I wouldn't say that's it. Stores (Best Buy, Target, Walmart, Gamestop, etc.) have been trying to clear space for next gen consoles for months. Manufactures aren't making new copies of old gen games either. So this BF we weren't going to see as many games, only whatever stores are trying to clear out that they didn't months ago.
Doesn't help how big newer systems are. They take up a lot of shelf space that stores needed to make room for.
So it isn't that people are going digital more, stores just don't want old inventory and need more space for newer consoles / games.
I don't disagree with you about clearing out old inventory. Sure, when it comes to the last gen games, of course that's why you see fewer PS4 and Xbox One games.
But to look only at that doesn't explain the clearly reduced floor space to blu-rays and DVDs, and the significantly fewer sales and inventory selection offered by stores like Walmart, Target, and Best Buy this BF. This is not just about Covid-19; it's clear from the ads that retailers aren't offering as much physical media. And even when they do, they're not flying off the shelves. Target, for example, has had Disney blus on sale for $10 for weeks. A year ago, those would have sold out everywhere, but now with Disney+, all of them remain in stock.
Most of us know that physical media is well on its way to niche territory, where those interested in buying them will pay premiums to smaller publishers who'll be able to demand higher prices. I think that sucks, but that's just the way it's going.
Frankly, for video games, it's going even faster. That's because greedy publishers love the idea of selling digital licenses, where gamers own nothing, and retailers are cut out entirely. Add patches and DLC transactions, and you quickly see why games have moved so quickly to digital in just the past few years.
Xbox Game Pass and Microsoft generally is certainly one of the biggest reasons the industry has gone this direction at this pace, and it's only going to go faster with Series S. Heck, they even convinced Sony to release a disc-less version.
All of this is to say that clearing out old inventory isn't the real reason. Floor space for games and movies have been cut down by every big retailer. It's only a matter of time before your only option to buy anything non-AAA will be online.