The Demise Of E-Commerce Is Greatly Exaggerated

This is a topic that’s been on the minds of many retail executives and industry watchers in recent months, with some pointing to declining e-commerce growth rates and share of sales as evidence of a regression to pre-pandemic levels. For example, Shopify
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Chief Executive officer Tobi Luke wrote in a letter to employees:

“What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful five-year leap ahead. Ultimately, placing this bet was my call to make, and I got this wrong.”

Qtr E-Com Share of Retail Vs Projection

But this interpretation is misguided, and it ignores some crucial facts about the state of e-commerce today. For one thing, the idea that e-commerce is somehow in decline is based on a narrow and misleading view of the data. When we look at e-commerce as a ratio of total retail sales, it certainly looks like growth has slowed. But this view ignores the fact that total retail sales have also been growing, just at a slower rate than e-commerce.

Quarterly E-Com Revenue Vs Projection

In other words, the relative growth of e-commerce has slowed, but the absolute growth of e-commerce revenue has actually been accelerating. In fact, according to data from the US Census Bureau, in the twelve months from Q3 2021 to Q3 2022, US e-commerce sales exceeded $1T for the first time. Year-to-date e-commerce sales in the US have grown 87% from the same period in 2019, before the pandemic. Total US e-commerce sales for the entire period of the pandemic (from Q2 2020 through Q3 2022) are more than $630B higher than pre-pandemic forecasts.

So why do some people continue to argue that e-commerce is in decline? One reason is that they are focused on the wrong metrics. For example, some have pointed to Amazon’s
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stock price decline as evidence that e-commerce is struggling. But this ignores the fact that stock price does not correlate to company revenue, and e-commerce sales are merely one segment of Amazon’s increasingly complex business model.

Another reason overlooked is the fact that e-commerce sales across product categories were impacted very differently by the pandemic. Some categories, such as apparel, did have artificially high e-commerce sales, which diminished as customers felt more comfortable returning to stores. But other categories, such as grocery, experienced a permanent increase in e-commerce share of sales.

BOSTON, MA – NOVEMBER 10: Parking spots for curbside pick-up are pictured at Target at South Bay … [+] Center in Boston on Nov. 10, 2020. Retail trends are changing during the Covid-19 pandemic, and Target has increased the amount of parking spots available for curbside pickup. (Photo by David L. Ryan/The Boston Globe via Getty Images)

Most importantly, this discussion focuses on an outdated definition of what e-commerce actually is. Are mobile pickup orders at Target
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from a local store inventory e-commerce? What about groceries sold from an independent grocer through an online marketplace like Instacart?

The simple truth is that an increasing number of consumers are discovering new products via digital experiences rather than in physical stores. A survey of US consumers conducted in November by New Consumer and Coefficient Capital, found that Generation Z consumers were approximately half as likely as Millennials to discover new beauty products in-store but three times more likely to discover them via TikTok and YouTube. In fact, Forrester recently estimated that 61% of all US sales are now influenced by digital experiences, and projects that 70% of all sales will be digitally influenced by 2027.

In conclusion, the idea that e-commerce is in decline is based on a narrow and misleading view of the data. In reality, e-commerce is experiencing strong growth, driven by permanent changes in how consumers discover new products and make purchase decisions. Retailers who underestimate this trend do so at their own peril. E-commerce is here to stay, and its future looks bright.