E-commerce growth is decelerating once again, but it’s not due to a resurgence in physical store shopping. Online purchases now make up 51 cents of every new dollar spent in retail.
According to U.S. Department of Commerce data, e-commerce spending increased by 6.5% in the second quarter. However, this marks a slowdown compared to both the first quarter of this year and the second quarter of 2023. In fact, three of the slowest quarters for e-commerce growth in the past 15 years have occurred within the last two years, with Q2 of 2024 being one of them.
Overall retail sales grew by 1.9%. But when excluding e-commerce, traditional brick-and-mortar sales only rose by 1%, a figure that lags behind inflation, as indicated by the Consumer Price Index (CPI). With offline retail up by just 1% and e-commerce rising by 6.5%, online sales contributed $17.4 billion out of the $31.4 billion in additional retail spending.
Though e-commerce still represents a relatively small portion of the overall retail sector—16% of total retail or 22% of core retail in the second quarter—it has recently accounted for more than its fair share of growth. Over the past four quarters, e-commerce has driven 53% of retail growth, compared to around 30% in previous years.
Within this 6.5% e-commerce growth, major players like Amazon, Walmart, and newer Chinese entrants like Shein and Temu have outperformed the market, while smaller platforms such as eBay and Etsy experienced flat or declining growth.
E-commerce competition is often portrayed as a zero-sum game, where for Walmart to gain, Amazon must lose. However, with the entire retail market worth $7 trillion, the real outcome of this competition is more consumers shifting their shopping online. The aggressive marketing of new entrants like Temu, which appears to have an unlimited ad budget, is expanding the market for everyone.
E-commerce is still driving the overall sluggish retail market—its growth may be slower because total retail growth is weak, but online shopping is outpacing traditional sales. E-commerce is projected to reach $1.2 trillion in 2024, following $1.1 trillion in 2023, but the double-digit growth seen in the decade leading up to 2020 now seems out of reach.
