TECHNOLOGY

Report: Online sales will reach $645 billion in 2020; but growth slowing

BY Marianne Wilson

Online retail sales growth may have reached an inflection point.

Online sales growth has slowed for four consecutive quarters for the first time since 2012, according to FTI Consulting’s 2019 U.S. Online Retail Forecast, and may have reached an inflection point that could result in slowing growth moving forward. The Retail & Consumer Products practice at FTI expects U.S. online retail sales of $575 billion in 2019, a 12.3% increase over 2018. That compares to a 14.2% increase in 2018, when the market grew from $450 billion and topped $500 billion for the first time, and a 15.6% increase in 2017.

Online sales growth has slowed to 13.3% in the most recent four quarters from 16.1% a year earlier, and it has weakened further to the low-12% range in the two most recent quarters. However, the online channel still captured nearly 43% of total retail sales growth in 2018, the Retail & Consumer Products practice estimates, with continued market share growth of approximately 1 percentage point expected annually through 2022.

“While several negative developments in late 2018, including a government shutdown, the escalation of trade tensions and a sharp sell-off in the financial markets, could have contributed to consumers’ skittishness, no single event could explain why shoppers curtailed spending growth in the second half of the year and continue to do so,” said Christa Hart, senior managing director in the Retail & Consumer Products practice at FTI Consulting. “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. For omnichannel retailers, recognizing an inflection point for their product categories should impact business planning decisions. 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.”

The forecast projects that online retail sales will reach $645 billion in 2020 (a 12.1%) and will top $1 trillion by late 2025. Online retail sales will achieve a market share of total retail sales (excluding auto and gas) of 21% by 2025, compared to 15% in 2019, and will approach an expected ceiling of 25% near the end of the next decade, or 30% if the grocery category is excluded.

Amazon.com continues to maintain a significant presence in the online retail space, with its online market share expected to increase to 43% in 2019 from 41% in 2018, eventually topping 50% in 2024, according to the forecast. The online retailer’s sales growth rate may mirror the overall slowing trend in e-commerce sales, with growth easing to 19% in 2019 from 30% in 2018, the forecast projects.

“The migration of retail sales to the online channel is still a story in progress, with growth remaining in the low double-digits,” said J.D. Wichser, leader of the Retail & Consumer Products practice. “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 omnichannel retailers will respond. While a slowdown in online sales growth will impact the channel as a whole, it may matter less for established online leaders, such as Amazon and Wal-Mart, as they focus their efforts on getting existing customers to spend more with them.”

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