A pullback is well underway, yet ecommerce remains on a trajectory to grow for the long-term.
Shifts in consumer demand with a return to in-person activities. Supply chain challenges. A dispersal of customer acquisition channels beyond Meta properties following iOS 14.5 changes. A downturn in venture funding. Rising inflation and souring consumer confidence.
They’re all challenges being faced throughout the ecommerce community, from brands to retailers to the firms that provide technology and services that help them sell and move goods.
In many cases, these factors are at least in part behind pullbacks happening at firms in each of these categories, and layoffs.
Yet in the ecommerce market as a whole, there are signs of stabilization. According to the latest MasterCard Spending Pulse report, ecommerce spending was up 11.7% year-over-year in July, marking the first double-digit sales growth of the category since December after slowing growth in the beginning of 2022. While this was undoubtedly boosted by Amazon Prime Day falling in July this year, Mastercard noted that spending began to tick up in June.
Each fresh report that forecasts the comings years in the space still sees growth, as well. Forrester recently joined the chorus projecting that US ecommerce sales will cross the $1 trillion mark in 2022. The firm further projects that online retail sales will reach $1.6 trillion by 2027, and grow at a 10% compound annual growth rate over the next five years. By 2030, ecommerce will account for 30% of retail as a whole.
“From 2022 onward, we expect online retail sales growth rates to settle back at pre-COVID levels,” Forrester states. “The fundamental growth drivers of online retail — lower prices, greater product selection, faster delivery, and increased transaction convenience — will continue.”
The contrast can be heard on earnings calls to recap the quarter ended June 30 from CEOs that run ecommerce-focused businesses.
Home goods and furniture marketplace Wayfair was among those facing down a dip in ecommerce demand following pandemic lockdown months that saw interest in home goods and the need for ordering online soar. It is also now facing headwinds in the macroeconomic environment. The company reported that active customers were down 23.4% year-over-year, and it had a net loss of $378 million. The results were worse than investors expected on many measures. Yet even as leaders of the Boston-based company laid out the challenges with consumer spending and inventory, CEO Niraj Shah sounded a note of optimism that “difficult periods like this that can serve as a springboard to become an even larger share of the market.” Even as it works to get back to profitability in the short-term, the business is testing its model with physical stores as it builds for the future.
“We've always said that we run this business for the long-term, and nothing about that has changed,” said Shah. “The size of our category remains tremendous. The field is fragmented, the structural march of shopping more online will continue and Wayfair is uniquely positioned to grow and consolidate share over many years to come.”
Longtime platforms in the space such as eBay and PayPal were equally steadfast. It helped that both posted results that beat the expectations of Wall Street.
At eBay, revenue for the second quarter was down 9% year-over-year to $2.4 billion, while gross merchandise volume fell 18% to $18.55 billion. Still, this was better than expected. eBay CEO Jamie Iannone cited efforts to boost luxury products, as well as “focus categories” such as refurbished items, sneakers, jewelry and trading cards where it has concentrated resources helped to lift it. The company is also eying long-term strategic opportunities through a new climate-controlled, secure facility to facilitate selling trading cards called The Vault, a foray into NFTs through the acquisition of KnownOrigin and early testing in live shopping with collectors. Growth in advertising through its marketplace of 2% year-over-year is also helping, even as it reports that its customers face down the same macro challenges as others.
“We believe we're definitely coming out of the pandemic much stronger than we came into it, and our strategy is working,” Iannone said.
Fintech company PayPal's role as a processor for many merchants and longevity gives it a unique position to observe the ebb and flow of an economic sector. After topping estimates with $6.8 billion in revenue that was up 9% year-over-year, its second quarter results continued to show signs of an uptick in ecommerce. The volume of Buy Now Pay Later transactions that the company processed was up 226% year-over-year in the quarter. It was a contrast with Klarna, another top BNPL vendor that saw its valuation slashed in a new funding round, and was forced to make layoffs. Meanwhile, PayPal is set to expand Venmo payments to Amazon, creating a new way its peer-to-peer service will have a role in online shopping.
CEO Dan Schulman said that while predictions on the growth of ecommerce for 2022 as a whole are still a bit “hazy,” the analysis he reviewed showed growth accelerating in the back half of the year.
Schulman gave voice to another dynamic currently playing out in ecommerce: While the sector continues to grow overall, the rate that the share of ecommerce is gaining in overall retail is now slower than both the actual trend line, and the predictions for the near future showed in the first months of the pandemic. But while growth has slowed, it remains along an overall trendline that continues to move up.
“We are along the traditional historic ecommerce penetration rates and I'd expect that to continue, but we'll see how that normalizes,” Schulman said, adding that PayPal will “continue to expect to grow significantly faster than the rate of ecommerce going forward.”
With the landscape changing underfoot amid continued signs of growth in the future, the shakeout leaves room to look ahead to what the next, and likely different phase of ecommerce will look like. That’s happening at Pinterest, where a team is at work building out new shopping capabilities following the hiring of former Google commerce chief Bill Ready as CEO, and the acquisition of AI-powered shopping platform The Yes in June.
“Having spent most of my career in commerce and payments, I recognize that there are many places to buy online, but there are very few online destinations where you can actually shop – that is, to browse and discover and get inspired before you buy,” Ready told analysts.
Pinterest leaders say they find themselves in the middle of several trends in ecommerce that appear poised to gain more importance as brands and retailers navigate beyond this immediate period of change.
“I think the first 20-plus years of ecommerce were really solving for buying more than shopping,” Reddy told analysts. “It was – I know what I want, how do I get it the cheapest and fastest? And as you've seen consumers shift their behavior through the course of the pandemic, I think you're now seeing that the majority of shopping sessions now start in a digital environment, regardless of whether they complete online or in a store.”
The trend line may remain the same for the future, but ecommerce will look different. If you're looking to the hints for how, look to the challenges being faced now, and how they're being solved.
Following the rise of NFTs, Walmart, eBay and Meta are launching new tools to facilitate the exchange of digital goods.
Ecommerce has put the tools of the internet to powerful use, but it has long been centered on the movement of physical goods.
Over the last several years, a new wave of technologists and entrepreneurs have begun to explore the introduction of digital goods to ecommerce, where the value exchange lives entirely in the world of bits, without atoms.
After a period of study and testing, large platforms and retailers are beginning to move ahead with putting new tools to facilitate these transactions into wide release.
The area of digital collectibles is emerging as one of particular interest. Limited edition, collectors’ items have long commanded their own markets. Think of trading cards, action figures, limited-run pressings or the art market as a whole. Now, these are taking digital form. The emergence of tools such as nonfungible tokens (NFTs), which store harness blockchain technology to allow individual versions of digital creations to be available for buying and trading via cryptocurrency, are enabling the beginnings of a new kind of market.
Of the large platforms where ecommerce takes place, eBay has been among the earliest movers in this area. Given that the marketplace is already a place where physical collectibles are exchanged, the extension into digital collectibles makes sense in theory.
eBay has taken steps to put it into practice. The marketplace began allowing buying and selling of NFTs on its platform in 2021. The stated ideas behind the launch made it clear that it saw digital collectibles fitting into the platform.
“eBay has always been the world’s destination for buying and selling the most unique and hard-to-find items - and we’ll continue to be the destination for collectors of all kinds, physical or digital,” said Jordan Sweetnam, SVP and general manager of the Americas for eBay, wrote in an announcement at the time of the NFT expansion in 2021. “This opportunity unlocks new assets for collecting, new ways for people to fuel their passion, and expands eBay’s appeal to a new generation of collectors.”
The marketplace has picked up activity in this area this year. In May 2022, it launched an initial collection of NFTs on the web3 platform OneOf, which were new interpretations of iconic athletes featured on Sports Illustrated covers. In June, the marketplace took another step toward facilitating transactions when it acquired NFT marketplace KnownOrigin, which allows artists and creators to showcase and exchange digital works for collectors.
The eBay vault. (Courtesy photo)
For eBay, this is part of a wider strategy to provide space for the digital exchange of collectibles as a whole. It is also making big investments in physical collectibles, including a new vault for trading cards that provides storage and a digital marketplace, and the $295 million acquisition of TCGPlayer, a marketplace for collectible trading cards like Magic the Gathering and Pokemon. Those goods will require specific tools to solve their own set of challenges, including authentication to ensure items are what they say they are, and ensure they are truly limited in quantity. Yet it is emerging alongside the digital collectibles, and it’s clear that eBay sees the two sides fitting under its tent.
“One reason that we're excited to launch the Vault is because it can enable real-time transactions for physical or digital goods,” eBay CEO Jamie Ianone said on the company’s recent second quarter earnings call. “This intersection is nascent, the one that collectible enthusiasts are increasingly exploring. This is part of the rationale behind our second quarter acquisition of KnownOrigin.”
A potential connecting point was made more clear on Monday, when Walmart entered the fray. The retailer announced a new partnership with the National Entertainment Collectibles Association that will result in a new platform, called AutoT, that enables digital collectibles.
AutoT will have a series of rare variants of collectibles and figures that are signed by stars and creators.
Here's how it works: To access the platform, customers will be able to purchase a box from Walmart that is tied to a specific pop culture property. Upon purchase, they enter the digital code found on their Walmart receipt into a personal account at AutoTVault.com. This reveals which collectible item they’ve received. Collectors will be able to store a digital collectible for up to two years free of charge in the NECA’s Vault, or have a physical item shipped to them.
Launching on Oct. 6 at Walmart’s website, the platform will debut with collectible figures from Teenage Mutant Ninja Turtles, featuring Shredder, Renet and Foot Soldier, with potential for fans to receive versions of the digital figures signed by co-creator Kevin Eastman. Exclusive lithographs from the TV icon and artist Bob Ross will also be available at launch. New products are set to drop at regular intervals, Walmart said.
A Shredder action figure. (Courtesy photo)
For Walmart, this is an extension into a new form of commerce as it looks toward the future of retail, which has long been built around physical goods. Coupled with last week’s announcement that it is building a large experience in Roblox, it’s clear the world’s largest retailer wants to have a presence wherever goods are being bought and sold. The throughline here is that digital collectibles can usher in an evolution of shopping.
“At Walmart, we are always finding new ways to bring innovation and one-of-a-kind offerings to our customers,” said Laura Rush, SVP of electronics, toys and seasonal at Walmart US, in a statement. “NECA’s unique collectibles and inventive AutoT platform offer a new type of shopping experience to shoppers, ensuring that Walmart is bringing the best in tech and entertainment to customers nationwide.”
This may be a test not only of the tools and shopping functions, but also where value is shown. Will a person find value in a digital work that can be linked to its creator in the same they would a physical work that has touched the artist's hands? In other words, can Bob Ross' resurgence courtesy of memes and YouTube translate to people wanting to own a piece of his work?
NFTs on Instagram. (Photo via Meta)
Given that art is involved, it's also worth considering what will happen when the gallery wall is removed. The ability to display and share collectibles in common spaces may also be valuable. One avenue arrived last week. Meta opened up the capability for users to share digital collectibles that they have purchased or bought on Facebook and Instagram to everyone. These collectibles can also be shared between the two platforms. Making good on an announcement it made in May, Meta said users can now connect a digital wallet and display NFTs from those wallets on the platform, The NFTs will have a shimmer effect, and public information like a description of the NFT can be displayed. The work can be attributed to both the creator and collector.
As Ianone referenced, these are nascent launches. They may not be the versions that last, but they are important steps toward pushing this form of collectibles into wide release. Provide the tools, figure out what people find valuable and new markets can take root.