19 May 2022
Ecommerce sales show steady growth, despite retailers' losses
US ecommerce sales grew 2.4% in the first quarter of 2022, Census reports.
US ecommerce sales grew 2.4% in the first quarter of 2022, Census reports.
After last week’s focus on prices, this week’s release of economic indicators from the federal government put overall retail sales in the spotlight. It includes a quarterly look at ecommerce sales. In both cases, the trend is upward.
Here are the numbers from the US Census Bureau:
There are signs that an increase is continuing in the new quarter. In a separate report this week, the Census Bureau shared estimates that showed overall retail sales increased .9% from March to April. When compared to April 2021, sales grew 8.2%.
Non-store sales, which is a monthly Census Bureau measure that includes ecommerce sales, rose 2.1% month-over-month in April. This was after a gain of .4% the prior month, and 12.7% year-over-year.
This overall data paints a picture of health for retail sales generally and ecommerce specifically. That's welcome, especially at a time of continued macroeconomic turbulence.
“April retail sales demonstrate consumer strength and willingness to spend despite persistent inflation, supply chain constraints, market volatility and global unrest,” NRF President and CEO Matthew Shay said in a statement. “While consumers are facing higher prices, they are preserving their budgets by shopping smart.
However, when zooming in on the businesses of the retail channels where many of these sales are made, it’s clear that the picture is more complicated. First quarter earnings reports from major ecommerce platforms point out the following:
With share prices of many of these platforms dropping, there were warnings that ecommerce may be facing a downturn. But the federal data adds an interesting piece to the puzzle. To be sure, spending is down from the early pandemic highs of spring 2020. After declarations that ecommerce accelerated 10 years in three months, it's easy for this to feel like a comedown.
But the latest federal data continues to suggest that ecommerce sales are leveling off, even as they continue to grow. Dollar totals have increased each quarter. Reaching $250 billion in ecommerce sales in the first quarter means ecommerce sales are on pace to reach an annual total of $1 trillion in 2022. This would mark the first time sales crossed this milestone.
When it comes to the share of overall retail, ecommerce sales figures are landing on a higher plane than they were pre-pandemic.
Notably, with the release of new quarterly data, the Census Bureau this month also revised upward its estimates of ecommerce share of total retail for the fourth quarter of 2021. This metric is closely watched, as it shows how big a place online shopping holds in the overall retail environment.
Originally, the Census reported the ecommerce share for Q4 2021 at 12.9%. Now, it is reporting that figure is 14.5%. For one, that means the share decreased slightly this quarter to 14.3%. But in the wider view, it means that, as a share of total retail sales, ecommerce sales have been between 14 and 15% since the first quarter of 2021. This is well above the 11-12% range where it stood in the last pre-pandemic quarters, and points to the trend curve of the last decade swinging up.
Ecommerce share of total retail, 2013-2022. (Chart: US Census Bureau)
This is down from the huge spike that came with the initial wave of COVID-19 in the spring of 2020. But the share has receded to a higher level than it was pre-pandemic, returning to steady growth.
When sales spiked in 2020, the ecommerce platforms saw their growth rise with it. Consumers migrated to shopping online amid lockdowns, and they sought to buy goods with many services and experiences shut down. Macro factors continued to have an effect for another year, with a round of government-issued stimulus checks and continued pandemic precautions in the spring of 2021 extending these consumer trends even as vaccination began.
“We definitely had pull-forward in growth over the last year or two given all the stimulus and change in consumer behavior,” said John Furner, CEO of Walmart US. On Shopify’s earnings call, CFO Amy Shapero said the big growth of Q1 2021 was due to COVID stimulus and lockdowns.
The supply chain issues and inflation that followed, in turn, would figure to create a tougher environment for retail as a whole. That extended to ecommerce, which arguably is even more dependent on supply and shipping working well than in-store settings. Add to it that inflation is making it more expensive to keep these sales engines running. Rising fuel and transportation costs were cited by leaders at Amazon, Target and Walmart as eating into margins.
In the first quarter, a more dramatic move toward reopening was layered onto that. As the Omicron variant surge subsided, more US municipalities moved away from mask restrictions and lockdowns. That's creating a correction that tends toward in-store experiences. Walmart CEO Brett Biggs cited the return to stores as a reason behind the company’s 1% ecommerce growth.
In the big picture, however, sales continue to grow. The overall retail sales number has now increased for four months straight, and March's number was revised upward to 1.4% from the original estimate of .5%. It reflects how consumer spending has continued to remain strong despite the rising prices that come with inflation.
“We're not seeing softness,” Amazon CFO Brian Olsavsky told analysts.
To be sure, there is a shift in what shoppers are spending on as they return to pre-pandemic habits. Take Target, for instance. Despite a disappointing earnings report overall that showed a 52% drop in profit, revenue was up 4% to $25.2 billion for the quarter, indicating consumer spending remains strong. CEO Brian Cornell said toy sales were up as children’s birthday parties resumed, fashion and beauty ticked up amid a return to in-person activities and luggage sales were up 50% amid a return to travel. However, more going out meant discretionary spending on items like TVs and home appliances was down.
“Despite the fact that they might have worries about inflation, they're in charge,” said Christina Hennington, Target EVP and chief growth officer. “And they're making decisions based on their preferences and what they value, which means going back out, if that's what they want to do, traveling because they've missed it, seeing their friends and family again. And it's about moderating those behavior shifts and accommodating our assortment and our messaging and our relevance based on how those shifts happen.”
Cornell said the company was expecting these shifts, but they came more dramatically than expected in the first quarter. The changes in demand require planning, and businesses didn’t have time to prepare.
Consumer habits will be closely watched. It remains to be seen whether there is a direct correlation between whether a more permanent return to going out means a shift to going out to the store.
As they look forward, retailers' actions don't seem to be in line with preparations for a downturn in ecommerce. In fact, they’re still betting on it for the future. At Walmart, advertising revenue, which is an outgrowth of its ecommerce business, grew 30% in the first quarter, while data monetization business Walmart Luminate grew 75%, marking one of the company’s bright spots. And there is increased blending between the in-store and ecommerce experience. Target detailed plans to renovate 200 of its stores to expand fulfillment capacity for same-day pickup.
"These projects make changes within the four walls of the store to add capacity for same day orders and incorporate features to enhance our pickup and drive-up capabilities," said COO John Mulligan. "When warranted, these remodels include the addition of walk-in coolers and freezers near the front of the store, adding reliable capacity for our team to fulfill fresh, refrigerated, and frozen items through our pickup and drive-up services."
As his company reported record sales over the two years of the pandemic that continued into the first quarter, Home Depot EVP for merchandising Jeff Kinnaird told analysts that more than 50% of ecommerce sales were fulfilled at stores, and the company just launched a $150 million venture fund to invest in new technology.
Looking ahead, there are signs that a rebound for the platforms could be on the way. Walmart leaders said early signs in the second quarter are good for ecommerce. Wayfair CEO Niraj Shah said the first quarter showed 10% improvement in item availability and 10-20% faster delivery times, indicating supply chain conditions are improving. Shopify said it expected growth to be highest in the second half of the year. Meanwhile, Amazon has a stronger logistics network after its pandemic-era buildout, and Shopify is strengthening its own, in part through the acquisition of Deliverr.
The last two years made predicting anything difficult, but it seems like a good bet that the current behaviorial shifts are unlikely to be permanent. After all, these macroeconomic forces are constantly shifting. But no matter what arrives, digital adoption is only likely to continue, and ecommerce will be driving steadily upward along with it.
Accurate inventory is now essential for Amazon FBA sellers, writes Emplicit's Evan Sherman.
Amazon used to be a lot more laissez faire about how Fulfilled By Amazon (FBA) sellers used their fulfillment centers. Sellers could send in inventory, and, while the space wasn’t unlimited, if their sales were not as forecasted they would simply pay long-term storage fees. Sure, if a seller’s inventory management was poor enough they would have their inventory storage limits reduced and pay higher storage fees, but this was just an incentive not to let things slide too much.
However, in 2022 Amazon reduced storage limits overall to the point where some FBA sellers had sales and catalog size impacted, and in March 2023 Amazon revised their inventory system. There is now an incentive for FBA sellers to be highly accurate with inventory management because Amazon will reward them with increased storage limits. Precision is a carrot now, rather than a stick.
In this article, we provide five strategic methods that sellers can utilize to optimize inventory management on Amazon.
Achieving successful inventory management on Amazon requires a profound understanding of past demand patterns and the capacity to accurately forecast future demand. Seasonality, market trends, historical sales figures, competitor activity and planned promotions all play a crucial role in determining the trajectory of sales.
At Emplicit, we advocate for the analysis of multiple historical data points, encompassing previous 7, 30, 60, and 90-day sales figures. Our logistics experts factor in internal factors such as stock availability, marketing spend, promotions, and sales and margin targets, and external factors such as seasonality, Amazon trends, new category restrictions and market entrants. A comprehensive review of shipments in working, shipped, or receiving status is also beneficial. Striking a balance between what has been sold, what is available, and what's en route to an Amazon fulfillment center is key to precise forecasting.
Inventory management isn’t a static task; it requires constant vigilance and flexibility. FBA sellers should regularly review and modify their demand forecasts, adjust their replenishment suggestions based on demand shifts, and update their minimum reorder points as required.
Sellers should review sales daily, plan replenishment frequencies to suit their needs, and maintain appropriate inventory levels at Amazon. Weekly replenishments can help keep a seller’s inbound pipeline full, minimize out-of-stock instances, and account for unforeseen supply chain disruptions.
Amazon’s organic and paid algorithms prioritize products with high sell-through rates. This means best selling products end up selling better. Focusing on high-performing items allows FBA sellers to reduce monthly storage costs, avoid aged inventory and the associated fees that Amazon imposes, and curtail the need for costly removal orders. And sales velocity is the quickest way to get Amazon to increase your storage limits. Concentrate on the 20% of items that generate 80% of sales.
At the same time, sellers should prune their catalogs by removing slow-selling items. These items negatively affect Amazon’s Inventory Performance Index (IPI) score, which directly influences the space Amazon allocates to a seller’s inventory in their fulfillment centers.
If sellers are tight on inventory space, as well as the best-selling products, they should prioritize products with higher margins until Amazon provides additional storage, and they should reduce marketing spend accordingly – something which necessitates a close relationship between inventory and marketing.
Ranking products by sales and margins, and calculating the storage space each product takes up will go a long way towards understanding and anticipating demand on Amazon.
Amazon’s capacity management system is a new system for allocating inventory limits to FBA sellers and allowing sellers to gauge their inventory capacity at Amazon’s fulfillment centers. It also enables sellers to bid on increases to their inventory limits.
Previously, Amazon had restock limits which were updated weekly based on the seller’s previous 90-day sales. Restock limits were determined by Inventory Performance Index (IPI) metrics such as sell-through, excess inventory, and stranded inventory. However, because the restock limits were updated weekly, it was challenging to plan accordingly, especially heading into a peak season or if a seller was about to run a promotion.
With Amazon’s Capacity Monitor program, sellers are given a monthly capacity outlook based on the cubic feet of space occupied by their products in Amazon’s fulfillment centers and their IPI metrics. Amazon not only provides a current month outlook on available space; they provide an estimate for the next three months which can aid in the inventory planning process.
To take advantage of the new system, it’s imperative FBA sellers understand their product's physical footprint in relation to the allotted space Amazon provides (Amazon does still provide unit estimates). Knowing a product’s cubic feet and the product tier designation allows for effective planning of inventory replenishment. Exceeding space limits means overage fees from Amazon, however, if a seller knows they have a peak in sales coming up they can bid for additional capacity (in cubic feet). However, selling-through this additional inventory means Amazon waives those fees, so it’s a win-win.
At Emplicit, we have seen the capacity monitor program benefit our clients, with many clients seeing an increase in the amount of inventory they can ship in – likely due to healthy sell-through velocity and other IPI metrics. The program has fundamentally changed the way we approach managing our inventory on Amazon, so everything sellers do regarding inventory planning should be within the context of Amazon’s capacity monitor program.
Smart sellers should already be considering the impact of their product packaging on their FBA fulfillment fees. If the actual product size allows, sellers can generate significant savings by reducing the size of their packaging. Amazon’s Small Standard rates are 15-20% cheaper than Large Standard rates depending on weight, and Amazon’s Small & Light rates are 15-27% cheaper still than Small Standard rates. However, fulfillment cost savings are not the only reason to reduce packaging size, smaller packaging can significantly increase Amazon inventory cost-efficiencies.
With Amazon’s capacity management system providing inventory space based on cubic feet rather than number of units, the space each product takes up is now more important than ever. While larger packaging sizes can sometimes improve sales in brick and mortar retail, sellers should consider developing smaller Amazon-only packaging. This will not only reduce fulfillment costs, but allow more units to be stored in the same inventory space. The combined savings can more than offset the cost of a redesign and second packaging print run.
Additionally, smaller packaging may qualify sellers for Amazon’s Compact By Design badge. This helps brands stand out, and increases click-throughs and conversions. (We suspect there are algorithm tweaks for brands with certain badges too, but it’s difficult to prove.) Amazon-specific packaging can help with Transparency (anti-counterfeiters) and help combat unauthorized resellers.
While it might seem like a significant investment and not something the inventory team typically gets involved with, reducing packaging size is a long-term way for FBA sellers to optimize inventory management.
Amazon Global Logistics (AGL) offers a streamlined solution for sellers whose products are manufactured in China. AGL eliminates the need to use freight forwarders who would usually receive a shipment from China, then split up that shipment and forward on to multiple Amazon fulfillment centers per the standard FBA process. Instead, sellers can book shipments directly with Amazon, complete the necessary export/import documentation, and ship directly to US, UK or European fulfillment centers – sending the entire shipment to a single fulfillment center.
If leveraged properly, AGL can save sellers thousands of dollars in warehouse and 3PL fees and reduce the need for inventory to be processed multiple times before it arrives at Amazon’s fulfillment center, meaning inventory gets where it needs to be quicker.
AGL offers two shipping options – Standard Ocean Freight and Fast Ocean Freight – with the standard option giving sellers the opportunity to either ship via a full container load (FCL) or less than container load (LCL). Shipping partial container loads with Amazon doesn’t slow shipments down versus other carriers because of Amazon’s scale. Amazon’s economies of scale mean that AGL can offer shipping prices from mainland China and Hong Kong that most sellers are unable to match. And Amazon’s expert customs brokers get products cleared through customs quickly because Amazon has a vested interest in shortening the time to market.
This one-step international shipping direct to Amazon was actually something we pioneered before the advent of this service from AGL – working with our client Shapermint and their manufacturers in China and logistics team to ensure packaging and shipments were FBA compliant. However, now AGL offers this service, it’s an even easier solution to a common challenge. We suspect AGL will roll out in other international manufacturing markets, but Amazon is tight-lipped for now.
Amazon inventory management is complex and needs constant attention. Sellers can hire a fractional inventory specialist because this is not something that should be trusted to an Amazon generalist. If sellers get inventory right, it will keep pace with sales. But if they get it wrong, their inventory can become the main thing holding them back.
Evan Sherman is the director of logistics at Emplicit.