The Covid-19 pandemic was expected to make us all permanent online shoppers and never set foot in brick-and-mortar stores again.
Instead, consumers are apparently tired of ordering everything sitting on the couch and are back to old-fashioned shopping.
“Now that the pandemic has eased, you see consumers going back to their pre-pandemic activities,” said Brian Nagel, who is retail sales manager at Oppenheimer & Co. covers. “Consumers see benefits of shopping in stores.”
Several factors are coming together to dampen online sales growth, he said.
Inflation is putting pressure on consumers’ wallets. This has led some buyers to forgo buying expensive items such as electronics and furniture – products often bought online – or waive delivery charges.
Other consumers have shown that they enjoy getting out and socializing after being confined to their homes during the pandemic.
“Shopping in stores is a social activity,” says Nagel.
The signs of this shift in consumer preferences are everywhere.
In May, online retail sales rose 2.2% compared to the same month a year earlier, according to payment data released by Mastercard on Tuesday. Store sales grew at a much faster clip of 13.4%.
According to S&P Global, e-commerce stocks were the worst performing retail sector so far on the S&P 500 in 2022, dropping 28% as of Monday.
Amazon (AMZN) said it added too much warehouse capacity as it raced to meet pandemic demand and was overcrowded in some cases. The company would now sublet some of the warehouse space to reduce overcapacity.
Companies like Stitch Fix (SFIX) are struggling. The online clothing styling service will lay off 15% of its salaried positions — about 330 employees — due to slowing e-commerce growth. The cuts come months after Stitch Fix (SFIX) lowered its full-year forecast and said the number of active customers was below expectations.
Carvana (CVNA), the online used car dealer, will lay off about 2,500 employees, or 12% of its workforce. In cities, several startups that promised to replace nearby groceries with food and essentials delivered in less than 15 minutes have gone bankrupt.
More layoffs are likely to come, experts predict.
“Many of these companies have staffed their workforces in anticipation of forecasted growth,” said Berna Barshay, an analyst at Empire Financial Research. “Now they won’t meet those predictions. The obvious answer to missed growth targets is to scale down, scale back and lower costs.”
The trend is a sharp reversal in the rush to order online during the early phases of the pandemic. That has overturned predictions that the consumer’s shift to online purchases would be permanent.
Two years ago, when Covid-19 brought everyday life to a standstill, online purchases soared.
With non-essential stores closed and home orders taking place, shoppers of all ages bought groceries, home office supplies, furniture, sports equipment and other goods online in record numbers — some for the first time.
In the second quarter of 2020, e-commerce sales as a percentage of total retail sales shot up more than four percentage points to 16.4%.
Businesses increased their workforce to meet demand, expanded their distribution facilities, and partnered with delivery services such as Instacart and DoorDash.
But when businesses reopened in the summer and fall of 2020, a turnaround began to take place. Consumers rushed to visit malls, brighten up their wardrobes and make long-awaited purchases.
Online sales still make up a larger share of retail sales than before the pandemic. But they have steadily declined from their spring 2020 peak.
Top companies say they are seeing more shoppers returning to stores.
“We saw a remarkable shift in consumer buying behavior across channels, with better-than-expected in-store sales and lower-than-expected digital sales,” Macy’s (M) CEO Jeffrey Gennette said during a conversation with analysts last month.
Gennette said customers came to stores to buy formal wear, such as dresses to wear to parties and social events. At the same time, they have withdrawn from buying casual clothes online.
Niraj Shah, CEO of online furniture retailer Wayfair, told analysts last month that the “pendulum” had returned to in-person shopping after a spike in online purchases in 2020.