E-commerce; Entering the Next Wave of Growth

Amazon turns 25 next year—a striking reminder that the e-commerce industry is no longer in its infancy. Yet despite decades of growth, we believe e-commerce still has ample opportunities to expand, and 2020 is giving us a glimpse of that growth potential. E-commerce has become the de facto shopping solution for many consumers amid the COVID-19 pandemic. Approximately 16% of retail sales in the second quarter happened online, a robust 44.5% increase from Q2 last year.

In the medium term, e-commerce’s next wave of growth is likely to come from greater penetration of retail categories that historically lagged, like groceries, health, and autos. The opportunity is significant: combined, groceries, health, and autos represented 44% of total U.S. retail sales in the first half.2 Another key growth driver includes an expanding user base, from pandemic-driven tech adopters within the Baby Boomer and the Silent Generation, as well as the continued emergence of the emerging market consumer.

Longer-term, we expect technologies like augmented and virtual reality (AR/VR), social commerce, and drone delivery to help e-commerce further narrow the gap with traditional brick-and-mortar shopping.

E-commerce: From Niche, to Norm, to the Stay-at-home Era

Over the course of a generation, e-commerce steadily transformed from offering predominantly books, CDs, and electronics to just about any kind of product or service that a consumer could want. Certain retail categories were primed for e-commerce from the early days. For example, it didn’t take long for consumers to realize that they could find a wider range of electronics & appliances at better prices through their internet connection. E-commerce’s penetration rate for electronic & appliances, including computers and related equipment, was already 14% in 2005.3 Today, the category is nearing 50%.4

Clothing also quickly moved online, with a penetration rate rising from 5% in 2005 to 25% today.5 In our recent survey, Consumer Adoption of Disruptive Technologies, 40% of survey participants reported that they were comfortable buying smaller-ticket items like clothing, shoes, and cosmetics online. In our view, it’s these types of purchases that illustrate how e-commerce shopping is now a deeply-engrained habit for many consumers in certain spending categories.

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