The e-commerce boom is fizzling out

The pandemic was supposed to permanently change how people shop. At least, that’s how many retailers felt during the early stages of COVID-19, when consumers were largely stuck at home and bought more goods online. E-commerce adoption would rapidly accelerate and then continue to grow from there.

That’s not how things are playing out. As pandemic restrictions have lifted, many people are going back to their old shopping habits: trying on clothes, testing mattresses and browsing shelves.

Canadians spent about $3.5-billion on e-commerce orders in May, down 23 per cent (or around $1-billion) from a year earlier, when parts of the country still had lockdown restrictions. Online orders accounted for 4.9 per cent of total retail sales – stronger than before COVID-19, but a deceleration from recent months.

It’s a similar story in the United States. Americans bought 14.3 per cent of retail goods through e-commerce channels in the first quarter. That’s not much different from the trend of prepandemic growth. Put another way, people are buying more things online, but the pandemic hasn’t expedited that behaviour.

Shopify Inc. chief executive officer Tobias Lutke pointed to this shift in a memo to staff on Tuesday, in which he announced that roughly 10 per cent of employees were being laid off.

“We bet that the channel mix – the share of dollars that travel through e-commerce rather than physical retail – would permanently leap ahead by 5 or even 10 years,” he said. “It’s now clear that bet didn’t pay off.”

E-commerce is “still growing steadily,” Mr. Lutke said, “but it wasn’t a meaningful five-year leap ahead.”

Erik Johnson, an economist at Bank of Montreal, cautioned against drawing a hard distinction between e-commerce and brick-and-mortar retail. As an example, he pointed to shoppers that use a retailer’s website to check if a product is in stock, then head to the store to see the item – and perhaps buy it – in person.

“There’s a lot more complementarity between them,” he said.

The retail sector is facing headwinds as consumers cope with sky-high inflation, rising interest rates and slower economic growth, all of which is forcing some households to cut back on their spending.

“Recession fears are certainly weighing on the retail space,” Mr. Johnson said.