US eCommerce sales crossed $1 Trillion in a year. How much revenue will it drive in 2023?

This News Covers

• Market dynamics of eCommerce Growth
• Benefits of AI Integration in Ecommerce
• What are the top 5 factors have helped US ecommerce grow fast
• What was the Compound Annual Growth Rate (CAGR) of Ecommerce
• What are the policies that should govern use of generative AI and ChatGPT in eCommerce?
• What is the possible impact of this development on the top companies having ecommerce related businesses
• How Google is set to propel eCommerce in 2023

The digital transformation and the evolution of technology have significantly influenced US ecommerce, reshaping consumer behavior and driving sales in certain sectors. Despite the predicted slowdown in retail sales growth, ecommerce is projected to grow by double digits, reaching $1.148 trillion, primarily fueled by online grocery, health and personal care, and online resale.

MarketsandMarkets welcomes this development and our editors share their views.

Market dynamics of eCommerce Growth

Three factors govern the dynamics of eCommerce in United States in 2023. In part, 2022 has laid the foundation for the growth.

1. The Intersection of Artificial Intelligence and Ecommerce

Artificial intelligence (AI) is revolutionizing the ecommerce industry by powering sophisticated tools and technologies. Ecommerce platforms are leveraging AI to analyze vast amounts of customer data, providing personalized shopping experiences, product recommendations, and predictive trend analysis. Additionally, AI-powered chatbots and virtual assistants are becoming standard tools, enhancing customer service by providing instant responses and personalized assistance.

Artificial intelligence (AI) is revolutionizing the ecommerce industry by powering sophisticated tools and technologies. Ecommerce platforms are leveraging AI to analyze vast amounts of customer data, providing personalized shopping experiences, product recommendations, and predictive trend analysis. Additionally, AI-powered chatbots and virtual assistants are becoming standard tools, enhancing customer service by providing instant responses and personalized assistance.

Artificial intelligence offers multiple advantages in the ecommerce sector. AI can provide a highly personalized shopping experience by using machine learning algorithms to analyze and learn from user behavior, enhancing customer engagement, and potentially boosting sales. AI also offers superior customer service solutions through 24/7 chatbots, improving responsiveness and customer satisfaction. Additionally, AI can optimize inventory and supply chain management by predicting demand, mitigating overstock or understock scenarios. Overall, AI increases efficiency, reduces costs, and enhances the customer experience in ecommerce.

2. AI Solutions to Ecommerce Challenges

Indeed, AI has emerged as a potent solution to a range of ecommerce problems. With AI, businesses can significantly enhance inventory management through precise demand forecasting. Similarly, AI helps improve customer segmentation, allowing for highly targeted marketing campaigns. It also bolsters customer service capabilities, with AI chatbots managing common queries, thus freeing up human resources for more complex tasks.

Benefits of AI Integration in Ecommerce

Artificial intelligence offers multiple advantages in the ecommerce sector. AI can provide a highly personalized shopping experience by using machine learning algorithms to analyze and learn from user behavior, enhancing customer engagement, and potentially boosting sales. AI also offers superior customer service solutions through 24/7 chatbots, improving responsiveness and customer satisfaction. Additionally, AI can optimize inventory and supply chain management by predicting demand, mitigating overstock or understock scenarios. Overall, AI increases efficiency, reduces costs, and enhances the customer experience in ecommerce.

What are the top 5 factors have helped US ecommerce grow fast

The adaptive nature of markets and businesses in the face of external changes and technological advancements is evident in an unprecedented manner in 2023. The increase in digital grocery sales, the surge in health and personal care products, the growth of category-driven retailers, Gen Z's push towards online resale, and the rise of product discovery platforms underscore a digitally integrated future. This growth not only influences the retail sector but also impacts the broader economy, affecting job markets, supply chains, and consumer behavior. As ecommerce continues to grow and diversify, it is crucial for policymakers and business leaders to understand and address the associated economic challenges and opportunities.

1. Digital Grocery as a Pillar of Ecommerce Growth

The first significant driver of ecommerce growth is the digital grocery sector. According to Insider Intelligence, it is poised to be one of the most significant contributors to ecommerce growth over the next five years. Despite the impressive growth rates of grocery delivery intermediaries, most of the digital grocery sales are happening directly on the grocers’ websites. The digital grocery boom is driven by consumers' changing habits, increasing convenience, and the development of seamless shopping experiences by online grocery platforms. Retailers are also capitalizing on the substantial amount of first-party data for targeted advertising, further monetizing the consumer shift towards online grocery shopping.

2. Health and Personal Care: An Emerging Ecommerce Driver

Health and personal care have emerged as substantial drivers of ecommerce. As more consumers opt to buy essential goods online due to convenience and pandemic-induced habits, this category is gaining a more substantial share of the ecommerce sales pie. It's worth noting the declination in categories such as books, music, and video, and computer and consumer electronics as consumers diversify their online purchases.

3. Fast-Growing Category-Driven Retailers

Another critical factor driving ecommerce growth is the rise of category-driven etailers. While giants like Amazon, Walmart, Apple, and eBay dominate the market, specialized online retailers like Carvana and Chewy are rising in the ranks. For example, despite facing demand challenges in 2022, Carvana has potential growth opportunities if it can control costs and maintain sales amid the industry's ongoing upheavals. This suggests a promising trend for niche online retailers, illustrating that companies offering specialized goods or services can carve out a significant market share and thrive amidst giants.

4. Gen Z and the Rise of Online Resale

The online fashion resale market is another burgeoning area, projected to continue its double-digit growth through 2026. Driven by economic factors and increasing consumer participation, the resale market is particularly popular among Gen Z, with over half of this demographic buying secondhand fashion online. The rise of the online resale market indicates a shift in consumption habits towards sustainable and value-driven shopping.

5. The Impact of Product Discovery Platforms

Lastly, platforms like TikTok and Instagram are significantly influencing ecommerce growth by transforming the way consumers discover products. As these platforms continue to build out their commerce capabilities, more consumers start their online shopping journeys there. Future shoppers are predicted to be more inspired and driven by discovery, indicating the potential growth of social commerce and the importance of creating engaging and interactive shopping experiences.

6. Why Ecommerce Market Expanded Despite Overall Slow Growth

Ecommerce sales in the US in 2022 reached a new milestone, crossing the $1 trillion mark for the first time in history, according to a Digital Commerce 360 analysis of the U.S. Department of Commerce figures. However, the growth rate dropped to 7.7% compared to the previous double-digit growth. Despite the slowest growth rate since 2009, the market is expanding. This signifies the long-term sustainability and resilience of the ecommerce sector, implying that online retail is an enduring and fundamental aspect of the consumer economy.

Ecommerce penetration (the share of dollars consumers could potentially spend online) increased slightly to 21.2% in 2022 from 21.0% in 2021. Although the growth rate is slowing down, ecommerce is still claiming a bigger slice of the retail pie. This emphasizes the need for online businesses to continuously innovate and optimize their ecommerce strategies to grab a larger share of this still-expanding market.

The Shift in Ecommerce's Share of Total Retail Growth

Ecommerce’s share of total retail growth was at 23.8% year-over-year in 2022, down from 25.2% in 2021 and a record high of 84.2% during the 2020 pandemic. This decline is indicative of offline sales catching up with digital commerce, especially after COVID lockdowns. This means traditional brick-and-mortar retailers are regaining some ground, and omnichannel strategies that integrate both online and offline customer experiences are more important than ever for retail businesses.

What was the Compound Annual Growth Rate (CAGR) of Ecommerce

According to a research report "Ecommerce Platform Market - Global Forecast to 2027" published by MarketsandMarkets, the global eCommerce platform market is projected to grow from USD 5.51 billion in 2022 to USD 10.04 billion by 2027 at a compound annual growth rate (CAGR) of 12.8% during the forecast period.

The Compound Annual Growth Rate (CAGR) over a five-year basis at the close of 2022 stood at 18.4%. When focusing on the post-pandemic period over a three-year basis, the CAGR rose to 21.9%. This suggests a strong shift towards ecommerce during the early-pandemic period. Businesses need to consider the effect of these growth trends on their strategic planning.

As a testament to the strength of the ecommerce sector, major global retailer Ikea is investing over $2 billion in the U.S. market over the next three years to grow its footprint. The investment includes opening new stores and creating new fulfillment networks. The company expects the U.S. to overtake Germany as its largest market. This illustrates how international retailers view the potential of the U.S. ecommerce market and are ready to make significant investments to seize growth opportunities. This also underscores the importance of companies staying competitive by investing in infrastructure, customer experience, and digital capabilities.

Within Ecommerce, which subdomains extensively use AI and large language models?

Artificial Intelligence (AI) and large language models are applied across various domains within Ecommerce to improve operational efficiency, customer experience, and overall sales. Here are some key areas:

1. Customer Service: AI-powered chatbots and virtual assistants, often backed by large language models like GPT-4, can handle customer queries and complaints in real time, 24/7. They can understand and respond to natural language, providing a smoother user experience.
2. Personalized Shopping Experience: AI algorithms use customer data to generate personalized product recommendations, tailoring the shopping experience to individual customer preferences.
3. Search and Discovery: Advanced language models can process natural language queries, improving search results and making it easier for customers to find what they're looking for.
4. Demand Forecasting and Inventory Management: AI algorithms can analyze historical sales data and market trends to accurately predict future demand and manage inventory effectively.
5. Marketing and Sales: AI is used to segment customers and tailor marketing campaigns to individual preferences, significantly improving conversion rates. Automated email campaigns, targeted advertising, and dynamic pricing are just some examples.
6. Fraud Detection: AI algorithms can detect patterns and anomalies in transaction data that may indicate fraudulent activity, increasing the security of online purchases.
7. Voice Commerce: With the rise of voice assistants like Alexa and Siri, AI-powered voice recognition and processing is becoming increasingly important in ecommerce, enabling customers to shop using voice commands.
8. Visual Search and Recognition: AI can identify products in images or videos (using computer vision), allowing users to search for products using images, which is particularly useful in the fashion and home decor sectors.

These uses of AI and large language models not only enhance customer satisfaction but also drive operational efficiencies, thereby improving the bottom line for ecommerce businesses.

What are the policies that should govern use of generative AI and ChatGPT in eCommerce?

The deployment of generative AI and tools like ChatGPT in the fashion ecommerce industry calls for thoughtful policies that address potential challenges while maximizing benefits. These policies should be framed around the following critical areas:

Brands must ensure that the extensive data used to provide personalized recommendations and experiences doesn't compromise customer privacy or security. Policies should be clear on data collection, storage, usage, and sharing, ensuring that proprietary data isn’t exposed in a manner that might compromise its security. Compliance with regulatory standards, such as the General Data Protection Regulation (GDPR), should be a priority.

Let us take a look at 4 areas that such policies should govern in-

Ensuring these policy frameworks are robust and up-to-date will allow fashion ecommerce to fully harness the benefits of generative AI and tools like ChatGPT, thereby significantly enhancing user experience and operational efficiencies while mitigating potential risks.

What is the possible impact of this development on the top companies having ecommerce related businesses

The increasing adoption of generative AI and tools like ChatGPT in the ecommerce industry heralds a new era of personalized online shopping experiences and efficient business operations. Here's how this development could impact some of the top ecommerce companies:

1. Amazon (Headquartered in Seattle, Washington, U.S.)

- Key Offerings: Amazon Marketplace, Prime, AWS, Kindle, Echo, and more.

- Investment Raised: Amazon has been publicly traded since 1997 and has not raised private capital since.

Amazon's vast ecommerce platform could greatly benefit from the adoption of generative AI and ChatGPT. These technologies can enhance product discovery, personalization, and customer service. Amazon could also leverage AI for more efficient inventory management and fulfillment processes, given its massive scale.

2. Alibaba Group (Headquartered in Hangzhou, China)

- Key Offerings: Alibaba.com, AliExpress, Tmall, Taobao, Alipay, and more.

- Investment Raised: Alibaba Group went public in 2014 and hasn't raised private capital since.

Alibaba could utilize generative AI to bolster its recommendation engines and provide hyper-personalized experiences to its vast customer base. Additionally, AI can augment its fintech services, like Alipay, by detecting fraudulent activities more accurately.

3. eBay (Headquartered in San Jose, California, U.S.)

- Key Offerings: Online marketplace, consumer-to-consumer sales, business-to-consumer sales, online auction platform.

- Investment Raised: eBay has been publicly traded since 1998 and hasn't raised private capital since.

eBay, being a pioneer in the online marketplace sector, could leverage generative AI to enhance product discovery and recommendation, especially for its auction platform. Further, AI could enhance fraud detection in transactions, bolstering security and trust on the platform.

4. Walmart (Headquartered in Bentonville, Arkansas, U.S.)

- Key Offerings: Walmart Marketplace, Pickup & Delivery, Walmart+, and more.

- Investment Raised: Walmart has been publicly traded since 1970 and has not raised private capital since.

While Walmart is primarily a physical retail giant, its ecommerce platform could significantly benefit from the adoption of generative AI. Enhanced personalized recommendations and efficient inventory management could make online shopping more appealing to its customers, potentially driving online sales growth.
5. Shopify (Headquartered in Ottawa, Ontario, Canada)

- Key Offerings: Online store builder, Shopify Payments, Shopify POS, and more.

- Investment Raised: Shopify went public in 2015 and hasn't raised private capital since.

Shopify, as a platform empowering businesses to create online stores, could leverage generative AI to provide new tools and features for its users. For instance, AI-powered product description generation and personalization features could make it easier for businesses to provide high-quality online shopping experiences.

The advancement in generative AI and large language models like ChatGPT has profound implications for the ecommerce industry. It allows these top players to further refine their customer experiences, drive operational efficiencies, and carve out a competitive advantage. As this technology continues to mature, its impact on ecommerce will only become more significant.

How Google is set to propel eCommerce in 2023

Google is launching a generative AI tool named "Product Studio" aimed at helping sellers enhance their product images on Google Shopping. The tool allows sellers to edit and customize their product images, providing capabilities such as generating new backgrounds and improving the quality of low-resolution images. It's anticipated to particularly benefit independent sellers and small businesses who may lack the budget for high-end photoshoots. Additionally, it is compatible with the Google & YouTube app on Shopify. The service, part of Google's redesigned platform, Merchant Center Next, will be available to US-based sellers in the coming months, with a global rollout expected by 2024.

Following the COVID-19 outbreak, digitization soared and the number of B2B companies with eCommerce capabilities rose from 40% to 65%. The expectations of B2B buyers have shifted towards desiring a personalized B2C-like experience, which aligns with the customer-centric strategy Google employs. Cloud-native and composable commerce, personalized customer experience, and data quality are the key trends influencing B2B eCommerce in 2023.

1. Embracing Cloud-native and Composable Commerce: The first trend revolves around B2B firms transitioning from manual processes and siloed backend systems to cloud-native, composable commerce. Google Cloud's robust infrastructure and commerce tools' composable commerce solutions enable businesses to build customizable, scalable eCommerce systems that are designed for auto-scaling during peak traffic times.
2. Prioritizing Data Quality and Personalization: The second trend focuses on data quality and personalization. Google Cloud's Discovery AI, Recommendations AI, and Vision Product Search enable B2B businesses to capture accurate, real-time data across various touchpoints and use it to offer personalized experiences. With Google's data-driven tools, businesses can gain valuable insights into buyer behavior, improve customer satisfaction, and reduce churn.
3. Redesigning B2B Customer Experience: The third trend foresees the redesign of B2B customer experience by mimicking successful B2C strategies. Progressive Web Applications (PWAs) and other Google Cloud capabilities allow B2B businesses to enhance their digital frontends for a better customer experience, higher SEO rankings, and improved conversion rates.

References

1. How B2B Digital Commerce Will Unfold In 2023