August was the month for spending! The last family vacation before school begins, back-to-school shopping, and the end-of-summer sales all contributed to spending sprees among consumers nationwide. Retailers expected yet another spike in e-commerce-related spending as the Delta variant continues to cause an outbreak of Coronavirus cases. Yet, data indicates that brick-and-mortar is making a strong come-back. Moreover, consumers, as well as businesses, have seen a trend towards green and sustainable shipping. Carriers have also announced their peak season (or 4th quarter) shipping prices. It's time for the August wrap-up!
Slowing E-commerce Sales?
In the wake of the economic recovery, we got a glimpse at consumers' "post-pandemic" shopping behaviors. In July of this year, Walmart reported a 6% increase in sales compared to Amazon’s 22% growth. The question is, why is Amazon still growing at a significant rate while Walmart, Amazon's biggest e-commerce competitor, is slowing down? According to a recent study by McKinsey and Company, while consumers spend a lot of money shopping online, they continue to spend more in stores. Walmart expected its own e-commerce sales to slow as restrictions were lifted and consumers began to feel more comfortable shopping in stores. John Furner, head of Walmart’s US operations, on a call with analysts to discuss the company’s earnings this month, surmises, “we definitely saw a traffic shift back into the store from e-commerce.”
Are we to conclude that since e-commerce traffic has shifted back into stores, it will be the same for all sizes of online businesses? That conclusion is difficult to draw. The fact that Walmart has 4,700 physical stores in the United States suggests that its primary focus remains on brick-and-mortar retail. We think it is safe to say that those companies that operate both physical and online stores, such as Walmart, can anticipate slight falls in online sales and a return to brick-and-mortar. Still, companies such as Amazon, which sell almost exclusively online or entirely online, should anticipate continued growth rates in the near future, especially with the upcoming holiday season.
A new era of e-commerce has arrived, making it necessary to move towards going green. Consumer spending habits are causing companies to shift to being more environmentally friendly. In a study completed by the World Economic Forum (WEF), it was reported that the e-commerce boom would likely increase total final-mile delivery vehicles on the road by 36%, increasing greenhouse gas emissions by 30% by 2030. Data like this has lead to an increase in environmental sustainability campaigns. The "ShipNaked" initiative, spearheaded by the nonprofit group Habits of Waste, encourages companies like Amazon to be responsible by delivering items free of additional packaging. The campaign targets organizations that use excessive quantities of plastic bags, wrappers, tissue paper, and too large cardboard boxes in the delivery process. Sustainable packaging, environmentally friendly products, and green delivery practices all contribute to this goal.
The need for sustainability sometimes outweighs consumer demand for convenience and instant access to products. Stifel and Morning Consult conducted a survey in May of 2021 that found 71% of US adults between the ages of 18 and 55 are concerned about product sustainability. But, according to a recent Harvard Business Review study, there is a cognitive dissonance among online shoppers. Study participants expressed a desire to support sustainable businesses and practices; however, only 25% did so in reality. 88% of respondents to a survey by Ware2Go said sustainability played a central role in their online purchasing decisions. Yet, the study also showed that for 49% of consumers, online shopping would continue to be the most convenient method of shopping, despite knowing the environmental impact. Shopify found similar results in a survey that said 49% of consumers are willing to pay more for sustainable shipping options. Still, those same shoppers are more likely to choose same-day or next-day shipping, which holds a much higher carbon footprint.
As a result of these consumer behaviors, many companies no longer allow consumers to choose expedited shipping methods. The ability of businesses to decide for consumers and market that they are environmentally friendly will assist consumers in feeling good about their purchases and contribute to a reduction in the environmental impact that e-commerce is likely to have in the future.
Peak Season Carrier Rates Announced
Both USPS and FedEx made announcements in August regarding their peak surcharge pricing. In light of these changes, it is difficult to predict what Q4 will look like exactly as there has been such a dramatic increase in e-commerce sales during the course of the year, in addition to a considerable shift in the in-store vs. online retail environment. For many years, almost all carriers have imposed a Q4 surcharge to offset the bulk of deliveries they must handle during the holiday season. Buyers and sellers have been advised again this year by many carriers to expect delays, longer delivery times, and a higher degree of overload during peak season. With the growth of e-commerce at unprecedented rates in the last year, we have also seen carriers make more permanent changes to their pricing beyond the peak three-month period. No word yet on UPS peak surcharge pricing, but we'll be happy to share that information as soon as we have official word from the carrier.
It's officially the end of summer, and with kiddos heading back to school, will we observe the typical decrease in retail sales we see in September and October, or will we expect increased e-commerce sales? As we head into Q4, we will continue to analyze online versus in-store consumer trends and how shifting focus and infrastructure to accommodate topics such as sustainability can help boost income during peak seasons. In the interim, we'll continue to await the announcement of any additional holiday surcharges that may be by made other carriers. Check back next month for our September wrap-up blog!