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COVID Catapults E-commerce Sales To $1 Trillion – Operational Impacts and Strategy

COVID-19 isn’t entirely behind us, but everyday life
has largely resumed a semblance of normalcy and most Americans are
back to living as they did before the pandemic. That is not to say
we will be resuming all our pre-pandemic lifestyles and habits.
COVID-19 forced many changes upon us, some of which we are eager to
ditch (e.g., virtual Happy Hours) and others that will stick to
some degree (e.g., teleworking). For large retailers, understanding
what pandemic-induced changes in shopping habits will stick with
their customers is critical to planning the path

U.S. E-commerce1 retail sales enjoyed four quarters
of hypergrowth from 2Q20 through 1Q21, during which time quarterly
online sales growth (YoY) ranged from 45% to 53% compared to a
consistent low- to mid-teen growth rate in the years preceding the
pandemic — or the equivalent of nearly three years of sales
gains in those four quarters (Exhibit 1), while online market share
approached 21% (Exhibit 2). Online retail sales grew by nearly 43%
in 2020 and another 18% in 2021 (much of it in 1Q21), even more
than previous estimates, as the U.S. Census Bureau recently revised
its online retail sales data for 2020 and 2021 materially higher
than it originally reported. As much as e-commerce prospered during
the pandemic, it was even better than first thought, with online
retail sales over this two-year period revised upward by $140
billion from what was initially reported,2 or about 9%
higher, further amplifying its standout performance. Consequently,
U.S. e-commerce retail sales (LTM) are poised to hit the $1
trillion mark in 3Q22, representing a doubling of sales in just
four years.

The COVID-19 pandemic was a huge boon for online shopping, but
the question all along has been whether these market share gains
would be retained once shoppers were free to roam stores safely
again. So far it seems so, with online market share gains mostly
holding through 1Q22 even as the channel’s sales growth has
slowed, with just a bit of backslide in market share over the last
few quarters (Exhibit 2). 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.

Exhibit 1 — Retail Sales Growth (YoY): E-commerce
vs. Store-based


Exhibit 2 – E-Commerce Market Share of U.S. Retail
Sales (excluding Auto & Gas)


2021 Was a Jubilee Year for Most Retailers Regardless of

As insensitive as it may sound, the COVID-19 pandemic was the
best thing to happen in decades for large omnichannel and online
retailers, as it transformed the retail landscape in favor of the
largest and most tech-evolved incumbents. This windfall for large
retailers had several contributing causes, namely:

  1. stay-near-home living conditions that effectively forced most
    Americans to shop online more frequently and reduced competition
    from smaller store-based retailers;

  2. a surfeit of free time and personal savings for millions who
    were able to work from home for months;

  3. a redirection of consumer spending towards goods and away from
    services for housebound shoppers and;

  4. nearly one trillion dollars of financial stimulus payments paid
    indiscriminately to about three quarters of American households by
    Uncle Sam, much of it when the economy was already well on its way
    to recovery.

The result was an overstimulated economy, a huge spending spree
by shoppers since late 2020, more entrenched supply-chain
bottlenecks and accelerating inflation. Total nominal (i.e., not
inflation adjusted) retail sales (excluding auto and gas) increased
by 7.6% in 2020 (even with most non-essential retail stores shut
down from late March through May) and by an astounding 14.4% in
2021, easily the best two-year period on record for the retail
sector (Exhibit 3). (Nominal retail sales growth
has averaged about 4.5% annually this century.) Despite
consumers’ voiced concerns about inflation becoming
problematic, most shopped with abandon last year and into early
2022. The primary takeaway in retailing last year was that shoppers
spent like crazy, unlike any spending splurge we can recall, and
that benefitted most large retailers irrespective of shopping
channel. Don’t expect it to happen again any time soon.

Today, consumers’ concerns over a lingering virus and its
variants have taken a back seat to heightened anxieties about high
inflation, the exhaustion of pandemic-related financial relief,
rising interest rates and the Fed’s determination to slow down
the economy, which will impact jobs and personal finances to
varying degree. Total retail sales growth will slow markedly over
the balance of 2022, mostly because abnormally high sales growth of
the last two years isn’t sustainable, with much of it
attributable to hoarding and then splurging, paid for with a
pandemic-driven financial windfall that has been dissipated for
many Americans. Furthermore, most adults today have no personal
experience or recollection of living in a high-inflation
environment and, beyond the financial damage it inflicts, it has
become the primary source of stress for consumers, who don’t
know how long it will persist or whether the remedy will be worse
than the disease.

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. 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.
It’s not clear how much longer retailers can afford to do this
if cost increases continue at a high rate, and several large
retailers, including Walmart,3 Target4 and
Kohls5, have already warned about contracting gross
margins and operating margins over the balance of 2022 despite
expectations of positive sales growth.

Exhibit 3 — Retail Sales Growth: CAGR of 2-Year


E-commerce Sales Decelerating from Pandemic Hypergrowth

Following huge pandemic-induced gains in sales and market share
in 2020, many thought that e-commerce retailing would experience a
pause or contraction in 2021 as Americans began to leave the house,
resume their external lives and shop less often from their living
rooms. It didn’t quite play out that way until later in the
year. While the COVID vaccine rollout made it safe for most
Americans to be out and about again by mid-2021, COVID-19 variants,
particularly the Delta variant, created rolling waves of new cases
and lingering anxiety across the country that delayed the return of
normal living. We tend to forget that COVID-19 was responsible for
far more deaths nationally in 2021 than in 2020 despite nationwide
vaccine availability.

Consequently, many Americans did not fully resume their
pre-COVID lifestyles in 2021, even among the vaccinated. This
slower-than-expected return to normal life continued to
disproportionately benefit online retailing, especially in the
early months of 2021 when vaccine uptake was just underway.
E-commerce retailing again registered huge gains in sales and
market share in 1Q21, but that was the channel’s last boost
from the pandemic. Thereafter, consumers returned to stores in
considerably greater numbers, and online sales growth slowed
measurably over the balance of the year. Store-based sales growth
has exceeded online sales growth for the last four quarters
(Exhibit 2), something that hasn’t happened
since online shopping became a thing.

Going forward we expect annual online sales growth to moderate
near a low-double-digit rate in the next couple of years and
decelerate further over the balance of the decade as the e-commerce
channel approaches maturity. Nonetheless, online sales growth
should exceed overall retail sales growth by a factor of two
through 2030, thereby adding to its market share at a slowing rate.
Online sales in several product categories, such as apparel,
sporting goods, and toy & hobby, are past peak growth rates,
and the channel’s growth from here on will depend mostly on
lower penetration categories, such as grocery and home improvement,
where online market share potential is smaller. Online grocery
suddenly became a $100 billion category during the pandemic, but it
may not provide such high sales growth for the channel in a
post-pandemic economy.

Exhibit 4 — U.S. E-commerce Retail


On an LTM basis, e-commerce market share of total retail sales
(excluding auto & gas) jumped to 20.2% in 2020 (Exhibit
), a pickup of 500 basis points in one year, and
subsequently gained another 60 bps in 2021, finishing the year with
close to 21% of market share. However, on a quarterly basis that
better reflects recent change, e-commerce market share has slipped
slightly for three consecutive quarters, reflecting decelerating
e-commerce growth and improving store-based sales as shoppers
increasingly return to stores. For those who were concerned about
the possibility of a material reversal of market share gains in a
post-COVID environment, this is a very impressive hold for
e-commerce, though some more slippage could continue in the
quarters ahead. While it’s still early to reach any definitive
conclusion, it appears that e-commerce will retain much or most of
the hard-fought share gains it won during the pandemic. Some
givebacks should be expected, particularly in categories like
grocery, where online grocery sales have decreased slightly so far
in 2022 but remain far above pre-pandemic levels, which is what
really matters.

Has Amazon Peaked?

As the leading online retailer in North America, Amazon
certainly has benefitted from soaring online sales since the
pandemic hit, but its performance, as measured by retail sales
growth and market share, took a slight hit in 2020-21. This
shouldn’t be entirely surprising, as its largest competitors
have greatly improved their omnichannel businesses since COVID
after years of lagging performance.

With nearly $400 billion of incremental retail sales flowing to
the online channel over the last two years (compared to our
pre-COVID forecast), shoppers have spread around their business to
a host of large sellers, particularly in the grocery and other
consumables categories, so Amazon couldn’t have been expected
to maintain the estimated 41% online market share we believe it
held just prior to COVID-19. There are plenty of other competitive
alternatives for shoppers, namely the large general merchandisers/
big box retailers such as Walmart and Target, as well as the giant
supermarket chains, most of which have stepped up and excelled in
meeting shoppers’ high demands during COVID. This was
particularly appealing to shoppers given the broadening product
categories they were purchasing online during the height of COVID
and their highly varied preferences for pickup/delivery and
returns. Consequently, Amazon was sure to see its share of these
incremental sales fall below its pre-pandemic online market

Amazon’s domestic annual online retail sales growth, which
had handily outpaced such growth for the rest of the channel from
2015 to 2019, suddenly trailed the rest of online in 2020-2021
(Exhibit 5) for the first time, and notably so in
2021, as large omnichannel retailers were the biggest beneficiaries
of the pandemic. Amazon’s online retail sales growth (YoY) has
been less than 10% for the last three quarters, the first time we
can recall consecutive quarters that its retail sales didn’t
achieve double-digit growth.

Consequently, we estimate Amazon’s online market share
slipped approximately 200 bps over the last two years, to 38.7% in
2021 (Exhibit 6). That’s hardly alarming but
going forward it’s reasonable to expect this trend may persist,
as omnichannel retailers continue to be more competitive with
Amazon while shoppers increasingly appreciate the unique
conveniences of the omnichannel experience and the price
competitiveness of other large online sellers. Moreover, other
online sellers (omnichannel included) collectively have more room
to grow than Amazon does. Nonetheless, Amazon will remain the
nation’s leading online retailer, but if this trend holds and
omnichannel remains ascendant, the opportunity for Amazon to take
significant additional market share may be diminished.

Amazon has returned Prime Day to its traditional mid-July slot
after having moved it around to June 21-22 last year and October
13-14 in 2020. Prime Day 2022 comes at a particularly vulnerable
moment for the retail sector, with shoppers increasingly concerned
about the condition of the economy and their personal finances.
Most Americans have very negative views about “the direction
the country is headed” — whatever that means exactly
— for a variety of reasons, and consumer sentiment is at near
record lows despite a growing U.S. economy. It’s not a great
moment for American consumers by many measures, and if ever there
was a year when Prime Day wasn’t set up to be a blowout success
by Amazon standards, this would seem to be it.

And just to keep us on our toes, Amazon recently announced a
second Prime event, tentatively labeled “Prime Fall,”
scheduled for some time in the fourth quarter — the first
time it has held two Prime events in a calendar year. It’s hard
to discern what to make of this development, whether it’s an
opportunistic early grab at the holiday shopping season or an
improvised attempt to jumpstart sales momentum following several
quarters of uncharacteristic and uninspired growth from Amazon.
Investors hardly reacted to the news and are more concerned about
the prospect of flagging consumer spending as the economy weakens.
Surprisingly, Amazon’s stock price is just fractionally above
its pre-COVID valuation.

Exhibit 5 — U.S. E-commerce Retail Sales


Exhibit 6 — Amazon Market Share of U.S. E-commerce


FTI’s Consulting U.S. Online Retail Forecast

There’s persuasive evidence so far that COVID-19’s
impact on e-commerce shopping will be enduring, and that assumption
has been incorporated into our forecast model. We continue to
utilize a logistic growth model (or S-curve) to forecast online
retail sales and market shares in the decade ahead. The model was
developed using historical online sales and market shares since
2000 to quantify a best-fitting logistic curve equation and is
revised annually as additional online sales data become available.
A logistic curve is the most suitable growth model to apply to the
trajectory of online sales.

We project U.S. online retail sales will hit $1.07 trillion in
2022, an increase of 11.7% over 2021 and consistent with the
pre-pandemic growth trajectory for the channel. Our 2022 forecast
represents incremental online retail sales of $256 billion above
our pre-pandemic forecast model (Exhibit 7).
Several years ago, we projected that online retail sales
wouldn’t hit the trillion-dollar mark until 2025, but the
impact of COVID-19 upended those expectations.

As for market share, our forecast model puts the online
channel’s share of U.S. retail sales (excluding auto & gas)
at 22.1% by year-end compared to 20.8% in 2021 and 15.2% in 2019,
an impressive gain of nearly 700 basis points (bps) over three
years compared to annual market share gains of about 130 bps prior
to COVID. However, we expect online market share gains going
forward will slightly trail our pre-COVID estimates, as the
pandemic pulled forward e-commerce adopters who would have migrated
to the channel in subsequent years. In other words, some portion of
sizeable market share gains in 2020-2021 was taken from future
years, thereby reducing what those future gains would have been. Of
the incremental 360 bps of market share that the online channel
took in 2020 (that is, above what it would have gained had COVID
not happened), approximately 230 bps will be retained by decade
end, with the slippage attributable to slightly slower online sales
growth and market share gains from 2022 to 2030 compared to our
pre-COVID model.

We project U.S. online retail sales will surpass $2.0 trillion
by 2030 (Exhibit 8), while total online market
share will approach 31% by the end of the decade compared to 21% at
the end of last year. This represents a compounded annual growth
rate (CAGR) for online sales of nearly 8.5% over the rest of this
decade, considerably less than its historical pre-COVID growth, as
the online channel begins to experience the limits of its growth

Exhibit 7 — U.S. E-commerce Retail Sales (in


Exhibit 8 — E-commerce Retail Sales, Growth &
Market Share



Everyday life is quickly getting back to normal for most
Americans in 2022 yet won’t be the same as it was prior to the
arrival of COVID-19. We shop differently now than we used to, and
it has become evident since mid-2021 that the pandemic’s impact
on online shopping wasn’t merely a one-time boost that will go
away with the virus itself, as stimulus checks were. New shopping
habits acquired during the pandemic are mostly sticking despite a
recent revival of store-based shopping from dismal levels in 2020.
In particular, the apparel categories and supermarkets saw shoppers
return to stores last year, as waistlines and appetites both grew
during the pandemic while wardrobes were neglected. However,
consumers’ reengagement with in-store shopping could prove to
be short-lived once we remember how tiresome the experience had
become in pre-COVID times. For now, it’s still a novelty.
Moreover, sky-high fuel prices mean that financially stressed
consumers will be making fewer shopping trips —which will be
consolidated, more targeted and less leisurely. This could also
reinvigorate online shopping among cost conscious consumers try to
save a few gas bucks.

As for the online channel, the party is over but there will be
no hangover regardless of how and where people choose to shop in
the year ahead. Its near-term fortunes largely will be dictated by
how well consumer spending holds up overall. Total retail spending
remained surprisingly strong through 1Q22 but has slowed in recent
months, and that trend should continue as inflation persists and
discretionary spending cutbacks occur. Robust spending by more
affluent shoppers who aren’t as sensitive to rising inflation
has helped compensate for a growing cohort who are now pulling
back, so the profile of a retailer’s core customer base remains
as determinative as ever. For hard-pressed shoppers who are
sensitive to online delivery charges and other ancillary costs, any
price hikes or surcharges for fulfillment will be weighed against
competitors’ policies as well as the gasoline costs of driving
to stores instead. Price-sensitive shoppers go through these
calculations regularly. For online sellers, delivery and returns
costs have always been a margin killer, never more so than today,
and there are some hard decisions ahead should inflation in these
areas continue to increase.


1. E-commerce and online retailing are terms used
interchangeably throughout this report and refer to the purchase of
merchandise where the transaction is consummated electronically
from either an online-only or an omnichannel retailer, irrespective
of how a customer takes receipt of the merchandise.

2. U.S. Census Bureau and FTI Consulting

3. Melissa Repko, Lauren Thomas and Amelia Lucas.
Here’s what Walmart, Target, Home Depot and Lowe’s Tell Us
About the State of the American Consumer. CNBC,

4. Aishwarya Venugopal and Uday Sampath Kumar. Target
Warns of More Margin Squeeze As Excess Inventory Weighs.
Reuters, 2022.

5. Uday Sampath Kumar. Kohl’s Cuts Profit Forecast,
Becomes Latest Retailer to Warn of Inflation Pain.
Reuters, 2022.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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