The arrival of e-commerce winter seems clear if we look at the stock price charts of e-commerce giants like Amazon, Paypal, or Shopify. They’ve seen a massive downturn from the pandemic heights. This indicates an incoming e-commerce winter. Or does it?

The picture becomes more nuanced if we fiddle with the comparison window. While it’s true that Amazon trades below its November 2021 all-time high, it’s still up significantly compared to pre-pandemic valuations. The respective market capitalisations of Paypal and Shopify are more or less the same as in January 2020.

Seen this way, it looks like a market correction. The bubble of overblown expectations has burst. The e-commerce revolution is no longer accelerating, it’s slowing down again. It has returned to the long-term trend line. But has it? Ben Evans looks at the numbers:

US ecommerce has, in fact, remained at the new higher level – for now – but there has been a surge in physical.

Let’s put things in perspective. Even if e-commerce growth were to continue only on its long-term trend, I wouldn’t call this scenario winter.

It’s more of a cool-down after a heat wave.

What’s more: the structural changes we’ve witnessed over the course of more than a quarter of a century are most likely permanent. The old retail model remains under pressure, retail is going digital, even in its bricks-and-mortar operations. Direct-to-consumer (DTC) is going through a market correction, but it’s too early to write it off.

New models

Retail e-commerce sales are still projected to grow significantly faster than the overall retail market. However, inflation hits both sides of the market: both consumers and investors are reviewing their spending, and this eats into revenues as well as investments. But it also cries for efficiency, and this will favour digital retail models (they are more efficient). In a world of inflation and efficiency, the experience may be less important than the value consumers get for their money.

Online grocery still retains most of its pandemic gains, at least in the US. Consumers say they’re spending more online than before the pandemic, and they like it that way. We’ve seen new models emerging:

• DTC brands, like Mymuesli
• Digital-native grocers, like Picnic
• Delivery apps, like Uber Eats
• Meals and kits, like Hello Fresh
• 15-minute delivery, like Gorillas

There is likely to be further innovation in this area and players will expand into other market segments. Of course, there’s now a natural selection process that will lead to a market shakeout. Access to capital is getting harder. This is more of a funding winter that is neither limited to online grocery nor e-commerce, but affects start-ups in general.

This shakeout will favour players that are already profitable or have a sufficiently long runway to reach profitability without having to raise new capital. Some will slash their workforce to extend the runway, as Gorillas did back in May. This is the usual playbook of a downturn, but will it affect long-term trends? Not very likely.

In the summer of 2022, a global recession looks more and more plausible. In commerce land, who is going to suffer the most? Outdated retail models could be given a new, albeit short lease of life – if they can keep their cost structures under control, carefully manage their pricing, and adjust for stagnating or even declining revenues. These are big ifs.

In comparison, digital retail just needs to ride the wave, even if it slows down a bit. This slowdown can also be an advantage. No need to rush, and the market is being cleaned up.

Where is the line?

The big picture, and this is something Ben Evans never tires of reminding us of, is that it’s becoming increasingly difficult to draw a line between commerce in general and e-commerce in particular. After multichannel and omnichannel, there is now even a new buzzword for this: the online-merge-offline (OMO) model.

Today, most retailers, and also more and more brands, are somewhere on this continuum between online and offline. As I said before, most retail has a physical and a digital component. It’s inherently hybrid. This new world is unfolding right before our eyes, and the looming recession may even accelerate its development.

Why is that? Because any recession will kill off the weakest market participants. There will be niches where pure-physical retailers can thrive, but how big are these going to be? And pure-digital has its limitations as well – that’s why Amazon continues to invest in physical retail.

Brands need physical and digital showrooms and sales channels, plus direct access to consumers. They just need to figure out business models that work. Some brands already have those, others don’t. And in this case, retailers are brands as well. It’s also getting increasingly difficult to draw a line between retailers and brands.

But I wouldn’t expect the distinction between retailers and brands to wither away. Retailers’ job is to be aggregators of demand and supply. Consumers are visiting retail shops when they consider buying from different brands, and brands need retailers as distribution channels.

Of course, there will be edge cases of brands selling exclusively through their own channels, and consumers following suit. But I wouldn’t expect Amazon to sell only Amazon brands anytime soon. Or Apple selling its products only through their own stores. The same probably applies to most brands.

How big will e-commerce get?

It will take time to figure out business models in this hybrid world of commerce. But what stands the test in tougher times will have the potential to thrive in better times.

In the long run, the question remains how big e-commerce – however we define it – will eventually become. Will all commerce, beyond a few niches, move to e-commerce at some point? Or are we going to see saturation, or let’s call it e-commerce winter, set in earlier?

According to current estimations, it will be only a few years until more than a quarter of all global retail will be e-commerce. Given the hybrid nature of commerce, this number is only an approximation. But since the long-term growth trend is exponential, we’ll probably know more by the end of this decade.

It would only take a few more years to go from a quarter to half of all global retail. For a real e-commerce winter, growth would need to slow down significantly.