• While the pace of growth in online retailing will slow from 2021, the sub-sector will continue to expand its share of total retail sales—rising from about 10% in 2019 to nearly 20% by 2025.

• While the US will remain a crucial market, much of the growth will come from emerging markets in Asia, Latin America and the Middle East. 

• Online retailers will need to devise winning strategies in three key areas: adoption of next-generation technologies; warehousing and fulfilment; and harnessing a new generation of digital sellers.

A special report from The Economist Intelligence Unit, forecasting growth and assessing key opportunities and risks in online retailing, predicts that the sub-sector will continue to expand its share of total retail sales—rising from about 10% in 2019 to nearly 20% by 2025. 

Combining data and forecasts that cover 58 markets worldwide, The EIU estimates that global online retail sales expanded by 32% in 2020 to US$2.6trn, even while the overall retail market contracted by over 2%. After such a record year, the pace of growth will inevitably slow from 2021, but online retailers will not easily give up the ground they have gained. The uncertainties over the rollout of coronavirus (Covid-19) vaccines and the emergence of new strains of the virus will keep social distancing measures in place in many countries in 2021. Moreover, the ease of online shopping and home delivery has made them attractive options to many consumers, who will continue to use these methods even when they can walk into shops again. 

Much of the growth will be driven by two main factors, including developing markets and the growth of online food and grocery delivery. 

The pandemic has helped to narrow the gap between Asian and North American consumer markets and has shown the former to be more resilient. Outside of Asia, there will be opportunities in Latin American and Middle Eastern countries with high internet penetration, where online sales surged in 2020 but much of the markets still remain in the hands of unorganised players. 

In a year that led to a nearly 4% decline in global consumer spending, expenditure on food and beverages still rose by 5%. Online grocery has been the biggest beneficiary, expanding from a small base pre-Covid to account for the lion’s share of online sales in most markets. We expect online grocery to retain its momentum over other categories of goods until at least 2023, when non-food retailing will start to accelerate again.  

In a fiercely competitive sector, there will be both winners and losers from the market transformation, depending on retailers’ ability to shift online and retain customers. While companies race to capitalise on the opportunities thrown up by the shift online, many will struggle to be profitable. Besides using the latest technologies to keep a finger on the consumer’s pulse, companies will need to explore which markets offer most potential, all the while navigating increased regulatory barriers, as well as cyber-security and labour risks.

BARSALI BHATTACHARYYA, MANAGER OF INDUSTRY BRIEFING AT THE ECONOMIST INTELLIGENCE UNIT

Download the full report “Online retailing: how to navigate the new normal“.