After multiple, consecutive years of increasing growth online, FTI Consulting is forecasting a slowing pace of revenue gains. But researchers at the firm said the share of online sales will continue to take a larger share of total retail sales.
The report comes as macroeconomic conditions soften, and second-quarter GDP growth is expected to decelerate, according to a separate report from Telsey Advisory Group.
In the FTI report, the firm said U.S. online retail sales growth “year-over-year has slowed for four consecutive quarters for the first time since 2012 and may have reached an inflection point that could result in slowing growth moving forward.”
Christa Hart, senior managing director in the Retail and Consumer Products practice at FTI Consulting, noted that while there were “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.”
Earlier this year, WWD published an analysis of consumer spending, which found many households saddled with debt, spending more on health care, transportation and housing, and living paycheck to paycheck as well as “living beyond their means.”
The firm’s Retail and Consumer Products said in their research report that they expect U.S. online retail sales to reach $575 billion this year, which represents a 12.3 percent increase more than $513 billion in 2018. “That compares to a 14.2 percent increase in 2018, when the market grew from $450 billion and topped $500 billion for the first time, and a 15.6 percent increase in 2017,” FTI said in a statement adding that online retail sales will climb to $645 billion by 2020, which is a 12.1 percent increase, “and will top $1 trillion by late 2025.”
Authors of the report said online sales growth has slowed to 13.3 percent “in the most recent four quarters from 16.1 percent a year earlier, and it has weakened further to the low-12 percent range in the two most recent quarters.”
Still, FTI analysts said online sales still managed to capture “nearly 43 percent of total retail sales growth in 2018.” And the firm said it expects continued market share growth “of approximately 1 percentage point expected annually through 2022.”
Hart said 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.”
She warned that retailers “failing” to react to these changes in online sales “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.”
Regarding Amazon, which is touting its Prime Day sales event, FTI said the online giant continues to “maintain a significant presence in the online retail space, with its online market share expected to increase to 43 percent in 2019 from 41 percent in 2018, eventually topping 50 percent in 2024.” FTI said Amazon’s sales growth rate “may mirror the overall slowing trend in e-commerce sales, with growth easing to 19 percent in 2019 from 30 percent in 2018.”
J.D. Wichser, leader of the retail practice at FTI, said the migration “of retail sales to the online channel is still a story in progress, with growth remaining in the low-double digits. [But] 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.”
In the Telsey Advisory Group report, Dana Telsey, chief research officer, said “current economic data points are softening, with second-quarter GDP expected to show growth of around 1.3 percent as compared to 3.1 percent in the first quarter, with many of the key indicators displaying lower rates of increases, while low unemployment continues to drive wage and spending gains.”
In regard to the U.S.-China trade way and impact of tariffs, Telsey said “concerns remain in focus, depending on the day and which direction the wind blows, as the impact of 25 percent tariffs on around $300 billion of ‘List 4’ goods from China would negatively impact the earnings of companies and the spending power of consumers.”