Online shopping provided a practical alternative as retail locations closed and people stayed in. For investors, this e-commerce boom will likely continue post-pandemic.
Promises of simplicity and speed, alongside pandemic-induced shifts to online shopping, have accelerated e-commerce growth over the last few years. Globally, retail e-commerce sales are set to grow at a 10% CAGR to top $7 trillion in 2025, according to CB Insights’ analyst consensus. Online shopping has grown steadily in popularity in recent years. In 2021, global online retail sales amounted to almost US$5trillion, and expected to exceed US$ 7 trillion by 2025, per Statista.
Digital development in Latin America boomed during theCOVID-19 pandemic, generating unprecedented e-commerce growth in various economies across the region. So much so that Brazil and Argentina appear to lead the world’s fastest-growing online retail markets. This trend correlates strongly with the constantly improving online access, especially in “mobile-first” online communities, which have long struggled with traditional fixed broadband connections due to financial or infrastructure constraints but enjoy the advantages of cheap mobile broadband connections.
The COVID-19 global e-commerce surge was initially born out of necessity. Online shopping provided a practical alternative as retail locations closed and people stayed in to avoid the virus. In fact, global e-commerce rose from 15% of total retail sales in 2019 to 21% in 2021. It now sits at an estimated 22% of sales. But as consumers began shopping in person again, investors started to ask: Was the Covid-bump a one-and-done deal, or could e-commerce growth continue?
Per the global investment banking firm Morgan Stanley, over the long term, the e-commerce market has plenty of room to grow and could increase from $3.3 trillion today to $5.4 trillion in 2026. It believes that the Covid-driven bump will not flatten future e-commerce growth and in fact sees e-commerce reaching 27% of retail sales by 2026.
Many factors are driving growth, including logistics, mobile device ownership and marketplace expansion. For investors, this means the e-commerce boom will likely continue, offering opportunities for gains across multiple businesses, regions, and verticals – and at a time when recent stock valuations don’t necessarily reflect that growth.
M-commerce on the rise
The average order value of online shopping via smartphones and tablets still lags traditional e-commerce via desktop computers. However, e-retailers around the world have caught up in mobile e-commerce sales. Online shopping via smartphones is particularly prominent in Asia. By the end of 2021, Malaysia was the top digital market based on the percentage of the population that had purchased something by phone, with nearly 45 percent having made a weekly mobile purchase. South Korea, Taiwan, and the Philippines completed the top of the ranking.
At the same time, the concept of “online shopping” is expanding, as the rise of the metaverse and shared virtual spaces transforms how consumers interact with people and businesses. In the not-too-distant future, shoppers may be able to craft entirely personalised digital shopping experiences – from consulting with virtual advisors, to customising physical and virtual goods, to seamlessly moving between devices and platforms.
Tech-enabling the metaverse
The tech enabling the metaverse – including augmented reality, next-generation 3D content, and new devices like smart glasses – will create this more immersive and hyper-relevant experience. AI-enabled tools like chat commerce and virtual try-on will also make retail more accessible to shoppers as platforms can more easily shift to accommodate differing personal as well as cultural needs.
E-commerce adoption jumped ahead during the pandemic, but growth is plateauing as consumer habits level out. Even as consumers resume more in-person activities, competition for their attention has intensified, particularly online, where the average adult consumer spends more than 13 hours a day, per Activate Consulting. This challenge will only grow as the rise of shared virtual spaces further transforms how consumers spend their time. To stay competitive, retailers will not only have to make online shopping more immersive, engaging, and relevant but also seek out and experiment with the rapidly changing technology that is digitising more of consumers’ lives. They will also have to adapt their marketing, merchandising, and fulfilment strategies to the multitude of points of access available now and in the future.
As e-commerce makes up a greater share of retail sales, retailers and brands will need new ways to expand and enhance the online shopping experience. In the near term, more interactive online content, more personalised recommendations and messaging, and more points of access will lead to bigger baskets – driving continued sales growth and better profitability for sellers. In the long term, retailers and brands that can build more nimble infrastructure will be prepared to pivot quickly as consumers demand ever-more immersive and seamless experiences.
Retail innovators driving digital experiences
Retail innovators, including Amazon, Walmart, and Nike, are forging ahead with new digital experiences across new platforms, technology, and content. Brands from L’Oréal to Nestlé are also leading in e-commerce experimentation, particularly for interactive features like virtual try-on and customer service avatars. Big tech players including Meta and Snap are behind some of the tech making shopping more immersive. Finally, payments giants such as PayPal and Visa are opening the door for retailers to diversify how shoppers pay for and earn rewards on their purchases.
Machine Learning to make shopping more personalised
E-commerce is already on its way to a next phase that is more engaging and relevant for the consumer – and more productive and efficient for retailers. Looking into the next decade, tech innovation in machine learning, digital content, virtual worlds, and payments will make shopping even more personalised and immersive. The success of much of this customisation relies on the ability of brands and retailers to gather and understand personal data on their customers. Privacy norms and regulations are sure to shift, creating ongoing challenges around how businesses target and grow their customer bases. The true seamlessness of the customer journey will also rely on integration across online platforms and in-person experiences. This will require continued investment and innovation from retailers and brands in the technology enabling omni channel retail.
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