In 2018, seeds of innovation began to grow across e-commerce and retail, especially in the areas of automation and virtual reality (VR), and through the emergence of the first cashierless stores. Not coincidentally, this took place in a year of strong growth, with the US retail market expected to grow more than $200 billion throughout 2018 to reach $5.3 trillion. Interestingly, some of the biggest global e-tailers such as Alibaba, Amazon, and JD.comhave seen their e-commerce marketplace sales decelerate during recent quarters, possibly because they’re finding it harder to grow as fast as they used to, given their immense amounts of revenue. This has left other retailers like Walmart and Target to pick up the mantle of growth. Based on our ongoing analysis, understanding of industry trends, and conversations with industry executives, here are our top five predictions for e-commerce in 2019:
1. Amazon Prime’s US membership growth will flatten almost to zero. The rate at which Amazon’s been adding members to Prime has been dropping steadily over the last several quarters, slipping to 8% year-over-year (YoY) in Q3 2018, according to estimates from Consumer Intelligence Research Partners (CIRP). This is likely due in large part to saturation — there are an estimated 97 million US Prime members, which is an enormous base to try to expand upon. Considering that there are only around 119 million households in the US — a better measure of the addressable market than population, since households are likely to share a membership — the maximum addressable market left for Amazon to sell further memberships to is small. And it’s likely smaller still, given that 11% of US adults don’t use the internet and around 21% are under 18 (the minimum age for an Amazon account). To combat this, Amazon has added several new benefits to Prime this year in hopes of enticing more users, such as Prime Wardrobe and the expansion of online grocery benefits from Whole Foods to 60 markets. However, even after adding major perks last year — like benefits at Whole Foods and a cheaper Prime offering for consumers with an Electronic Benefit Transfer (EBT) card — between September 2017 and September 2018, membership still hit the lowest growth seen by CIRP since 2012. This suggests that these improvements haven’t given Prime the boost Amazon hoped they would; without a serious change — such as a drop in the cost of Prime, which is unlikely to occur — this bump may not be forthcoming.
2. Target will emerge as the clear-cut fourth place US online retailer. Amazon and eBay are well entrenched at the top of US e-commerce, and while Walmart doesn’t release e-commerce revenue metrics, it’s estimated to be in third place. Players like Best Buy, QVC, and Target have traditionally made up the middle of the pack. However, Target posted digital sales of $1.06 billion in its fiscal Q3 2018 (ended November 3, 2018), its second consecutive quarter with greater than 40% YoY growth. This is positioning Target to separate itself from the pack in 2019, and two key initiatives are set to propel it even further.
- Convenience: It’s committed to making fulfillment as convenient as possible for consumers via services like Drive Up, Target Restock, and same-day delivery — which is widely available thanks to its acquisition of Shipt. This can convince consumers to shop with it, especially because it’s offering the best delivery deal of the holiday season: free two-day shipping with no order minimum or membership fee.
- Self-investment: In 2017, Target committed to investing $7 billion into itself over the following three years. This is an ongoing process that can push its performance further in 2019. For example, it’s piloting a new fulfillment system that can help make it more efficient and potentially faster, facilitating its booming e-commerce business.
3. Social commerce will fail to gain adoption despite social platforms’ efforts. As of May 2018, 82% of consumers had not bought a product directly through social media, and the exact same percentage of consumers responded the same way in 2017 and 2016, according to a report from SUMO Heavy. And only 20% of respondents were unfamiliar with social media shopping, so awareness is not the leading issue. For context, the top 500 retailers earned an estimated $6.5 billion through social shopping in 2017, and if the 24% YoY growth seen in 2017 maintains, it would bring in over $8 billion in 2018. To further improve the performance of social commerce, Instagram and Snapchat have been bolstering their shopping offerings with shoppable posts and ads. And recently, Instagram enabled users to save shoppable items to a list to come back to, and it now allows consumers to view all products posted by a retailer, while Snapchat has launched a channel exclusively for shopping and deals.
New features may make it easier to shop through social media, but that doesn’t mean they’ll inspire consumers to make purchases. Social media’s greatest value in commerce is product discovery, and many consumers seem disinterested in buying through the platforms. While these latest efforts may lead to greater order frequency and value among the 18% of consumers who have bought through social media before, they won’t move the needle because they don’t enhance the curated product discovery capabilities that allow social media to influence purchases. Platforms need to entice consumers to shop through them, rather than simply making it easy to do so, similar to how they make users want to visit their sites in general. Finding ways to make product discovery and personalization shoppable, in addition to creating a unique commerce experience to match their platform’s distinct values, would instead be able to drive adoption.
4. Cashierless stores won’t scale much beyond the size of a current Amazon Go store in 2019. There are currently seven Amazon Go stores, and they’re all under 2,500 square feet, allowing them to function as convenience stores but not much else. To give the technology — which allows shoppers to grab what they want and leave without stopping to check out — the ability to work in other retail situations, Amazon is reportedly experimenting with its technology so it can work in bigger stores. But because Amazon Go stores were designed to fit the technology — and not the reverse, where the technology would be made to fit a preexisting store — applying the network of sensors and cameras to a bigger store is likely to prove difficult and may face delays, just as the original Go stores did. Meanwhile, third-party providers like Standard Cognition and Trigo Vision just partnered with retailers for the first time this year to outfit their stores with cashierless technologies. And though many of these providers only use a network of cameras — which is more easily scalable than Amazon Go’s tech — they won’t be able to scale right away either. Communicating with these retailers and effectively retrofitting larger stores with the necessary technology will prove difficult because these partnerships are so new, causing bigger stores to take longer to open.
5. Meal kits teaming up with retailers won’t make a difference, and overcrowding will lead to a market contraction. As the meal kit space gets more and more crowded, several players are turning to selling kits in stores to draw on potential customers who are leery about committing to a subscription. In fact, in-store sales of meal kits are currently on the rise, growing more than 26% YoY in 2017, according to Nielsen. However, with over 150 meal kit companies in the market, it’s reasonable to expect that they will continue to cannibalize each other despite their best efforts. Even Blue Apron, one of the largest and historically successful meal kit companies, has been struggling, with its customer base dropping 24% YoY in Q2 and 25% YoY in Q3. On top of that, partnerships with retailers are not always 100% steadfast: Costco recently put sales of Blue Apron meal kits at its stores on pause for the holiday season in favor of higher-selling items. This is both a vote of low confidence in Blue Apron’s kits and a troublesome blow to the meal kit company’s sales prospects during the high-volume holiday season, demonstrating the lack of reliability of these retailer partnerships.