Every industry worldwide has been hit hard by the global COVID-19 pandemic. In particular, the consumer retail industry, a highly visible economic indicator, stands out. With personal in-store experiences shut down, high-end retailers not prepared for eCommerce and digital being “second of mind,” consumer retail businesses now realize that digital Infrastructure is a necessity, not an option.
Retail sales may be down, but eCommerce is Soaring
When a major brand-named retailer files for bankruptcy or closes stores, it is big news. According to Forbes, store closures around the world from COVID-19 were at 14,324 by mid-October 2020.[i] And those that filed for bankruptcy are not just “Mom and Pop” shops; huge U.S. brand names such as Pier 1 Imports, Pizza Hut and JC Penny were among those looking to restructure due to high debt. And global brands such as Zara, H&M and GAP are closing hundreds of stores around the world.
According to eMarketer, total retail sales worldwide are expected to hit $23.358 trillion in 2020, down 5.7% from 2019—and nearly 12% below the pre-pandemic estimate of $26.459 trillion.[ii]
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How retail is pivoting toward new business models
The news is not all doom and gloom, as some retailers are making the necessary shifts in how they sell products and engage customers. Financial Times reports that French luxury groups Hermès and Kering forecasted stronger third quarter sales due to increased demand from Asian and U.S. consumers to offset the lack of tourists.[iii] And U.K. department store John Lewis & Partners is embracing digital and trying out in-store virtual reality. Even Harrods is branching out from its famous Knightsbridge location, opening up a “discount” store miles away in a less high-end side of London. And luxury jeweler Tiffany’s has started to run TV ads during replays of the popular series “Mad Men.”
But the biggest gains are in eCommerce, where U.S. holiday sales are expected to surge by 35.8% to offset shoppers minimizing in-person shopping trips. It is expected that Black Friday and Cyber Monday combined online sales will rise to $20 billion.[iv] Online holiday shopping has already started in October with Amazon, Target and Walmart all expecting to break eCommerce sales records. In the U.K., Black Friday is on November 27th with Cyber Monday following on November 30th, however, it seems that the whole month of November has more bargain sales than the previous year. This is primarily due to the government’s announcement for a new national lockdown in England during November, where non-essential businesses will be closed for Black Friday.[v] The total 2020 spend for Black Friday and Cyber Monday in the U.K. is expected to be around £6 billion (approx. USD 7.7 billion), up from £5.6 billion (approx. USD 7.3 billion) in 2019.[vi]
Interconnection growth indicates increased digital transformation in the retail market
The fourth annual Global Interconnection Index (GXI), a market study published by Equinix, reveals how the global Wholesale & Retail Trade industry is harnessing interconnection — the direct and private traffic exchange between key business partners — to build and interconnect digital infrastructure that creates competitive advantage. Set against the disruption of the global COVID-19 pandemic and other macro trends, GXI Vol. 4 tracks, measures and forecasts the growth of interconnection bandwidth,[vii] a key barometer of global digital adoption.
The GXI predicts the global Wholesale & Retail Trade industry will experience a 35% compound annual growth rate (CAGR) between 2019 – 2023. In a related field, Banking & Insurance, the GXI estimates a 38% CAGR. These growth rates indicate that wholesalers, retailers and financial services firms, in particular those in digital payments, are undergoing continued digital transformation.
Another interesting trend revealed by the GXI is service provider interconnection is expected to grow faster than enterprises, with an incredible 5x increase in their interconnection bandwidth forecast over the next four years. This is happening because enterprises are leveraging service providers with established digital platforms to support their growing requirements as a result of COVID-19. Just look at the 2020 Amazon Prime Day results – small to mid-size third-party vendors made more than $3.5 billion. eCommerce platforms from AWS, Google Cloud, Alibaba Cloud and others are helping retailers of all sizes gain access to customers and, more importantly, critical ecosystems such as financial services firms for digital/contactless payments and supply chain partners. Without these hyperscalers’ digital platforms, countless numbers of retail businesses would have gone under as a result of the pandemic.
The retail transformation journey on Platform Equinix®
The retail digital transformation journey began long before COVID-19 accelerated the demand for online/omni-channel shopping experiences. Many retailers already knew, long before COVID-19, that their future growth involved supporting an eCommerce platform, interactive customer engagement, and integration with digital payment service providers to offer contactless payments.
Here are some examples of how retailers are leveraging Platform Equinix to manage the new demands presented by increasing digital business and the pandemic:
- One of the world’s largest retailers with over 460,000 employees, serving
customers in 11 countries online and in more than 6,800 stores, was expanding into different formats, markets and sectors such as personal finance and domestic telecommunications. Equinix’s global footprint, with its geographic diversity of data centers in target metros, provided the retailer with a wide choice of major network service providers (NSPs) to choose from for their modern, high-speed global backbone, with proximity and private connectivity to a diverse range of cloud providers.
- A major global restaurant retailer needed to modernize its WAN and aggregate its affiliate and restaurant connectivity, including its access to multiple cloud providers. It leveraged Equinix FabricTM in major metros in the U.S., Europe and Hong Kong to deploy its digital infrastructure with regional redundancy, along with connectivity to its existing global MPLS network managed by AT&T. Equinix Fabric gave it a fast, low-latency on-ramp to AWS and Microsoft Azure clouds for its front office restaurant and back office application support respectively. Equinix Fabric and Cisco WebEx® Edge Connect also provide SD-WAN support for its global affiliates and restaurants.
- A Fortune 500, U.S. food chain retailer needed to support thousands of employees who were suddenly working from home due to the outbreak of COVID-19. It needed thousands of VPN access points for its remote workers, intensifying the pressure on its internet bandwidth. The company leveraged a hybrid cloud infrastructure on Platform using Equinix Fabric and Azure ExpressRoute to deliver the agility and flexibility it needed to scale to meet the enormous demands from its remote workforce.
The edge advantage for digital business
Retailers with hundreds of stores are also looking for more cost-effective ways to connect them together without impacting application performance. The need for edge hubs with SD-WAN deployments has become vital for this strategy. Enterprises need to solve for increasing data, shorten the distance between their services and consumers, keep transportation costs down and optimize end-to-end performance. By deploying a digital core and extending to the edge at Equinix data center locations, they have been able to solve for these needs.
Retailers can also harness network functions virtualization (NFV) capabilities via Network Edge from Equinix to provide access to leading vendors’ SD-WAN, cloud routing, firewall and virtual private network services. Virtual network devices such as those from AT&T, Cisco, Fortinet, Juniper Networks, Palo Alto/CloudGenix, VMware VeloCloud and Versa Networks can be deployed in minutes, without additional hardware purchases.
For example, Equinix Edge services enables retailers to deploy SD-WAN devices virtually without ever having to enter one of our data centers. This has been hugely beneficial during the global COVID-19 pandemic given its travel restrictions.
More specifically, Network Edge services enable quick deployments for customers. The diagram below shows how using Network Edge, an SD-WAN device can be connected physically (via cross connect) to a network or internet service provider, and virtually (via Equinix Fabric) to the cloud providers. This allows for a quick and alternate solution to deploying a physical network stack.
To learn more about building and interconnecting digital infrastructure on Platform Equinix to grow your retail business, read the IOA® – Consumer Retail Blueprint.
[iii] Financial Times, “Hermès and Kering add to signs of luxury goods recovery,“ October 22, 2020.
[iv] eMarketer, “U.S. Holiday Economic Sales will Surge 35.8% to $190.47 Billion, Offsetting Brick-and-Mortar Declines,” October 29, 2020.
[vii] Interconnection bandwidth is the total capacity provisioned to privately and directly exchange traffic between business partners.