On March 13, 2020, the U.S. declared the COVID-19 pandemic a national emergency. At the same time, grocery stores flooded with people stocking up amid the unknown as the virus spread across the country.

In the months following, industries and businesses of all types and sizes reckoned with changes to business operations, changes in consumer habits, and impacts on the supply chain. For example, according to McKinsey, early in the pandemic many manufacturers saw a drastic increase in demand for toilet paper for use at home, while demand dropped abruptly for commercial toilet paper products .

We also saw changes happen later in the year as the holiday season approached. As COVID-19 cases continued to fluctuate, consumers, manufacturers, and retailers prepared for a holiday season that looked a lot different and would take place online. Widespread concerns over shipping led many to warn of “shipageddon” as packages were likely to be significantly delayed.

All in all, as we look back over the past year, we find that a lot has changed about the way we all live, work, socialize, and buy. The pandemic has thrust digital alternatives across the manufacturing, retail, and services industries into the spotlight and forever changed how consumers and businesses think about commerce. 

This edition of the Avalara Commerce Monitor uncovers the biggest pandemic-influenced trends in our transaction data from March 2020 to February 2021 across the following industry verticals:

This report spotlights a group of small online businesses (0–19 employees) to compare their performance over the past year with overall trends for small businesses in the U.S.

People accepted life at home in stride by shifting most of their daily routines to the confines of their living spaces. Everything from work to fitness to shopping had to be done from home — creating a massive shift in consumer behavior toward a culture that’s become predominantly digital-first. As a result, there’s now an online component for nearly every facet of our everyday lives — online shopping, telehealth, online fitness, online education, grocery delivery — and the list continues to grow.

The shift in consumer behavior that’s taken place over the past year is the type that typically takes years to achieve, which means there were considerable growing pains felt across the manufacturing, retail, and services industries. 

The pandemic's forcing function made change happen fast. There were no alternatives — contactless shopping and transitioning to online happened practically overnight just to keep businesses open. Usually, these types of decisions are made over time with careful planning and transition periods, but adopting ecommerce so fast meant many had to bypass the usual steps in expanding their business and trying new channels.

The impacts of this leapfrog effect on business-to-business (B2B), business-to-consumer (B2C) and marketplace sales also affected supply chains throughout 2020 — initially when consumers bombarded grocery stores to stock up and again in the fall as retailers geared up for the holiday season.

Retailers also had to cope with ongoing changes to in-person capacity limits and in-store closures throughout the year as the number of COVID-19 cases waxed and waned. Many also had to navigate shipping and logistics challenges for the first time as their online operations scaled. Simply put, the only certainty from the past year was continual change.

From ecommerce acceleration to changes in consumer confidence — the Avalara Commerce Monitor uncovered five trends fueled by the pandemic that will continue to impact the economy for the foreseeable future.

The rapid shift to ecommerce compressed years of change into months, creating a range of challenges for businesses across manufacturing, retail, and services. At the onset of the pandemic, many businesses had to shift their entire business model to online-first as quickly as possible.

This ecommerce acceleration created a number of opportunities for some businesses and verticals. Over the past year, we’ve seen a drastic increase in sales for businesses suited for social distancing and life at home. For instance, analysis of the transaction data of five home fitness businesses shows their sales grew by 25% in April 2020 compared to the same month in 2019 as more people transitioned to working out at home when many gyms were required to close.

Similarly, Avalara found that sales for five grocery delivery businesses grew by 74% in March 2020 compared to the same month in 2019. We also saw a spike in grocery delivery sales as COVID-19 cases spiked in November — up 68% from November 2019.

While it’s likely many in-person businesses will continue to rebound as vaccine rollouts continue and when the pandemic eventually subsides, the major takeaway from the past year for all businesses is this: The shift toward ecommerce is here to stay. According to the U.S. Census Bureau, ecommerce sales amounted to $792 billion in 2020, which is equivalent to 14% of total retail sales — increasing from 7.3% of total retail sales in 2015 when in-store shopping reigned supreme.

As we move forward, it’s unlikely consumers will revert to pre-pandemic shopping behaviors. Instead, omnichannel commerce will likely experience continued growth as consumers embrace a hybrid approach to shopping that includes both online and offline channels to make purchases.

At the beginning of 2020, experts warned of “supply shocks” due to disruptions to the availability of goods coming out of China as the coronavirus spread across the country. As the pandemic spread to other regions of the world, including the U.S., supply chains began to reckon with “demand shocks” as consumers stocked up on staple items. From there, we witnessed a series of aftershock impacts on supply chains as COVID-19 cases rose in certain regions or demand increased for specific items.

The Avalara Manufacturing Index monitored these impacts, including the demand shock felt in March and April. At that time, the Avalara Manufacturing Index dropped more than 20 points between March and April 2020 as supplies were wiped out.

Fortunately, as consumers settled into life at home and restrictions began to ease in early summer, manufacturers were able to ramp up production — leading to a steady climb in the Avalara Manufacturing Index through August.

Source: United States; World Health Organization; U.S. Department of Commerce; January 22, 2020 to February 28, 2021.

It’s clear consumer confidence has been shattered over the past year and the tumultuous nature of COVID-19 cases across the country continues to batter confidence levels. When comparing the Avalara Retail Index to the Consumer Confidence Index, total retail sales mapped closely with changes in consumer confidence levels.

Looking closely at the Avalara Retail Index and the Consumer Confidence Index, we find several similarities throughout the year. At the onset of the pandemic, consumer confidence levels and total retail sales tanked in April before beginning to rebound.

Following the initial shock, we found that total retail sales tended to decrease following a drop in consumer confidence. For example, consumer confidence dropped significantly in August and was followed by a drop in total retail sales in September.

We also found that as retailers and consumers prepared for the holiday season, the Avalara Retail Index saw total retail sales increase in October, while consumer confidence also remained relatively high.

Source: The Conference Board; Consumer Confidence Survey ; February 23, 2021.

The change to the holiday season began early in the fall as many retail supply chains were put to the test in preparation for extraordinary ecommerce demands during the holidays. The Avalara Manufacturing Index hit its year-to-date high in September — up 18% from the 2019 baseline. The spike in manufacturing sales in September signaled an earlier-than-usual start to the holiday season.

Following suit, the Avalara Retail Index showed a spike in total retail sales in October followed by a sharp decline in sales in November. The increase in October was likely the result of many strategies retailers employed to encourage customers to shop online, while also mitigating the impact on supply chains.

In preparation for the holidays, most major retailers began online holiday sales as early as mid-October after Amazon postponed Prime Day from its usual summer slot to October and retailers worried about shipping delays closer to Christmas. Retailers spread out “doorbuster” deals over a longer period of time and offer fewer major sales to ease supply chain tensions.

Due to the combination of supply chain concerns and the ongoing reliance on ecommerce throughout the year, the usual jump in retail sales in November was spread out over the course of months instead of weeks. Because the 2020 holiday season was made longer, we were able to see the Cassandra Curse unfold.

Ahead of the holiday season, experts warned that more online sales during the rush of the holiday season could put significant pressure on ecommerce platforms and supply chains — leading to delays in shipments throughout the holidays. Because manufacturers, retailers, and distributors planned ahead for the forewarned disruption, the actual impact throughout the season was minimal compared to what was predicted, which led some to call out that the holiday season was not as much of a concern as originally thought.