Ecommerce Market Share Gains Slip Slightly

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After hitting a peak of 24% in the lockdown era of mid-2020, the ecommerce share of U.S. retail has slipped a bit but is expected to settle at 22% by year end, according to FTI Consulting, as consumer behavior has become entrenched even as stores have been reopened now for over a year.

“Online shoppers surged in number and purchasing volumes during the COVID-19 episode, whether by choice or necessity, and most were satisfied enough with the experience that they haven’t reverted to their pre-pandemic shopping ways now that it’s safe to shop in stores again,” the report authors noted.

Between Q2 of of 2020 and Q1 of 2021, U.S. ecommerce growth ranged from 45% to 53%, FTI found, based on U.S. Census data, the equivalent of three years of gains using pre-pandemic models. But for Q1 of 2022, there has been some give-back: ecommerce growth was 7%, compared to 10% for stores.

As did Edge By Ascential in June, FTI is predicting U.S. ecommerce sales will top $1 trillion in Q3, three years ahead of their pre-pandemic modeling. But the firm cautioned that overall retail sales growth – online and store – will slow for the balance of 2022 due to inflation, Fed action on interest rates and the exhaustion of pandemic-related government assistance.

“Not only will retail sales growth weaken over the remainder of this year, but inflation will take a bigger bite of sales for most retailers, many of whom are reluctant to fully pass on cost increases to shoppers,” according to the report authors. “As bad as price shocks have been for consumers, many retailers have been absorbing some product and fulfillment cost increases for fear of alienating shoppers.”

The authors also noted how many major retailers have been warning about further margin contraction into the back half of the year, despite sales growth, as operating costs continue to soar.

John Yozzo, a managing director at FTI and one of the report authors, said with the government-fueled consumer hoard-and-splurge activity in the rearview and the reality of economic headwinds settling in, the rest of 2022 isn’t shaping up to be a retail boon.

“Strong consumer spending continued into 2022, but we’re seeing it decelerating,” Yozzo said. “And with inflation so high, the real gains for retailers are negligible or negative. You have consumer spending up 6% but inflation up 8%, so they’re not feeling great about that. We’ll see much more tame spending for the balance of year. The party is over.”

In June, the Consumer Price Index soared even more, to 9.1%, according to the Bureau of Labor Statistics figures out today, above the Dow Jones estimate of 8.8% and the highest in 40 years.

According to FTI’s report based on U.S. Census data, total nominal retail sales (i.e., not adjusted for inflation) increased 7.6% in 2020 and by 14.4% in 2021, “easily the best two-year period on record for the retail sector,” noting that the average gain this century has been about 4.5%.