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E-commerce: Entering the Next Wave of Growth

Amazon turns 25 next year—a striking reminder that the e-commerce industry is no longer in its infancy. Yet despite decades of growth, we believe e-commerce still has ample opportunities to expand, and 2020 is giving us a glimpse of that growth potential. E-commerce has become the de facto shopping solution for many consumers amid the pandemic. Approximately 16% of retail sales in the second quarter happened online, a robust 44.5% increase from Q2 last year.1

In the medium term, e-commerce’s next wave of growth is likely to come from greater penetration of retail categories that historically lagged, like groceries, health, and autos. The opportunity is significant: combined, groceries, health, and autos represented 44% of total U.S. retail sales in the first half.2 Another key growth driver includes an expanding user base, from pandemic-driven tech adopters within the Baby Boomer and the Silent Generation, as well as the continued emergence of the emerging market consumer.

Longer-term, we expect technologies like augmented and virtual reality (AR/VR), social commerce, and drone delivery to help e-commerce further narrow the gap with traditional brick-and-mortar shopping.

ecommerce as % of total retail sales in the us

E-commerce: From Niche, to Norm, to the Stay-at-home Era

Over the course of a generation, e-commerce steadily transformed from offering predominantly books, CDs, and electronics to just about any kind of product or service that a consumer could want. Certain retail categories were primed for e-commerce from the early days. For example, it didn’t take long for consumers to realize that they could find a wider range of electronics & appliances at better prices through their internet connection. E-commerce’s penetration rate for electronic & appliances, including computers and related equipment, was already 14% in 2005.3 Today, the category is nearing 50%.4

Clothing also quickly moved online, with a penetration rate rising from 5% in 2005 to 25% today.5 In our recent survey, Consumer Adoption of Disruptive Technologies, 40% of survey participants reported that they were comfortable buying smaller-ticket items like clothing, shoes, and cosmetics online. In our view, it’s these types of purchases that illustrate how e-commerce shopping is now a deeply-engrained habit for many consumers in certain spending categories.

US Ecommerce penetration select categories

Unsurprisingly, e-commerce is particularly routine among younger generations. Many Millennials, born between 1980 and 2000, and Gen Xers, born between 1965 and 1980, favor digital marketplaces for the transparency, convenience, pre-ordering, and the ability to set recurring deliveries. Seventy-two million strong, Millennials are not only America’s largest generation, but they are now the largest generation in the U.S. workforce.6] Along with Gen X’s 65 million, that’s 137 million people for the e-commerce industry to cater to, which it largely has.7

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FOOTNOTES

1. U.S. Department of Commerce, “Quarterly Retail E-commerce Sales – 2nd Quarter 2020,” Aug 18, 2020.

2. US Census Bureau, “Monthly Retail Trade.” Jul 16, 2020.

3. US Census Bureau, “2018 E-commerce Multi-sector Data Tables,” May 13, 2020.

4. Ibis.

5. US Census Bureau, (n3.)

6. Pew Research, “Millennials overtake Baby Boomers as America’s largest generation,” Apr 28, 2020.

7. Ibis.

Originally Posted on September 9, 2020 – E-commerce: Entering the Next Wave of Growth

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