowns and stay-at-home orders for most of Europe and North America weren’t enacted until early or mid-March. This makes March a truly critical month when it comes to comparing post-COVID behavior.
When we analyzed March data we noticed three trends that spurred one big question: Was the digital surge driven by pure channel adoption alone? Or was there something else at play?
The first trend we found was that it’s obvious the digital surge we reported on in 2020 didn’t begin until the second half of March. Our research showed that daily online spending in the U.S. jumped 113% just one week after the March 13 emergency order. At the time, we thought this surge was consumers switching channels as they became more cautious and subsequent stay-at-home orders closed non-essential physical stores.
We then uncovered the second clue when we broke down and compared the weekly spending performance in 2020 and 2021. Despite the sharp upward trend in spending in mid-March last year, our research shows March 2021 growth for that same week far outpaced the prior year, growing by 72% year over year. As a channel grows and matures, the expected outcome (from a mathematical perspective) is that growth also slows. With a larger denominator, and in the absence of any significant changes to our current COVID-situation, how is it that growth is still on such a steep upward trajectory?
And then we noticed the third and final clue. Growth for the final two weeks of March 2021 suddenly drops off, falling below 2020 growth rates. Why is there a drop? This led us to hypothesize two possibilities. The first is that something happened in mid-March 2021 that was more significant than the prior year’s novel stay-at-home orders. The second being that there was something else besides the lockdowns happening last year to drive the incredible digital adoption we witnessed.
Stimulus to the rescue?
In March of 2020 and 2021, the U.S. government passed two of the largest stimulus bills in the country’s history. But it’s not just historic because of the dollar amount. It’s also a rare moment when the government put cash into the hands of millions of Americans via a stimulus bill. Many wondered how Americans would spend the money, and our data shows a direct and positive impact on digital shopping.
The first clue that tipped us off was that massive growth rate that we mentioned in the third week of March 2021. Looking at daily spend, we noticed a clear upward trajectory in the middle of March. We charted this daily spending against the timeline for the signing and distribution of the American Rescue Plan Act (ARPA) and we noticed a clear trend.
Between the signing of the bill and the distribution of the relief money, our research showed a significant increase in daily spending. Once the bill is signed, daily spending increased by 117% year over year. After the checks were released, daily spending fell back down.
We also noticed a clear increase in promotional marketing leading up to check release. Average discount rates rose to 19% by mid-March – an uptick from the monthly average of 17%. Is this trend an anomaly, or is there a repeatable pattern here?
The next step of our analysis was to look at how American spending patterns changed after the CARES Act was signed into law in March of 2020. We charted daily spending in March and April against the timing of the bill and we found another clear pattern. After the CARES Act was signed on March 27th, spending ramped up quickly. Between April 1st and April 17th, when 89.5 million payments were issued totaling $160 billion, online daily spending grew by 81%. Then, as the checks were released, spending dropped back down. And just two days after the law was signed, average merchandise discount rates peaked to 29%, a rate we typically see only during Cyber Week.
So what’s really going on? The stimulus bills seemed to pump money directly back into the retail economy. There seems to be a clear and distinct increase in consumer spending between when a bill is signed into law and when the checks are cut. Once the checks are received by consumers, there’s a clear drop off in spending activity.
April provides a clue for the rest of 2021
Based on our data and analysis, the digital surge in the U.S. was driven by two main factors: stay-at-home orders and the stimulus payments. Stimulus money gave more buying power to American citizens, driving up spending in the midst of shutdowns. This superficially inflated last year’s Q2 growth numbers to over 90%. I believe the true digital growth number was likely somewhere between 60% to 70%. This is closer to what we observed throughout the rest of the year when digital spending growth fell to a more reasonable (but still aggressive) rate of 62% in Q3 and 43% in Q4.
A sneak preview of early April data, combined with what we saw in the final weeks of March, hint that we are in for more modest growth for the remainder of the year. Our data suggests that an online spending increase of <10% is more likely for Q2. While digital adoption is still happening, we will probably not see any additional growth on top of the surge that began last year. Nonetheless, a new digital baseline is here to stay.
What does this mean for retail in 2021?
So how does this affect retail for the remainder of the year? Here’s what we predict:
Prediction #1: Consumer buying power may not be as strong this year
Given how correlated the growth in consumer spending was to the stimulus in both 2020 and 2021, and the absence of a new stimulus bill (and unemployment benefits ending in September), we don’t expect to see much additional incremental consumer spend in the latter half of the year.
Although the child tax credit is expected to release later this summer, this likely will not have the same effect on spending as the last stimulus rounds. Growing inflation rates have the potential to suppress buying power, especially for the portion of the population that needs stimulus the most. With gas prices increasing 22.5% in the last 12 months and grocery prices increasing by 3.7% over the same period, the value of the dollar will be challenged.
And, as the U.S. money supply continues to accelerate at unprecedented rates, more inflation could be on the way. White House experts advised in April that inflation is expected to continue to rise this year and not go back down. Coupled with the looming end of the rent and mortgage moratorium and continued supply challenges, spending forecasts are much tougher to predict. If current economic trends continue, it could mean that much of this extra buying power consumers enjoyed last year will be checked by rising prices this year.
Prediction #2: Spending will shift from “needs” to “wants”
When COVID first hit last year, spending for certain product categories skyrocketed. According to our Shopping Index data, online grocery sales surged 330% mid-March. As we settled into April, spending continued to shift away from apparel and splurge categories (like luxury) to products that would make consumers more comfortable at home (beauty products, furniture, and toys). Fundamentally, needs changed. Toys, which may have been more of a splurge pre-pandemic, became a need as parents entertained children at home. Electronics became a need as people set up home offices. Furniture and appliances also became a need as people had to turn their homes into a place of work, entertainment, and relaxation overnight. But I’m thinking that as the world continues to open back up, we will see a mindset shift in spending, even if consumers don’t have additional spending power. Consumers will move from need-buying to want-buying. Spending on apparel, luxury goods, and experiences will all come back into play.
It’s also important to keep in mind that household budgets may also shift as restaurants reopen. Spending money that was reallocated from dining to retail purchases last year may start to shift back to dining. As long as reopening trends continue, expect consumer spending focuses to shift as well.
Prediction #3: Comping growth will be a challenge
Both store and digital year-over-year comps are going to look a little strange for the remainder of the year. For Q2 especially, we are more likely to see either slightly positive or even flat online growth in the absence of additional spending bills. And with brick-and-mortar traffic beginning to ratchet back up, I anticipate a rebalancing with year-over-year comps between stores surging and online leveling.
It’s critical not to look at the numbers at face value. The winners that emerge from this year will be those that learn to scale their omni-channel solutions that they quickly implemented last year. For the back half of 2021, I expect digital growth to settle into a more predictable pattern of 10% to 15% year over year per quarter. We will also fall back into a more predictable pattern of spending around the holidays (Prime Day, back to school, Cyber Week, etc.), with certain seasons like back to school seeing a resurgence as schools open back up to full capacity in the fall. One thing is clear: The global economy has reached a new standard in digital penetration as consumers continue to adopt the channel as a means of inspiration, purchase, and fulfillment at an incredible pace.
Powered by Commerce Cloud, the Q1 Shopping Index uncovers the true shopping story by analyzing the activity and online shopping statistics of more than one billion shoppers across more than 51 countries, with a focus on 12 key markets: U.S., Canada, U.K., Germany, France, Italy, Spain, Japan, Netherlands, Australia/New Zealand, APAC (excluding Japan and ANZ) and the Nordics. This battery of benchmarks provides a deep look into the last nine quarters and the current state of digital commerce. Several factors are applied to extrapolate actuals for the broader retail industry, and these results are not indicative of Salesforce performance.