A boom with a view – What’s on the horizon for e-commerce?

You don’t have to be a pundit or a visionary to know that the spring of 2020 will have a lasting impact on an entire generation. Lockdowns and stay-at-home orders brought public life to a standstill in many parts of the world. Retail ground to a halt; city centers turned into ghost towns. Plans and forecasts became obsolete overnight.

While the virus put the brakes on in-person activity in the physical world, the digital world zoomed ahead at full speed. Remote work became the new norm as people adjusted to virtual meetings and ‘commuted’ to work from their kitchen tables or spare bedrooms.

Stuck at home, everyone started clicking the Buy button and online sales skyrocketed, giving the already upward trajectory a significant boost. Today, one in five items is purchased online, compared with just under 14% before the pandemic.

Fast forward three years – in a world bidding the pandemic adieu – and we’re staring down the inevitable question: how sustainable was this meteoric rise in 2020 and 2021? We already have the answer: As expected, online sales growth did not maintain its momentum, and brick-and-mortar retail has recovered somewhat. So, the pandemic didn’t change all consumer habits. However, a new e-commerce landscape is emerging. But what will it look like? Let's explore the key trends that will shape the future of online retail.

Germany, one of our largest and most important markets, provides an interesting case study. While B2C online retail sales increased by 23% in 2020 and 19% in 2021, the trend has slowed significantly. According to Statista, after experiencing negative growth of -2.5% in 2022, the German market is expected to rebound to approximately 5.7% in 2023.

But this doesn’t appear to be solely a result of a post-pandemic return to normal. Factors such as geopolitical tensions, the energy crisis, and rising inflation are making consumers more cautious, especially in the fashion and tech sectors. Moreover, we’re seeing a trend toward fuller online shopping carts and fewer returns affecting parcel volumes. People are saving for their next vacation rather than splurging on a new pair of jeans.

Still, McKinsey projected that the average person in Germany will receive about 40 parcels in 2023, up from 24 in 2018. And they forecast a rise to 50 by 2026. But the years 2020 and 2021 may be skewing these predictions. The outlook now is much more uncertain. 

Although the numbers have realigned with pre-pandemic forecasts, e-commerce growth has slowed, and the long-lasting effects are varied. According to eMarketer, Retail e-commerce sales are expected to grow by 8.9% in 2023 and hover around that figure for the foreseeable future. Before Covid, growth between 2015 and 2019 fluctuated between 20% and 28%. 

A joint study by the International Monetary Fund (IMF) and the Mastercard Economics Institute found significant variation by economy and industry. The share of online spending rose and fell most dramatically in those economies and sectors where e-commerce was already thriving before the pandemic.

Nevertheless, we anticipate higher parcel volumes in the future. Even if the pace has slowed, e-commerce continues to be a vital and growing sector of the global economy. Current challenges like geopolitical tensions and trade barriers have led to the need for reorganizing supply chains, but they haven't doused the sector's inherent dynamism. For example, cross-border online trade within Europe is stable despite the Ukraine war, inflation, the energy crisis, and international economic-political tensions. 

No one expects the effects of the pandemic to simply vanish. Sales in some product categories are now noticeably higher. For example, many people have gotten pets in recent years, pushing up demand for online pet food purchases. And new marketplace models – like the customer-to-customer (C2C) secondhand fashion community Vinted – are gaining traction. The IMF and Mastercard also see potential for e-commerce in industries with lower levels of digital maturity, such as retail, restaurants, and healthcare, particularly in less developed markets.

Platforms like Facebook, Instagram, and TikTok are becoming key entry points for online shoppers – creating an increasingly important ‘social commerce’ trend. Artificial intelligence will boost it further, giving e-tailers tools to convert user behavior into personalized ads and offerings.

Those AI tools are rapidly changing the game, providing more personalized shopping experiences that tech-savvy Gen Z is embracing. They demand a seamless, dynamic, and flexible shopping experience right from their smartphones that doesn't require platform-hopping.

Mobile phones continue to be the primary tool for online shopping, especially among younger users. According to the Pew Research Center, three-quarters of all US adults regularly shop on their mobile phones. The figure is higher among those under 50. 

Ultimately, there is no way around e-commerce, but it must be simple and affordable. Online retailers must combine high service quality with reliable delivery and competitive prices.

McKinsey warns that companies shouldn’t get complacent, otherwise they risk missing out on the next e-commerce wave. That means they must adapt. With forecasts projecting higher online revenues, many businesses are investing heavily but still see e-commerce as a ‘bolt-on’ to the main business – a view that’s looking increasingly outdated.

Instead, you have to make yourself indispensable, which means fully committing to e-commerce but not limiting yourself to just selling a range of products. Instead, you should assist customers with all aspects related to your products. For example, if you sell running shoes, try offering registration for the next local marathon, nutrition plans, or connections to local running groups.

Looking ahead, logistics and sustainability will also affect how the e-commerce landscape evolves – and become a key differentiator as consumers demand greener products. About 12-20% of e-commerce costs come from logistics, which cuts into margins. And supply chains are a big part of the carbon footprint.

Optimized supply chains leveraging data and AI will help companies achieve their sustainability goals. Circular business models are emerging rapidly, requiring sustainable reverse logistics solutions. This is opening up opportunities for both retailers and logistics providers, which is why we expect long-term growth in both in B2C and B2B e-commerce as well as a shift from large bulk shipments to smaller customized deliveries.

We’re already taking steps toward more sustainable logistics. With GoGreen Plus, for example, our customers can attract consumers with carbon-neutral deliveries. Younger buyers especially are increasingly making purchasing decisions based on the availability of climate-friendly delivery options.

As we navigate this dynamic landscape, one thing is clear: e-commerce isn't just a 'bolt-on' to traditional business models but an exciting and evolving industry. Forward-looking retailers are engaging their customers more holistically, enriching the customer experience. They’re also shaking up their supply chains, building a more robust backbone for returns management and circular business practices – and leveraging data and AI to make their logistics more cost-effective and greener.

No one can see beyond the horizon, but e-commerce looks set for a dynamic future.