The internet is a vast and seemingly limitless ecosystem, but for e-commerce, the potential for growth may be finite.
Retail sales growth online has been slowing for the past four consecutive quarters for the first time since 2012. And, according to a report released Monday by FTI Consulting, the trend may represent an inflection point for e-commerce, which had been growing steadily for nearly a decade prior.
The firm said retailers can expect to see sales of $575 billion in 2019—a 12.3 percent increase from 2018. By comparison, sales increased by 14.2 percent in 2018, when the online market grew from $450 billion to over $500 billion for the first time. In 2017, sales increased by 15.6 percent.
Still, online sales continue to threaten brick-and-mortar retail, capturing almost 43 percent of the total retail sales growth during 2018. FTI’s analysts estimate that market share will continue to grow by about one percentage point per year through 2022. The report projects that online retail sales will top $1 trillion by the end of 2025. During that same time frame, analysts indicate that e-commerce sales will achieve 21 percent market share of total retail sales (excluding the auto and gas categories). Presently, online retail accounts for 15 percent of overall sales, and analysts expect the category to reach a “ceiling” of 30 percent by the end of the next decade.
According to Christa Hart, FTI’s senior managing director in the retail and consumer products practice, several factors are contributing to the slowing of growth from late 2018 onward, but “no single event could explain why shoppers curtailed spending growth in the second half of the year and continue to do so.”
Despite the effects of trade tensions and a government shutdown in 2018, Hart conjectured that there “may be nothing wrong with the online sales channel except for the fact that it is beginning to experience an inevitable slowing of sales growth.”
And because of that, she recommends retailers heed the industry’s shifting headwinds and re-examine online strategy decisions as they forward.
“Failing to do so could result in over-investment in costly online expansion projects, such as distribution centers and logistics support, under a potentially erroneous assumption that high growth rates are sustainable for a prolonged period,” she added.
This advice applies mostly to small-to-mid-sized businesses, though.
Referring to Amazon and the Prime Day phenom that’s currently dominating the internet, FTI’s J.D. Wichser, leader of the retail and consumer products practice, said, “Not many retailers, especially in this age, can say they have created their own shopping holiday.” The slowdown in growth, he added, will impact “the channel as a whole,” but it may be felt less by established online leaders like Amazon and Walmart.
“The migration of retail sales to the online channel is still a story in progress, with growth remaining in the low double-digits,” Wichser said. “However, with a notable slowdown in online sales growth for the first time since the end of the recession, it is time to consider whether an inflection point is at hand and how e-commerce and omni-channel retailers will respond.”