In its 2018 U.S. Online Retail Forecast, FTI Consulting said it expects U.S. online retail sales to reach $525 billion by the end of the year, which represents a 15.9 percent gain over last year. The firm also said online sales account for 13.2 percent of all retail sales in the U.S. but that the share of total retail sales will begin to level off.
The company also said due to “stronger-than-expected results in 2017,” its retail practice unit “now expects U.S. online retail sales to top $660 billion by 2020 and surpass $1 trillion in 2025. This represents a compound annual growth rate of nearly 10 percent over the next decade.” But this growth comes at a cost.
Christa Hart, a senior managing director in the retail and consumer products practice at FTI Consulting, said online sales are “growing at a respectable rate for many omnichannel retailers in large part because they continue to bear nearly all the associated costs of attracting and accommodating online shoppers, while their store-based sales often languish.”
“This has made the omnichannel strategy far less lucrative for retailers than once anticipated, even though they collectively claim a majority of online sales,” Hart said. “An omnichannel strategy that is well executed and achieves respectable scale has allowed those retailers to remain competitive as the retail shakeout continues, rather than boost profitability and return on invested capital.”
Researchers at FTI Consulting are now projecting an “ultimate ceiling for total online share of U.S. retail sales,” expecting it to level off at “25 percent around 2030, demonstrating the potential to nearly double from current levels.”
“Annual online market share gain is peaking in 2018 at 135 basis points, and the forecast model expects online sales growth will begin to decelerate next year,” FTI stated.
For now, online sales are robust. And when looking at online sales growth compared to the total, the results are off-balance. “The online channel is taking a disproportionate share of total retail sales growth, with U.S. online sales growth accounting for 46 percent of total retail sales growth over the past year, an increase of more than 15 percentage points since late 2014,” FTI stated in the report.
Then there’s Amazon. Authors of the report said that with the “sprawling presence of Amazon.com across product categories, the forecast also projects that the retailer will continue taking a high proportion of online market share, increasing to 39.7 percent in 2018 from 35.7 percent in 2017, and reaching 50 percent in 2023.”
Khaled Haram, a senior managing director in the retail and consumer products practice at FTI Consulting, said, “We all recognize that Amazon is the preeminent online retailer, but what we’ve come to realize in the last couple of years is that Amazon’s total retail reach, particularly its third-party sales, is considerably larger than previously thought.”
“The Amazon ecosystem is taking the vast majority of U.S. online retail sales growth,” Haram said. “This is hampering efforts by large omnichannel retailers to retain or win market share without compromising margins and profitability.”
Still, companies can navigate the challenges. J.D. Wichser, leader of the retail practice and a senior managing director at FTI Consulting, said retailers with “a distinctive and cohesive omnichannel strategy combined with the ability to flawlessly execute on the operational dimensions will steal share, at an increasing rate, from those that can’t. This will be a rude, and expensive, awakening for many that have devoted considerable investment and effort in an attempt to transform their retail business.”