The question isn’t whether the COVID-19 virus has changed the way you shop. It’s more a question of the degree to which the pandemic has altered how you acquire everything from Clorox wipes to a Mercedes and nearly every other purchase in between.
It’s also a question of whether skyrocketing online shopping during the present crisis will have a lasting impact on consumer habits and what that might mean to Kentucky, where logistics, including lots of ecommerce order fulfillment, is the second largest employment category in the state with some 75,000 workers and accounted for about one-eighth ($27 billion) of the state’s $217 billion GDP for 2019.
In the last six years, the number of new distribution and logistics jobs created in the state—nearly 15,000—was exceeded only by the number of new automotive industry jobs (approximately 21,000), according to the Kentucky Cabinet for Economic Development. Tack on another 1,700 logistic hires in Kentucky that Amazon announced last month to meet the spike in demand.
Thousands of those logistics jobs are linked directly to online shopping. While there remain many questions about COVID-19, one thing is certain: Online shopping went through the roof in March and April, and no one yet knows about the long-term impact.
- IT’S FREE | Sign up for The Lane Report email business newsletter. Receive breaking Kentucky business news and updates daily. Click here to sign up
For example, Verst Logistics, headquartered in Walton, said demand for ground coffee produced by a roaster in Louisiana increased by nearly nine times during the height of the sales surge. While a typical order to Verst would be for about 7,000 packs, that order ballooned to 60,000 at one point, said Dean Hoerlein, Verst’s vice president of distribution and fulfillment.
“All of the fulfillment is eight to 10 times the normal for the last couple of weeks,” Hoerlein said in a mid-April interview.
“When this all came under lockdown, our volume spiked. We probably doubled the normal volumes of produce and food for a week or two,” said Kenny Ray Schomp, president of Longship, a logistics/trucking company in Lexington. “We restocked everything, and then the volumes kind of settled down to normal and that’s kind of where we are now.
“We probably did 400 or 450 loads that (first) week and typically do right around 300,” said Schomp, said whose company specializes in produce, meat and other food deliveries and works with customers that supply grocery chains such as Kroger and Giant.
Online sales of hand sanitizers, gloves, masks and antibacterial spray jumped 807% from Jan. 1 to mid-March, according to the Adobe Digital Economy Index, an online barometer of the digital economy. Over-the-counter drug purchases for cold and flu remedies and pain relievers shot up 217%, slightly less than the increased demand for toilet paper, according to Adobe figures.
BOPIS, which is Adobe shorthand for Buy Online Pickup In Store purchases, jumped 62% over a one-month period that ended March 21.
It’s estimated that about 15% of all retailing is done online, said Mark Mathews, vice president of research development and industry analysis for the National Retail Federation, an influential trade group that supports traditional and online retailers and counts Walmart and Amazon among its members.
“It absolutely is a surge” Mathews said about the online increase, “and I think once stores are open (again) we will eventually return to shopping as normal.”
Likely a new normal, though.
“I think part of that surge is going to stay,” he added. “I think this (the crisis) is introducing online retailing to segments of the population that weren’t necessarily doing that before.”
With many stores closed and repeated warnings to stay home, Matthews notes, online shopping was, in effect, the only game in town.
Digital Commerce 360, which tracks online retailing, reported online sales growth for last year at 15%. That amounted to 16% of all retail sales, compared to 10 years ago, when online sales were 6.4%.
Will new buying habits remain?
“There are more questions than answers right now,” said Steve McClain, director of communications and public affairs for the Kentucky Retail Federation, the state chapter of the National Retail Foundation. “Part of it depends on how long this goes on. Is this something people forget about in six months or is this going to have a longer carryover effect?”
German airfreight shipper DHL Express, which built its global hub for the Americas at the Cincinnati/Northern Kentucky International Airport, believes the crisis is likely to boost online sales numbers in the future.
DHL has added routes and purchased cargo aircraft capacity, according to Jeff Billingsley, vice president and general manager of the Kentucky hub, while taking precautions to keep its workers safe as they maintain “full operation” at its hubs in Hebron, Hong Kong, and Leipzig, Germany.
“I think we will see greater globalization and connectedness as a result. Individuals who were once reticent to do their buying online are now seeing the ease of use, flexibility and convenience—something they can easily get used to,” said Lee Spratt, CEO of DHL eCommerce Solutions for the Americas. “This experience has now opened a new world to digital immigrants from different generations. Due to this global pandemic, those who are not digital natives have been forced to adopt or at least research new avenues for buying their most necessary items, from toilet paper to food.
“The longer that this crisis continues, I believe we may see significant increases in online purchases, in particular with grooming products, home products, office equipment, workout equipment, entertainment and electronics,” he said.
DHL now shares its massive sorting facility at the airport in Hebron with Amazon while the online retailing behemoth completes construction of a $1.5 billion air hub that will open nearby next year.
Crisis underscores importance of logistics industry
Amazon wouldn’t respond to specific questions about business growth during the pandemic or beyond but the company commented indirectly by providing plenty of information about job creation in Kentucky and elsewhere in the country, a sure-fire indication that business has been booming. In a four-week period that ended in mid-March, Amazon hired 1,700 new employees in Kentucky, bringing its statewide total to about 14,700, according to company spokesman Andre Woodson.
By mid-April, the company had hired another 100,000 nationwide and said it would boost pay for its global workforce by $350 million, Woodson said.
UPS also has a huge presence in the logistics industry in Kentucky: Including part-time employees, UPS has about 29,000 employees in the state, most of them in Louisville, where its massive Worldport air hub is located. According to the Kentucky Cabinet for Human Resources, UPS ranks second to Ford Motor Co. in the state with just over 12,900 full-time jobs in the manufacturing, service and technology category.
Kentucky is well aware of the importance of the logistics industry to the state’s economy.
“For consumers, online ordering and home delivery quickly became the go-to method during this crisis, both in terms of usage frequency and for a broader range of goods. That appears likely to continue as part of the new normal,” said Jack Mazurak, communications director for the Economic Development Cabinet.
“Kentucky’s logistics and distribution industry has long served as an economic development lighthouse—particularly in recruiting manufacturing and service-related businesses reliant on global overnight shipping. As well, the industry has been a major factor in decisions by many existing companies to expand in Kentucky,” Mazurak noted.
“Thanks to UPS, DHL and Amazon air shipping hubs, Kentucky is fast becoming the nation’s No. 1 air cargo state. And, Kentucky is home to hundreds of small and mid-size logistics companies that are by nature nimble and responsive to market and demand shifts. Given those strengths and foreseeable post-pandemic changes in both consumer behavior and how businesses operate, the industry in Kentucky is well-positioned for success,” Mazurak said.
Order fulfillment has changed
Hoerlein of Verst and Schomp of Longship both pointed out that some segments of their businesses have declined.
Verst packages products for companies such as P&G, Kraft and Dr. Pepper and also warehouses products, handles order fulfillment and delivers products by truck to brick-and-mortar retailers, online retailers, manufacturers and other shippers.
“We have a pretty diverse customer base so we’re seeing the highs and the lows of multiple industries. The automotive—from our perspective in the warehouse segment (of our business)—is currently going gangbusters. At some sites where we do (the delivery of) the raw materials and where we’re working in the production and manufacturing side, we’re shut down,” Hoerlein said.
Meanwhile, some companies “…don’t have anywhere to go with their product so we’re seeing a huge influx of short-term storage for stuff that was manufactured.”
The fulfillment segment also has been booming. Before the COVID-19 crisis, Hoerlein said products that had been shipped in bulk are now being shipped to consumers in much smaller quantities. “Before we could send a thousand units out the door with one pallet move. Now that thousand-unit order is going out in a thousand different boxes.”
Schomp added that he believes online shopping will continue to grow and traditional retailers without an online presence will be negatively impacted.
“One thing that business hates is uncertainty,” said Tom Underwood, the Kentucky director for the National Federation of Independent Businesses, which claims a membership of about 4,000 in the state. “A lot of members of the public have gotten into the habit of online shopping and that’s going to be to the detriment of a lot of small businesses.”
Underwood stressed the importance of having an orderly plan to reopen the economy so that business owners have time to prepare by recalling employees, stocking their stores and taking steps to “assuage the concerns of the public” about venturing out to shop.
“There’s been a big change in consumer confidence and until they feel safe going to stores and restaurants and sporting events it’s going to change their buying,” he said.
Once it’s all over, Underwood had some advice: “Buy small. Support the small businesses that support your Little League and your neighbors.” ■
Greg Paeth is a correspondent for The Lane Report. He can be reached at [email protected]