US E-Commerce Grows 7.7% in 2Q23, Retail Media Up By Much More
With new US e-commerce data for the second quarter released on Thursday we have a new economy-wide read on related trends, which have an outsized impact on advertising. Retail media is poised to amount to $126 billion in global ad revenue this year including $38 billion in the US alone.
Covering a definition of retail sales that includes gas stations but excludes food services venues (headline retail sales figures include both), new US Census data showed that e-commerce grew by 7.7% in the second quarter of 2023 while retail grew by 0.5%, as retail expanded from 13.7% of commerce to 14.7% between 2Q22 and 2Q23.
Non-store retailers, which account for more than 60% of e-commerce, grew by a faster pace, rising 12.7%, while general merchandisers – more than 10% of the e-commerce total – did the same, growing 10.7%. Within specific categories of traditional retailing, electronics and appliance stores are significant because they drive more than half of their sales from e-commerce. However, these retailers saw essentially no e-commerce growth this past quarter (although with total sales down, the share attributable to e-commerce went up from 50.9% to 53.1%. By contrast, clothing store e-commerce declined by 3.5% and actually lost share within the category, falling from 22.0% to 21.4% of those companies’ retail sales. Motor vehicles and parts did the same, with a 6.7% decline in e-commerce sales, with only 3.6% of sales occurring through e-commerce channels in 2Q23 vs. 4.0% in 2Q22.
With a shift of consumer spending into e-commerce channels, the overall advertising market is benefitting even more as I have previously found that non-store retailers spend four dollars on advertising for every dollar that a traditional retailer does and that intensity may be increasing. Amazon, now the world’s third largest seller of advertising outside of China, reported 22% constant currency growth in ad revenue during the calendar second quarter, well ahead of the 5% pace of growth for its O&O retail sales and the 18% growth rate for its marketplace sales. Meanwhile, Walmart, newly aggressive in building out its global advertising efforts, released its fiscal second quarter results on Thursday showing a 35% gain on a 24% increase in e-commerce sales. The company is now trending towards $4 billion in gross advertising sales this year, which would rank it among the top 15 sellers globally – around the same size as Snap. While specific figures were not provided, Target also released its quarterly results this week and indicated that its Roundel ad business posted “strong growth.”
One interesting consideration that could be impacting e-commerce and retail media is the potentially counterintuitive idea that negative economic trends in China could be positively impacting e-commerce, and thus advertising, in the US. In my past work on the topic of Chinese manufacturers buying advertising across borders, I came across anecdotes suggesting that weak local conditions might cause manufacturers to focus more aggressively beyond China to capitalize on global opportunities. To some degree we are seeing this in the aggressive expansion of PDD’s Temu and Shein – likely key drivers of advertising growth at Meta at the present time - but it’s also possible that this is playing out to a broader degree with smaller companies who rely on US retailers’ marketplaces. Sources such as Marketplace Pulse have conveyed that Chinese companies account for significant shares of total e-commerce marketplace sales Amazon and Walmart and so those companies are potentially benefiting as well.