How Brands Can Beat the E-Commerce Slowdown

Online retailers face a hard road ahead.

After the pandemic e-commerce boom ended, growth of online sales was naturally set to slow down. But the deceleration is proving even more pronounced than anticipated. Instead of the 10 percent rise in global e-commerce sales initially anticipated for 2024, growth is on track to reach only 8.8 percent for the year, according to estimates from analytics firm eMarketer. That compares with growth of 12 percent to 14 percent in the years prior to Covid, according to a 2023 BCG report.

The trend is set to continue. By 2027, growth will fall to 7.4 percent, eMarketer forecasts.

While many expect e-commerce to keep eating up an increasing share of overall retail sales, the slowing pace may signal more problems to come for some online fashion firms. Last year, leading luxury e-tailers Farfetch and Matches were sold to South Korea’s Coupang and Frasers Group, respectively, in last minute deals following consecutive quarters of sales and profit dips. Richemont is in the process of selling off its loss-making e-tailer Yoox-Net-a-Porter, which saw its sales drop 15 percent year over year in the quarter that ended in June.

“People don’t really feel like they’re getting a deal online anymore,” said Jay Sole, a managing director at investment bank UBS, which found in a survey earlier this year that the share of US consumers who said they’d bought clothing, footwear or accessories online in the previous 12 months dropped from 86 percent in 2023 to 83 percent in 2024.

The bank noted that online browsing wasn’t necessarily translating to more online purchases, as shoppers still want to try products before they buy them and have become less sensitive to the price differences between e-commerce and stores.

It predicted online sales growth would slow, and though it noted it wasn’t the consensus view, drew a stark conclusion: “This is a change from our prior view where we thought online would continue to take meaningful market share from brick & mortar channels.”

While some companies have already shifted focus to their stores, where they generate profitable growth, the ones that are reliant on e-commerce could find themselves needing to ramp up investment in physical retail and explore selling models they’ve previously shunned, like social commerce.

“There are a few leading brands and retailers that are actually still able to get that growth and continue at a healthy clip,” said Darpan Seth, chief executive of software firm Nextuple, which does online and offline order management for retailers. “The rest of the industry needs to also understand what does this change, what does this mean for them and how do they go after that same growth? It’s going to take a little bit of time to catch up.”

A Sea Change

While consumers aren’t abandoning e-commerce entirely, their attitudes towards the channel are shifting, in part due to changes imposed by retailers themselves.

In addition to charging for returns, brands are raising the minimum amount that shoppers have to spend before qualifying for free shipping to offset the rise in logistics costs, said Brian Ehrig, a partner in the consumer practice of management consulting firm Kearney. According to the UBS report, 41 percent of the surveyed shoppers cited free delivery as the top reason to buy online, ranking it higher than other factors like saving time or the ease of searching for goods.

Also, the ways that brands and retailers have responded to consumers’ behavioural changes — and mandates from investors to operate more profitably — haven’t helped e-commerce either. Brands have been pulling back on increasingly expensive digital ads that drive online sales and expanding their retail footprints. The rationale is that it helps them more cost-effectively appeal to consumers who shop both online and in-stores, under the belief that this cohort spends more in the long term.

The strategy has led to profitable growth for loss-making digitally native brands such as Rothy’s and Warby Parker. But it’s taken away from the broader e-commerce pot.

“Both channels will always evolve to balance consumer desires and businesses’ profitability needs,” said Simeon Siegel, managing director and senior analyst of retail and e-commerce at BMO Capital Markets. “For the last decade, we tilted towards the consumer desires. Now we’re flexing back towards running rational businesses.”

Bucking the Trend

The brands investing in stores should be well-positioned to survive the slowdown and meet consumer preferences.

Brands that are hesitant, or don’t have the capital, to invest in physical retail should use customer location data from their online sites to open stores or experiment with pop-ups in areas where they know they can drive enough sales to make up for operational expenses, Ehrig said.

Revolve has taken this path. The e-tailer, known for its glitzy occasionwear, opened its first permanent store in Aspen this June after a pop-up in the resort city last December exceeded expectations.

“Fish where the fish are. Don’t try to use your brand to bring people to a pond where they don’t normally swim,” said Brent Vartan, managing partner at investment firm and creative agency Bullish.

Other brands have been leaning into retail partnerships amid the slowdown. Digitally native shoe maker Taft, known for its $300 lace-up boots, is working closely with multi-brand retailers like Macy’s to make sure its product selection in their stores can bring in new customers.

“We’re very much an ecommerce company. That’s the core of our business. So, [the slowdown] affects us directly,” said Taft’s Brand President, Cameron Eggertz. “It wasn’t this big shock that came out of the blue. But at the same time, we’ve got to be preparing for it, which we have been.”

A physical presence can also bolster e-commerce over time as repeat customers go online to replenish items. Features like buy-online-and-pick-up-in-store, as well as using stores to fulfil online orders faster for nearby shoppers, can help restore the convenience that consumers feel is missing, Nextuple’s Seth said.

But even if more brands invest in retail, many others will have to make efforts to revitalise growth in their e-commerce channels. Companies should consider turning up their commerce efforts on social media as more consumers flock to TikTok Shop to buy goods, said Sonia Lapinsky, fashion lead at consultancy AlixPartners. Social commerce has helped fuel growth for Shein and Temu, which also have pricing advantages, and will likely shield regions like Asia from the broader e-commerce growth slump, she added.

“We in North America have a lot to learn from Asia, and we’re just starting to see the traction that social selling is getting,” Lapinsky said. “If people are on their phones and they want to interact and they want that kind of adrenaline rush sort of shock, I think that’s one of the big things that we can pull from the Chinese brands.”

Ultimately, the emphasis should be less on the specific channel than on running a business that satisfies consumer desires and meets profit goals. Kearney’s Ehrig said brands are never going to double or triple their growth every year indefinitely. Some slowdown is always inevitable.

“It’s not that fruitful to focus so much on the growth of e-commerce sales as opposed to the health of the brand,” he said. “If your brand is in really good shape then all of your channels are going to be doing well.”