Online shopping is so 2020. Going to stores is cool again

By on June 16, 2022 0

Instead, consumers apparently got tired of ordering everything while sitting on the couch and went back to shopping the old-fashioned way.

“As the pandemic has subsided, you’re seeing consumers going back to their pre-pandemic business,” said Brian Nagel, who covers retail at Oppenheimer & Co. “Consumers are seeing benefits in shop in stores.”

Several factors are converging to hold back the growth of online sales, he said.

Inflation puts pressure on consumers’ wallets. This has led some shoppers to forgo expensive discretionary items like electronics and furniture – products often purchased online – or balk at delivery charges.

Other consumers have shown an eagerness to get out and socialize after being cooped up at home during the pandemic.

“Shopping in stores is a social activity,” Nagel said.

Signs of this shift in consumer preferences are everywhere.

In May, online retail sales rose 2.2% from the same month a year earlier, according to payments data released by Mastercard on Tuesday. In-store sales grew at a much faster rate of 13.4%.

E-commerce stocks have been the worst-performing retail sector in the S&P 500 so far in 2022, down 28% since Monday, according to S&P Global.

Amazon (AMZN) said it added too much warehouse capacity as it rushed to meet pandemic demand and was overstaffed in some cases. The company is now would have sublet some storage space to reduce excess capacity.
Companies such as stitch correction (SFIX) are in trouble. The online clothing styling service will lay off 15% of its salaried positions – around 330 workers – amid slowing e-commerce growth. The cuts come months after Stitch Fix slashed its full-year forecast and said its number of active customers was below expectations.
carvana (CVNA), the online used car dealer, will lay off around 2,500 employees, or 12% of its workforce. In cities, several startups that promised to replace corner grocery stores by delivering food and basic necessities in less than 15 minutes are going bankrupt.

More layoffs are likely, experts predict.

“Many of these companies have been hiring staff in anticipation of expected growth,” said Berna Barshay, analyst at Empire Financial Research. “Now they will fall short of that forecast. The obvious answer to missed growth targets is to cut, cut and cut costs.”

Reversal of 2020

The trend is for a sharp reversal in the rush to online orders during the early stages of the pandemic. This has upended predictions that consumers’ shift to online shopping will be permanent.

Two years ago, when the Covid-19 paralyzed daily life, online shopping exploded.

With non-essential stores closed and shelter-at-home orders in place, shoppers of all ages purchased groceries, home office supplies, furniture, sports equipment and other goods online in record numbers – some for the first time.

During the second quarter of 2020, online sales as a percentage of total retail sales jumped more than four percentage points to 16.4%.

Businesses have recruited staff to keep up with demand, expanded their distribution facilities and entered into partnerships with delivery services such as Instacart and DoorDash.

But as businesses reopened in the summer and fall of 2020, a reversal began to happen. Consumers rushed to shopping malls, sprucing up their wardrobes and making long-awaited purchases.

Online sales still represent a larger share of retail sales than before the pandemic. But they have steadily declined since their peak in the spring of 2020.

Big companies say they are noticing more and more shoppers returning to stores.

“We saw a noticeable shift in consumer buying behavior across channels, with in-store sales better than expected and digital sales falling below expectations,” Macy’s (M) CEO Jeffrey Gennette said last month on a call with analysts.

Gennette said customers come to stores to buy formal wear such as dresses to wear to parties and social events. At the same time, they stopped buying casual clothes online.

Niraj Shah, CEO of an online furniture retailer Wayfair (O)told analysts last month that the “pendulum” had swung back to in-person shopping after a surge in online shopping in 2020.