E-commerce at an inflection point
E-commerce penetration in the US saw the same growth in the first 8 weeks of COVID-19 restrictions as it did in the 10 years before. Lockdowns and restricted mobility associated with the pandemic have sharply accelerated mega-trends that were already in motion, such as the decline of brick-and-mortar retail and online grocery shopping.
The sheer velocity of change has opened up several opportunities across the ecosystem
- Expansion in e-commerce infrastructure, as the step-change in sheer volume of goods sold online strains the existing infrastructure. There is need for (1) more system capacity across logistics and fulfillment, and (2) increased productivity of existing assets, e.g. through automation
- Software to enable omni-channel sales for enterprises and SMBs across all elements of the operational stack, e.g. POS systems, operational systems for inventory management and supply chain tracking, customer analytics, payments, trust and verification systems
- Tools that make the online shopping experience social and experiential by enabling virtual try-ons (e.g., L’Oreal’s branded lenses on Snap’s platform), “social commerce” (already popular in China), and product discovery. For example, AdeptMind powers natural language-based search so customers can search using descriptive terms like “products for sensitive skin” or “modern jewelry” instead of highly specific product searches
- Challengers to Amazon — both incumbents and insurgents — have a (narrow) opening: Even before this inflection, Amazon had replaced Google as the starting point for many consumers in their purchasing journey, and half of US households had joined the Prime membership program. The pandemic has only intensified Amazon’s choke-hold on online commerce — but the magnitude of growth has opened opportunities for others as well. The speed of change has caused even Amazon to trip in categories like grocery, creating new opportunities for insurgent retailers like Instacart. As The Information reported last week, Instacart has soared past both Walmart and Amazon in online grocery sales. In addition, insurgents and incumbents are accelerating efforts to build the “not Amazon” version of each element of the e-commerce stack. New alliances being formed in this effort, such as the opening up of Walmart’s marketplace to Shopify sellers. Smaller players like Deliverr have recently raised significant funding to build the “not Amazon” version of two-day fulfillment services
- Omnichannel data, distribution, and discovery, which are critical as traditional CPG’s advantages are weakened in an online world. Decline in foot traffic in physical retail and grocery are upending the historic advantage of incumbent CPG giants — distribution. To meet consumers where they are (at home), CPG companies are having to rapidly build up online capabilities. However, this is not quite as simple as setting up an online storefront — there are strategic choices related to pricing / packaging / merchandising that brands need to work through. In addition, the challenge of tracking inventory across online and offline channels in a distributed network is significant, and companies need real-time data to quickly detect “stock outs” on shelves and get the right products to the right nodes
COVID-19 has sharply accelerated several mega-trends in e-commerce that were already under way, and has created a unique opportunity to upend incumbent industry structures. At G2VP, we invest in companies bringing emerging technology to unlock sustainability and efficiency in traditional industries such as retail and logistics. Given the potential for e-commerce to significant reduce the overall carbon emissions of retail, we are excited about companies that are building enablers of this next era of e-commerce.
If you are working on a venture related to e-commerce infrastructure do please reach out via LinkedIn. This is a rapidly evolving space, and I hope to keep these insights as fresh as possible.
Monica Varman is an investor at G2VP, a venture / growth capital firm focused on sustainable innovations in traditional industries. She previously worked at Tesla, Zola Electric, and McKinsey & Company.