The recent global healthcare crisis has prompted numerous businesses in the U.S. and abroad to reassess the classic business models or face their own demise. Digital technologies are now improving most industries around the world, and companies everywhere are boosting their sales and profits by going digital. Nowhere is this trend easier to see than in retail—an industry that has not only been heavily disrupted by the COVID-19 pandemic, but is also rich in technological opportunities. According to the United Nations Conference on Trade and Development, online retail sales have increased significantly during the pandemic as people around the world were encouraged to shop remotely.
Statistics for China, the U.S., United Kingdom, Korea, Canada, Australia, and Singapore point to the fact that online sales have increased dramatically in all these countries—surging from approximately $2 trillion in 2019 to around $2.5 trillion in 2020, and $2.9 trillion in 2021. However, the upward trend in e-commerce is now expected to slow down as people are returning to their pre-pandemic lives, and by extension, to brick-and-mortar stores. Even so, U.S. online sales have increased by 6.7% during the first quarter of 2022, proving once and for all that the shift to e-commerce does not exclusively rely on the global pandemic. Although much lower than in previous years, the increase proves that the future is indeed digital.
However, this does not mean that the first quarter of the year was free of trouble for the retail industry in general and e-commerce in particular, nor does it mean that the issues outlined below will not disrupt these industries more in the near future.
The Growth Rate Continues to Fall
One of the biggest problems now facing e-commerce is the fact that sales growth seems to slow down, as more consumers are returning to traditional shopping habits. According to the U.S. Department of Commerce, e-commerce sales barely reached $231.35 billion in Q1 2022. This points to a moderate growth of just 6.7% from the $216.74 billion reported for Q1 in 2021. Moreover, the numbers also show a drop from 10% to 9% in the quarterly online sales growth rate recorded for the last half of 2021. The final six months of 2021 also indicated an important drop when compared to the spikes triggered by the beginning of the pandemic.
As the rise of online sales continue to slow, inflation is also taking its toll. One of the most important issues is the fact that prices keep rising—thereby disrupting the United States’s buying power even more.
Rising Prices Reduce Purchasing Power
Through economic ups and downs, online sales have been known to remain immune to inflationary pressures. However, both the COVID-19 pandemic and the return to normal stopped this once-dependable trend. Soaring consumer prices have become a burden for most industries in the American and European economies this year. Although President Joe Biden recently met with Federal Reserve Chair Jerome Powell to discuss how to handle the highest inflation rates in decades, prices continue to rise. Moreover, the moderate growth logged for Q1 in 2021 can be explained by the increase in purchases made online, as well as inflation.
While some shoppers have not yet been discouraged by the high levels of inflation, others have already cut online purchases. However, more concerning may be the fact that this trend is likely to continue as long as inflation remains a problem.
Economic Insecurity Adds New Risks
According to a recent Salesforce Inc. report, inflation, supply chain issues, and economic insecurity have all reduced global buying power in Q1 of 2022. Indeed, the beginning of the year was marked by Russia’s decision to invade Ukraine—a decision that quickly created a new geopolitical crisis in Europe. This added more pressure on a global economy that was already struggling to recover from the effects of the COVID-19 pandemic. As the conflict in Ukraine continues and ideas about a wider war in Europe are floated every now and then, economic concerns are also on the rise.
With the conflict in Europe now fueling worries and causing an exponential growth in fuel prices around the world, it comes as no surprise that one of the most important challenges of 2022 is returning to political stability and economic growth.
