Payoneer CEO: eCommerce’s Surge And Brick-And-Mortar’s ‘Vicious Cycle’

The coronavirus has spurred a seismic shift in commerce, moving shopping into the digital realm.

Consumers are buying anything (and seemingly everything) and conducting all manner of everyday business online because that is their only option.

In an interview with Karen Webster, Scott Galit, CEO of Payoneer, said the impact will continue to be global in scope and deeply felt across all avenues of commerce — giving new rise to cross-border commerce.

“We’re going to feel the implications of this for a very long time,” said Galit, who has particular insight into cross-border activity in China and the surrounding region.

There’s at least some prologue to a health crisis underpinning a surge in eCommerce, Galit noted.

He pointed to SARS, earlier in the millennium, serving as a huge catalyst for eCommerce in China, and particularly for firms like Alibaba.

“We’re obviously much further along in the development of digital commerce now than China was then,” he observed.

Even before the coronavirus started its terrible spread across the globe, the stage had been set for eCommerce to make inroads against brick-and-mortar shopping. As Galit told Webster, physical shopping was already facing challenges as digital business models were embraced by consumers for convenience, and companies willing to make the leap to eCommerce platforms enjoyed cost advantages.

To get a sense of where we are now, consider the fact that as Payoneer found in its recent Q1 eCommerce Index, cross-border sellers in the U.S. and U.K. saw massive spikes in their year-over-year sales volumes across the first quarter, up 53 percent.

That came as there was a flurry of demand for products deemed essential, or that customers could use at home in quarantine.

There are two trends taking shape, said Galit.

“One is the acceleration of online commerce — but it’s actually accelerating the decline of physical retail,” he said.

Brick-and-mortar operations will experience a “vicious cycle” as the disruption of the pandemic winds on.

The longer customers are trepidatious about going into physical stores, the longer the physical stores will remain shuttered. The longer the stores remain shuttered, the more firms will look to keeping customers engaged online.

Increasingly, predicted Galit, firms rooted in physical commerce, or with less robust digital presence, are going to have to change in order to capitalize on some of the new digital opportunities and remain relevant.

The Cross-Border Opportunity

Along with the physical to digital shift, cross-border eCommerce is also rife for structural changes. Galit remarked that, from Payoneer’s vantage point, a significant number of sellers had difficulty gaining access to inventory because manufacturing plants were closed down, creating negative ripple effects across supply chains. (The demand shock has proved to be a separate issue but should rebound.)

“With this whole crisis starting in China, we very much were focused on the supply chains, manufacturing and logistics coming out of China,” he said. “We pretty quickly recognized that so much of the eCommerce supply all over the world in some way, shape or form has exposure to China as part of its supply chain.”

Constraints on the supply chain and logistics infrastructure had led to surcharges and increased pricing.

But, he added, China has been remarkably resilient and came back online quickly, leading to stabilization in general.

Although there remain “pockets of issues” around the world, he said, the larger the business and the more diverse the supply chain access they had before the crisis, the better off they are now.

He added that in the West, there has been relatively heavier reliance on less diversified chains (and where they may have been hit by, say, Amazon’s throttling back on warehouses and non-essential deliveries), but that’s likely to change.

“These are important characteristics of natively digital businesses anyway,” he said, and benefits can be seen through flexibility with logistics. “We had some of our partners reporting that they were literally getting thousands of new and interested customers contacting them to see about taking advantage of alternatives, logistics and supply chain infrastructure.”

Part of the supply chain revamp is due to firms getting ready for the next wave of demand, anticipating the transformation in purchasing behaviors that may lie on the other side of the pandemic, sizing up what people will buy, and what they won’t.

As PYMNTS found in its own recent research, 58.4 percent of consumers who bought cleaning supplies both before and after the pandemic have gone digital, as have 43 percent of consumers who bought medical supplies in-store; and 35.9 percent of those purchasing books, games and other hobby materials did so online.

Galit said the most successful merchants and enterprises across the firm’s platform have already been diversified in their wares or have been selling some of the aforementioned products in addition to “microtrends” that have seen people snapping up bread makers and outfitting their home offices.

Conversely, people will be spending less on concerts and sporting events, going out less often to movies and restaurants, he predicted.

Digital will be a bigger share of spend overall, he said, noting that as digital goes across borders, consumers will become increasingly comfortable with transacting across an international stage.

As Galit told Webster: “Businesses that really think as merchants as opposed to ‘product companies’ are actually finding more success. They’re able to understand changing consumer demands and behaviors much more quickly and really figure out how to meet those needs.”