2020 – eCommerce is Finally Real

I’m tempted to go back to look for predictions around eCommerce. But rather than looking back through old archives, let’s look forward to how the retail landscape will change in the coming weeks, months, and years. 

We’re looking at this in light of the news from the biggest player in eCommerce Amazon, which today announced that a large proportion of its 175,000 temporary employees would be offered permanent positions. Amazon’s plan to retain more than 70% of its temporary workers suggests a tectonic shift in U.S. retail. This has broad implications across the U.S. economy. We’ll get that shortly. In the same Wall Street Journal article, Walmart was quoted as saying that some of its 235,000 temporary workers will also be offered permanent positions. 

Inching Our Way Towards eCommerce

Let’s back up for a minute, however. If you look for charts depicting the annual retails sales broken into eCommerce and all retail, you’ll see a remarkable linear chart with eCommerce taking an incrementally larger share of the overall pie quarter by quarter, year by year. In essence, the American consumer was inching their way toward eCommerce, deliberately but not in any step function. 

Recent data from the DigitalCommerce 360 indicates that in 2017, eCommerce was just 13.2% of all retail sales. By the end of 2019, that same number was 16.0% representing just over $601 billion, a 2.8 percentage point increase, or a 21.2% increase. That is almost $3,000 per year in eCommerce spending per capita (over 18). 

Amazon claims it’s adding 125,000 of the 175,000 temporary workers to its workforce. At one point Amazon had 125,000 full-time fulfillment employees (we’re assuming sometime late last year). By adding 125,000 workers, it would essentially be doubling its warehouse staffing.

If we use Amazon as a barometer of the state of eCommerce, we could be looking at eCommerce approaching $1 trillion by the end of this year. Remember, at the end of 2019 eCommerce totaled $601 billion. Doubling that number may seem crazy given the economy has been so ravaged by COVID-19. Yet we believe pushing that number toward $1 trillion makes sense.

We also expect overall retail sales to continue to fall. Assuming a 20% overall decline, this means $3.7 trillion becomes about $3 trillion by the end of the year. If this holds true, it would put eCommerce at nearly a third of total retail sales. Now we’re looking at a hockey-stick like acceleration. 

Here We Go Again

This matters a lot because it means that we’re in another period of what we used to describe as the “big box” effect. This is where the big retailers would wipe out Mainstreet retailers. We saw this during the first wave of the Internet when companies like Pet.com tried to shift the buying behavior of the American shopper.

Back then we saw countless mom and pop retailers that couldn’t keep pace with changing buyer expectations. As we transitioned through that period, new brick and mortar retailers found thriving niches. But this period may well be different. The eCommerce titans (including the likes of Shopify) keep making buying online easier and easier. 

We have a hunch this is likely to happen again. With Amazon, Walmart, and large grocery chains gaining considerable market share during due to COVID-19, smaller retailers will find it more and more difficult to compete without the likes of Shopify helping them move into eCommerce and online shopping.

But for those trendy fashion and gift retail stores in the toniest American neighborhoods (whose shopkeepers we suspect are kept afloat by their significant others), the rest of the American retail scene will take a considerable hit. The additional consequences of this shift will make for some bleak profit and loss statements for strip malls operators. It will also pressure local municipalities as their tax bases will fall due to depressed retail sales. 

Taxation on the Horizon?

Here’s the upshot. We think local, state, and federal municipalities will look to taxing the likes of Amazon. Of course, they have tried this before. But now there will be additional pressure to look to the largest eCommerce players to fill the tax gap left by both the declines in retail sales and the shift to online commerce. 

We’re all in for a ride, buckle up and hang on. 

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