The Mysterious Drop in eCommerce

On-line shopping is taking over the world.

Or maybe it's not.

I am fresh back from MHI's ProMat show in Chicago, where interest in automation for distribution processes was at high levels, with almost 50,000 registrants, up from roughly 35,000 at the last ProMat in 2021, and roughly the same for the sister show MODEX in 2022.

That interest in DC automation is certainly driven by the continued issues nationwide in terms of labor shortages and costs. But in retail, consumer goods and some other businesses, that has also been closely connected to the rise in efulfillment, with its labor-intensive and costly piece-picking processes to ship on-line orders to consumers' homes.

As ProMat, mobile robot vendors that support such piece picking processes saw very high numbers of show attendees crowding into their booths.

But interestingly, as ProMat was ending its four-day run on Thursday came this surprising news: Walmart is laying off hundreds of employees at ecommerce fulfilment centers across the country.

In a statement, Walmart said it made the cuts "to better prepare for the future needs of customers," which of course doesn't make much sense, but that's what we got.

As first reported by the Reuters news service, Walmart confirmed that it is eliminating hundreds of jobs at five fulfillment centers in Pedricktown, New Jersey; Fort Worth, Texas; Chino, California; Davenport, Florida; and Bethlehem, Pennsylvania. It told Reuters it was reducing its workforce because of a reduction or elimination in evening and weekend shifts.

About 200 fulfillment center jobs will be cut at a the southern New Jersey facility alone.

So much for large signing bonuses and ever higher wages in the scramble for efulfillment workers.

What in the Sam Hill is going on here, as my grandmother used to say?

It certainly appears we have hit an ecommerce ceiling.

In Walmart's case, ecommerce sales rose 12% in the most recent fiscal year, which ended Jan. 31. That compares with 11% growth in fiscal 2022 and but 79% in fiscal 2021, when COVID changed market dynamics and sent ecommerce sales skyrocketing.

Here are some other data points:

• February parcel volumes were actually down in the estimated mid-single digits compared with a year earlier, according to ShipMatrix, which analyzes parcel shipping data.

• 16,9000 US jobs at trucking, warehousing and parcel-delivery companies were cut in February, following a drop of 2,200 jobs in January, with a slowdown in ecommerce being cited as a key factor.

• Somewhat buried in its Q4 earnings release was the fact Amazon's on-line sales actually fell 2% in Q4, continuing a pattern stretching back a year.

• It has been widely reported that Amazon has stopped or stalled opening a number of planned fulfillment center openings, and it was reported last year that Amazon was actually looking to sub-lease what is now viewed as excess fulfillment center space.

The US Census Bureau keeps track of ecommerce sales, and though I have heard some criticism that its numbers are off it seems to be the best we have. Over the last four quarters, starting with Q4 2022 and then the preceding three quarters, the data shows what appears decent year-over-year growth: 6.5%, 9.3%, 7.2%, and 6.8%.

But in most cases, that is not as fast as overall retail sales growth. The share of ecommerce as a percent of overall retail has remained basically flat since Q4 of 2022. Much of the growth in both brick and mortar and ecommerce in the last year is simply the result of high inflation, with unit volumes flat or down slightly.

So what's it all mean? I think the growth of ecommerce has permanently slowed, as was of course inevitable given the "law of large numbers," and the crazy levels of growth seen in 2020 through mid-2021, as COVID dramatically changed buyer behavior.

But does all this mean companies will cut back on investment to support efulfillment?

Maybe a little, but I think cycle time and cost pressure will still drive many to deploy new hardware and software despite slowing on-line sales.That actually could be a factor in the Walmart layoffs. Greater efficiencies in the pick, pack and ship processes, combined with slower growth, means off-shifts and weekend work are no longer needed to get the orders out the door.

In fact, Walmart rival Target is continuing to spend big on building out a network of sortation center despite its own slowdown in ecommerce volumes, recently noting on-line customers still require rapid delivery regardless of what is happening at a macro level.

In the end, the move to highly automated DCs will continue and may actually accelerate, even as the ecommerce growth curve permanently flattens.