The COVID Shock to Online Retail: The persistence of new online shopping habits and implications for the future of cities

During the initial months of the COVID-19 pandemic, total online consumer spending increased by 43.7 percent year-over-year (U.S. Census Bureau 2021).^[i] This unprecedented increase resulted from the threat of infection and local restrictions that made it harder to shop in-person. Further contributing, many households maintained their incomes during the pandemic through a combination of savings, work-from-home, and stimulus payments.^[ii] As acute pandemic conditions ease, it is an open question whether consumers will continue their new online shopping habits. If the increase in online retail is temporary, then short-term support for struggling brick-and-mortar businesses and city centers may be sufficient. However, if consumers maintain these new shopping habits, longer-term policies may be warranted to help cities adjust to a new equilibrium of where and how consumers shop.

The aim of this research is to measure the persistence of the COVID-19 shock to consumers’ online retail shopping habits through the pandemic. We focus on groceries, restaurants, and general goods – three products that account for half of consumer spending and grew rapidly online in the initial months of the pandemic.^[iii] We find that:

1. After the initial surge in growth in online spending at the start of the pandemic, consumers largely maintained that level through August 2021. By summer 2021, offline spending for restaurants and general goods returned to pre-pandemic levels despite consumers maintaining a higher level of online spending for these products.
2. The increase in online spending for restaurants and general goods is driven primarily by those who occasionally purchased those products online prior to the pandemic, while the increase in online spending for groceries is driven both by occasional and first-time online buyers.
3. People who live in low-income neighborhoods and neighborhoods with more than 30 percent non-White residents participated more in online retail than they did before the pandemic.
4. Recent offline spending growth is slower for consumers who spend more online.

There are many benefits to shopping online for most consumers, including time-savings, lower prices, and access to a wider variety of products (Bakos 1997, Forman, Ghose and Goldfarb 2009, Jin and Kato 2007, Jingting, et al. 2018, Jo, Matsumura and Weinstein 2019, Relihan 2021). However, to date, these gains have gone primarily to high-income and urban areas (Dolfen, et al. 2019). Furthermore, certain consumers and businesses may face harm in the face of a broad shift to online retail. Consumers who are unable to access online markets may be disadvantaged and face greater consumption inequality, as is common in new product markets (Jaravel 2019).^[iv] Similarly, businesses that are unable to break into or maintain a successful online presence may be disadvantaged as more consumers shop online for their goods and services.^[v]

Sample Description

We study the credit and debit card transactions of a panel of 13.1 million people from January 2019 through August 2021.^[vi] A unique advantage of these card data is the fine-grained information about the purchase and merchant that allow us to study detailed behavior by payment channel and product. We classify a transaction as online if the card was not present at the time of purchase. We also classify transactions into products based on the associated merchant category code, merchant name, and merchant location information.

Merchants in these online product categories roughly correspond to their offline counterparts, but with the addition of certain online-only retailers. Online groceries primarily consists of online delivery platforms and grocery curbside pick-up services. Online restaurants consists of both online food delivery platforms and online orders at individual restaurants. Online general goods covers both large stand-alone online retailers and online sales among a wide variety of small- and medium-size general merchandise retailers.^[vii]