The Impact of e-Commerce on the Economy

Not only is e-commerce a vital piece of a company’s business strategy, but it is also responsible, in part, for spurring economic development. As e-commerce continues to grow, it will likely help slash inflation due to cost savings, increased competition, and changes in how merchants price their goods and services.

In the third quarter of 2023, e-commerce sales in the U.S. accounted for 15.6% of total U.S. retail sales, up 7.6% from the third quarter of 2022, according to the Census Bureau of the Department of Commerce.

This trend will continue for a few key reasons, says Ashish Chaturvedi, practice leader – CPG/retail, supply chain, and platform economy at HFS Research.

For one thing, the U.S. economy is grappling with high raw material input costs and rising inflation rates, he says. An asset-light retail model is helping online and omnichannel retailers stay cost-competitive.

“And categories such as fashion and beauty especially have seen a massive upsurge in online sales owing to advancements in technologies, such as virtual try-ons, as well as the unmatched variety on display,” Chaturvedi says.

In addition, the GenZ shopper is more comfortable with technology than all the previous generations, Chaturvedi notes. And new avenues of online commerce, such as social commerce, are changing the overall ways of shopping to meet GenZ’s shopping requirements.

“Also, CPG (Consumer Packaged Goods) brands are moving to a hybrid sales strategy by going direct-to-consumer,” he adds. “They are designing high-grade websites to boost their e-commerce sales and deliver unique customer experiences.”

Automation’s Role in Backend Ecommerce and the Economy

Automation’s role in backend e-commerce can drive economic growth by allowing companies to automate various tasks, including inventory management, order processing, and customer service.

By automating their backend e-commerce operations, organizations can reduce costs, enable employees to focus on more productive tasks, and better serve their customers. As such, automating backend e-commerce can positively impact the economy by encouraging innovation, creating new opportunities, and spurring global competition.

Automation has long been used on the backend of e-commerce operations, helping optimize logistics, supply chain, and inventory management, says Andy Carrane, vice president of product management at e-commerce enabler Digital River.

“Artificial intelligence (AI) is a useful asset throughout the e-commerce purchasing journey by helping brands crunch numbers and identify patterns quickly and at a heightened volume,” he says.

“Thanks to these capabilities, the entirety of the supply chain is optimized from initial online purchase through procurement and all the way to delivery.”

As hiring on the backend fails to keep up with growing demand, organizations will likely continue to increase their investments in automated tools, generating further staffing ripple effects as capabilities extend, according to Carrane.

Logistics Ripple Effects of Global Expansion

Trends such as social commerce are accelerating brands’ global expansion plans, but with new markets come new logistics concerns, says Amy Fine, senior product manager at Digital River.

As companies embrace sustainability and use automation to advance that mission, they must also be strategic about regional partnerships and streamline processes with practices, such as nearshoring, according to Fine.

“With fulfillment hiring staying flat and external concerns, such as geopolitical conflicts, posing a threat to the supply chain, brands should take a long view and be intentional about their expansion plans, making sure to consider such things as future regulatory complexity and macroeconomic outlook,” Fine says.

Ecommerce also helps increase market competition and level the playing for entrepreneurs and midsize businesses to compete with big box retailers and e-commerce giants, says Neil Lynch, commerce product marketing manager at Oracle NetSuite.

“And for consumers, the increased market competition helps create greater convenience and accessibility,” he says.

“Shoppers can easily compare options, pricing, and delivery preferences, e.g., same-day or next-day delivery, in-store pickup, and more.”

Exceptional Customer Experiences a Necessity

Improving the e-commerce customer experience can lead to higher average order values, increased revenue, and enhanced brand recognition, positively impacting the economy.

While e-commerce can boost the economy, it requires exceptional customer experiences and profitable operations, says Juanita Olguin, senior director of product marketing and platform solutions at Coveo, a provider of AI-powered search solutions.

She says:

“Traditionally, online stores struggled to match the assistance level of in-store clerks, forcing customers to sift through extensive brochures or guides to find answers to questions about products.”

Now, advances in generative AI are ushering in an era of seamless, engaging conversations, enhancing customer satisfaction.

“However, e-commerce has also faced profitability challenges, often due to outdated technologies that rank products by popularity, usually favoring discounted items with low margins,” Olguin explains.

“AI offers a solution to balance relevance with profitability, paving the way for a sustainable e-commerce model.”

Because consumers don’t have any physical contact with e-commerce stores, businesses that utilize these e-commerce platforms are looking for new ways to personalize their customers’ experiences – and they’re turning to AI to get the job done, says Daniel Kroytor, founder of TailoredPay, a merchant account provider.

“Traditional personalization was generally limited to a search engine query and maybe a first name at the top of the email,” he says.

“But with AI’s ability to acquire and segment data, e-commerce businesses can now tailor promotions to each individual customer.”

AI provides access to data points from social media engagement, chatbots, and business website queries, then segments that information into actionable insights, allowing marketers to hyper-personalize their campaigns to meet specific needs and problems, according to Kroytor.

“This, in turn, allows e-commerce businesses to craft each step of the customer journey as well,” he says.

“Moving forward, AI technology will continue to be used to gain access to new data points and then use that information to create more specific personalized customer campaigns.”

The Bottom Line

Ecommerce significantly impacts the economy by fostering innovation, encouraging global expansion, increasing productivity, creating jobs, driving better shopping experiences, and shaping various facets of the business environment.

According to Chaturvedi, the continuous growth of e-commerce – and its continued impact on the economy – looks like an irreversible trend.

“We will likely see new technology developments, such as conversational artificial intelligence, generative AI, blockchain, augmented reality/virtual reality, and metaverse defining the next leg of e-commerce growth,” he says.