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We’re now buying less online than many had predicted, and it’s throwing tech companies and the economy for a loop.
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One of the most consequential forces in technology is how and where you buy stuff, and U.S. online shopping has hit a wall.
This might feel surprising if you see Amazon delivery vans chugging through your neighborhood, but e-commerce sales growth has slowed. This is hurting companies like Amazon and eBay that sell us stuff and tech titans, including Facebook, that rely on advertising from online merchants.
The swing from pandemic e-commerce craze to malaise is one of the biggest things happening in technology, financial markets and the economy right now. The ripple effects of our shopping behavior have contributed to the current sad phase for the technology industry and falling stock prices. They also show how influential we are in the fate of trillion-dollar technology companies and the U.S. economy.
The e-commerce sag could be temporary as people and businesses adjust and then readjust to the pandemic. In the meantime, the uncertainty about the future of our collective shopping habits is confounding normally confident corporate executives and forecasters.
Let me recap what has happened with online shopping: When the coronavirus started to spread in the U.S. in the early months of 2020, we spent less on travel and services and more on physical goods, and we bought way more than we usually do from the safety of our internet connections. Some experts predicted that we had raced ahead to a future in which online shopping was a far larger part of Americans’ lives and budgets.
And that did happen. E-commerce now appears to be a bigger chunk of Americans’ spending than it would have been if the pandemic had never happened.
But the change was perhaps not as dramatic as some analysts had expected. And in 2021, possibly for the first time, in-person shopping in the U.S. gained ground on e-commerce.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
That difference between online shopping expectations and reality is starting to sink in, and it’s having surprising effects. Amazon during the first three months of this year posted its slowest sales growth in decades, and it warned of more of the same in the next few months. Amazon also said that it would pull back on expanding its warehouses, where some business was so slow that the company was sending workers home early.
Its quarterly financial results prompted questions about whether Amazon’s e-commerce machine had peaked, although the pessimism could look silly in six months or a year if sales go through the roof again.
This online shopping comedown isn’t confined to one company. Other e-commerce stars including Etsy and Shopify, whose software powers online businesses for millions of smaller stores, also posted unexpectedly low sales growth or low expectations for the near future. An analysis by Mastercard showed that U.S. online shopping purchases fell in March for the first time in nearly a decade while in-store purchases climbed.
It’s not surprising that e-commerce buying soared when people were hunkered down at home in 2020 and slid backward once many felt more comfortable shopping in person and were again eager to splurge on travel, eating out and other in-person activities. But companies didn’t really see this pendulum swing coming.
Facebook’s parent company, Meta, said last month that its suddenly meh advertising sales were due in part to online shopping companies becoming less eager to buy ads on Facebook when their sales were under pressure. “The acceleration of e-commerce led to outsized revenue growth, but we’re now seeing that trend back off,” Mark Zuckerberg told Meta investors two weeks ago.
And Meta said last week that it was slowing its hiring.
All of this cost-cutting and lack of confidence in the future would have seemed wild six months or a year ago, when Meta, Amazon, Google and other tech companies had stupendously bonkers revenue and profits.
The question this is raising is whether we misjudged the past two years of technology-driven changes in consumer behavior. Yes, some of us who picked up the habits of shopping more from home and Zooming everything will continue to do so. But there’s been a return to 2019 behaviors, too. Last week, I shook hands with everyone at a business meeting and wondered what happened to the prediction that the virus would end handshakes.
We still don’t know what “normal” looks like in the U.S. or elsewhere, and we probably won’t for a year or more as our spending habits adjust to higher prices, ongoing difficulties with manufacturing and shipping, rising interest rates, continued coronavirus infections and a desire to frolic in the real world.
The new normal for shopping probably doesn’t look like either the comeback for physical stores that we’ve seen in the past six months or the surge of online shopping from 2020. It is difficult to predict the collective behavior of millions of Americans. And that is making all of technology shudder.
The role of TikTok and other social media apps in the Philippines election: As the country is nearing a decisive victory for Ferdinand Marcos Jr. in its presidential election, it’s worth reading these articles from my colleague Camille Elemia and The Los Angeles Times about the ways that citizens have become inured to lies about the country’s history and its presidential candidates.
A limit to the company that “might end privacy as we know it.” Clearview AI, the maker of facial recognition software that assembled a database of billions of personal photos and sold its technology to private companies, settled a lawsuit. It agreed to restrict its service in the U.S. primarily to law enforcement and other government agencies, my colleagues Ryan Mac and Kashmir Hill reported.
Related from On Tech in 2021: One reason that Clearview AI won’t sell its facial recognition technology to most private individuals and businesses is a landmark Illinois privacy law that gives people in that state control over their fingerprints and face scans.
The start-up built on inflated metrics and investors eager to believe them: Erin Woo and Maureen Farrell dug into the digital payments start-up Bolt and its charismatic co-founder who stretched the truth to go big.
I invite you to enjoy the sunbathing acrobatics of Barry the cat.
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