Ecommerce keeps on growing reaching new records

Despite a lot of discussion around the demise of the ecommerce channel, ecommerce have reached a new record in sales: $1 trillion in sales during the last 12 months (LTM).

There has been considerable debate on the challenges of online retailing and how some forecasters overestimated the future growth of ecommerce druing the pandemic. Most famous of them probably has been the image by shopwn by Shopify in their layoff announcement.

Image Source: Shopify

In the letter Shopify states (as have done multiple pundits since them) that the ecommerce explosion during the pandemic, that was supposed to continue after the pandemic, has normalised. Shopify used online channel’s share of all retailing as the proxy of the growth and success of the online channel.

It did grow rapidly, but has also dropped quite significantly during 2021 and especially in 2022.

However, share of online is not a good measure of the growth of online, because it is depoendent on two variables: online channel and the bricks and mortar channel.

Online retailing has been growing ever since the 2008 financial crisis. Why then did its share of revenue drop lately?

The drop in online share is purely due to the fact that the bricks and mortar business, which accounts for over 85% of all retailing, has grown at an unprecedented pace after the pandemic restrictions have been opened up. Before the pandemic the bricks and mortar retailing grew normaly at a 2-4 % yearly rate. A couple of times growth has reached 7% on a YoY basis.

In 2021 & 2022 stores grew over 10% for five quarters in a row. Such growth has not been seen in retailing ever before.

However, in Q3/2022 online sales growth surpassed store growth after 5 quarters of stores growing faster.

How about the forecast of Covid growth fading out?

The Shopify image above also highlights that online penetration would have reached same levels even without the pandemic. The point is that as the growth has slowed down significantly, we have reversed so much that the normal historical growth trajectory would have taken us at the same level anyway.

This is again a bit challenging line of thought as it relies on both ecommerce growth as well as store based. growth. Also it relies heavily on how much one would estimate the growth to be (ie. what is regarded as “historical” growth trajectory).

One could look at the absolute sales growth of the online channel and estimate the historical growth to be around 15%. In 2017 and 2018 online sales grew around 15% on an annual basis. However they declined from that during 2019. The image below illustrates how much Covid induced jump in online sales took the sales level.

Actually, online sales have not declined at any point after the pandemic. They jumped during the pandemic and have kept on growing from that higher base. In 2022, the growth has been a little slower that during the pre-Covid times. It remains to be seen how big Christamas 2022 will become for the ecommerce sector.

After surpassing the one trillion USD mark, online keeps on growing to become a much bigger part of the US retail market than many of us are willing to admit. For many of the players in the retail industry this can be a painful lesson to learn, if enough action is not taken early enough.

All of the data for the analysis is from the Census Bureau’s Quarterly Ecommerce Report. It can be found here.