Impact of COVID-19 on Omnichannel Retail: Drivers of Online Sales during Pandemic

Abstract

Measures to limit the spread of COVID-19 have impacted retailers greatly. While many retailers temporarily closed their physical stores – due to stay-at-home orders and mandatory non-essential business closures – some online-only retailers witnessed higher sales. An omnichannel retailer is exposed to both of these effects, and in addition, may be affected by the channel-shift of its existing customers from stores to online. Using a proprietary dataset, we provide the first empirical evidence of the impact of COVID-19, particularly government interventions, on an omnichannel retailer’s performance. We find that online sales increase, driven both by the acquisition of new customers and by online purchases from existing customers who previously purchased items primarily at physical stores. In contrast to the latter effect, online purchases from existing customers who used to purchase primarily online did not change. The retailer also benefits significantly from introducing an essential product (e.g., hand sanitizer) into its portfolio, even though it is not part of its core assortment: the essential product helps the retailer acquire new customers and induces previously offline-leaning customers to shop online. Our study reiterates how being omnichannel can help the retailer adapt during a pandemic, and offers useful tactical suggestions for managers; for example, targeted advertising of the retailer’s online channel could be combined with new customer promotions in high-income areas.