Back to the trend line?

Published on
July 29, 2022
Benedict Evans
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Back to the trend line?

Back in 2020, as we were all locked down and forced to do everything online, we got very excited about ecommerce penetration. All sorts of charts went viral showing that we’d jumped forward anything from three to five years in a couple of months. This was a big part of the ‘Covid Rotation’, and now we’re on the other side of that rotation - people went back to the office, and back to stores, and back on planes. And for retail and ecommerce, it looks like a lot of that growth was temporary, and we’re reverting to the trend line.

There’s a pretty obvious question in this chart, though - percentage of what? This is what the absolute numbers for US e-commerce look like. That reversion to the trend line suddenly doesn’t look quite so obvious.

The issue, of course, is that total retail sales have been far from stable, and so as the denominator has swung around, so has the e-commerce penetration. US ecommerce has, in fact remained at the new higher level - for now - but there has been a surge in physical (and, of course, inflation has suddenly shot up to 10% or so).

You can see this more dramatically in the UK, which had a much bigger lockdown and hence much bigger swings in the denominator and in the penetration. The penetration percentage has spiked all over the place.

Equally interesting, I think, is the question of which ‘retail’ number we should use as the denominator in the first place. For a long time, analysts have pointed out that it’s not very useful to look at penetration of all retail sales, because that includes things like gasoline, that cannot be sold online. Hence, we tend to look at online penetration of something like  ‘addressable retail’, which typically excludes gas stations, car dealers and car repair and car parts. In the US statistics, ‘retail’ also excludes bars and restaurants. Hence, this chart shows ‘online’ sales as a percentage of three different ways to add up ‘retail’. Channeling Groucho Marx, ‘this is the chart, and if you don’t like it, I’ve got others’.

However, I think one could argue that ‘addressable retail’ is becoming less and less useful over time. Not only does Tesla sell cars online, but around half of US restaurant spending has been ‘off-prem’ (collection and delivery) since before the internet, and it’s not clear to me what it means to count tapping the phone icon as  ‘offline retail’ and tapping the Doordash icon as ‘online online’ if it’s still a pizza on a bike. And, of course, retailers have talking for years about sales journeys that start online and finish offline and vice versa.

I think it might be more helpful to stop talking about what is or is not ‘addressable’ and just talk about different logistics models - everything will be sold online, but the delivery will vary. What can come through the mail, what needs a cold chain, what needs a truck, and what needs a bike? In other words, what fits Amazon’s commodity, packetised logistics model, and what needs something else?

Eventually, of course, talking about online sales will be like talking about ‘car-based sales’ - it won’t be a segment, just another channel, that’s part of every business, and it won’t be ‘tech’, just retailing.

Benedict Evans is a Venture Partner at Mosaic Ventures and previously a partner at a16z. You can read more from Benedict here, or subscribe to his newsletter