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Intro

We're living in the golden age of memes. I'm fully capitalising on this modern artistic renaissance. But maybe that's just my way of justifying the 2 hours a day I spend on Instagram and TikTok… Clearly you lot are up to no good too:

Blame it on the Covid-19


There's an interesting theme I've noticed in recent conversations.

One view (not saying it's mine) is that Covid-19 – a critical exogenous change causing widespread destruction that no one person can be blamed for –
is the perfect smokescreen for massive pivots and changes.

While on the outside, several startups are in incredibly hard positions and forced to make impossible decisions, certain founders are seeing this as an opportunity to revamp business models they felt (deep in their heart) were stalling.

Bakar

The earliest data of a post-peak Covid-19 world is from China. I talked last time about demand catalysts in certain pockets. But the question is which behaviours will be sticky.

On that note, one statistic from this McKinsey report really stood out to me this week:

retailers in Asia—where pre crisis online penetration was much higher than in the United States—are expecting a “sticky” increase in online penetration of three to six percentage points as they reopen stores.

The above quote relates to Western markets and represents a step-function increase in adoption of online commerce. Marketing dollars which would have taken 2-5 years to percolate into encouraging users to try the online option are saved as the doubters realise "hey, this online thing actually works".

What's interesting is that rather than the organic disruption of D2C, internet-first brands that we have seen over the last 5 years, now it will probably be established retailers that stand to benefit most… as long as they have a sophisticated ecommerce experience.

Legacy shifts to ecommerce

While public markets are down 25-30%, e-commerce companies like Amazon (especially with AWS) are crushing it. You would think all the old-school offline retailers are getting killed, right?

Well, most of them yes, but Walmart, no. In fact, they're up since the market crashed. Why?

Turns out Walmart had built a solid e-commerce platform but Walmart shoppers never cared to use it before. With Amazon's supply chain operating at max, suddenly people are turning to Walmart to shop online.

After years of waiting, it looks like Walmart's Demand Catalyst finally made it to the party.

Why this is interesting

We've become used to software slowly but surely eating everything that it's quite jarring when the effect of it is compressed into a few months – and you see predicaments like this:

if online penetration increases by 10 percentage points and gross margin falls by 1 percentage point, driven by increased pricing pressure, retailers could expect store profitability to decline by up to 5 percentage points.

That's huge. Those kinds of numbers push brick-and-mortar stores out of business en masse. So who stands to benefit?


The rails. If you're enabling the long-tail to shine, this isn't just an exciting time, it's the beginning of a brand new world. For years, offline retail in the West has been shifting to experiential concepts: Lululemon stores don't just sell yoga pants, they hold live classes; Aesop doesn't just sell soap, you're indulged in an aromatic cleansing ritual.

It's only high-end products that easily lend themselves to such drama. Staples and conveniences quickly moved online during the lockdown. So where does this road lead - will offline retail become an experience dominated by the high-end?
Covid-10 reports

Here's some reading that's worth your time. They're all PDFs so you know can bet they're serious (why is this a thing?).
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