Online retail sector slowing, reports FTI Consulting

Despite a projected $575 billion in US online retail sales in 2019, the sector may be slowing down, according to FTI Consulting’s “2019 US Online Retail Forecast.” The amount is a 12.3% increase over the $513 billion in 2018, but when compared to the 14.2% increase in 2018 over 2017 – or the 15.6% increase of 2017 over 2016 – it is apparent that sales growth may have reached an inflection point.

Additionally, online retail sales have slowed for four consecutive quarters, to 13.3%, down from the 16.1% of last year. “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 continues to do so,” Christa Hart, a senior managing director in the retail and consumer products practice at FTI Consulting, said.

But declining percentages don’t necessarily mean online retailers need to worry – they accounted for 43% of total retail sales growth in 2018. Market share growth of approximately 1% will continue each year into 2022, predicts FTI Consulting. Total sales could hit $645 billion in 2020 and more than $1 trillion by 2025. This would put the total market share of online retail sales at 21%. The expected ceiling for the sector is 25% - 30% if groceries are included in sales numbers, and will be reached at the end of that decade.

“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,” Hart continued. “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.”

Amazon is one such company that will have to make adjustments for the future. Although the online retail titan will see a market share increase of 43% in 2019, up from 41% in 2018 – and could hold a 50% market share by as early as 2024 – it has experienced slowed growth (19% in 2019, down from 2018’s 30%).

“The migration of retail sales to the online channel is still a story in progress, with growth remaining in the low double-digits,” J.D. Wichser, leader of FTI Consulting’s retail and consumer products practice, 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 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.”