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Welcome to Data File. In this weekly feature, The Current shares key findings shaping the ecommerce landscape. At The Current, we comb industry, analyst and economic sources for the data that matters to ecommerce professionals, and include it throughout our work. This feature is one of the ways we’re sharing what we find.
For consumers, it’s a summer of swings.
Forty-year-high inflation is pushing prices higher. The Fed moved to raise interest rates, making borrowing money harder across the economy. At the same time, retailers are set for big markdowns amid an influx of inventory.
With COVID-19 restrictions loosening, the retailers say the discounts come as a result of inventory ordered months ago in a supply chain crisis that doesn’t match with current demand for products that align with going out, rather than staying home. Most of the markdowns are coming in areas that were flying high in the pandemic. But when price pressure abounds, a sale is a sale. Track what’s being offered closely and there could be deals to be had.
“This summer will present both new challenges and new opportunities for brands,” said Vijay Ramachandran, VP of market strategy for global ecommerce at Pitney Bowes, in a statement. “Overstocks and markdowns will impact profitability, but also create new openings to sell as a large portion of consumers seek out deals—further aided by the return of Prime Day and other mid-year promotions. At the same time, our survey found a growing number of consumers cutting back on retail spending altogether as they react to record inflation and gas prices, and rising interest rates.”
A new survey from shipping company PitneyBowes looks at how consumers are planning spending as more markdowns on casual apparel, home appliances and furniture are heading their way. The results of the latest BOXpoll show that it’s set to bring a shift toward ecommerce.
Here are a few of the key data points:
- 49% of consumers, including 60% of millennials, are planning to buy more online as a result of these trends.
- On the other hand, 15% of consumers are unlikely to buy discounted items as they cut back on spending.
It’s a time of massive swings. As Ramachandran put it: “2020 saw unprecedented capacity constraints among ecommerce logistics networks. 2021 witnessed historic disruptions in the manufacturing supply chain. 2022 is shaping up to be the year of oversupply and price volatility.”
Consumers are changing habits along with it. According to the poll, 56% of respondents said their motivations for buying online have changed since the peak pandemic lockdown phase. The number one reason for shopping online was saving a trip to the store. That was a top choice of 43% of respondents. Meanwhile, COVID concerns are top-of-mind for 15% of consumers.
This makes delivery a key component of ecommerce, and speed is key. The survey showed the following:
- One-third of those who are shopping online more than they were three months ago said they are more likely to upgrade shipping for a faster service.
- 23% of parents and 22% of millennials are willing to pay for speed.
- Yet two-thirds of respondents said they are no more likely to pay for fast shipping now than they were three months ago.
It gets at another side of the ecommerce equation. As online shopping becomes more habitual, there’s one emerging dynamic that is tougher to quantify, but no less impactful: Ramachandran said many consumers are attracted by the “joy” of online shopping, and that will only continue to grow. It could even overtake convenience as a prime motivator.
It’s a note worth taking when designing ecommerce experiences. Remember how factors like a standout social presence and unboxing helped DTC rise. Going fast for consumers is important, but it’s important to remember that they also want to be delighted along the way.
A note on methodology
From Pitney Bowes:
The BOXpoll consumer survey by Pitney Bowes is a weekly consumer survey on current events, culture and ecommerce logistics. Morning Consult conducts weekly polls on behalf of Pitney Bowes among a national sample of more than 2,000 online shoppers. The interviews were conducted online, and the data were weighted to approximate a target sample of adults based on age, educational attainment, gender, race, and region. Results from the full survey have a margin of error of +/- 2 percentage points.
Trending in Shopper Experience
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.