The Top 1000 is Digital Commerce 360’s ranking of the largest North American online retailers. Amazon is also No. 3 in Digital Commerce 360’s Global Online Marketplaces Database, which ranks the 100 largest such marketplaces by 2023 third-party GMV. The latest analysis of the industry as a whole is published within the 2023 Global Online Marketplaces Report.

How much did Amazon make in Q3 sales?

Amazon sales in Q3 grew 13% over $127.1 billion in 2022. In North America, Amazon sales increased 11% year over year to $87.9 billion. And internationally, Amazon sales grew 16% year over year to $32.1 billion. Sales from AWS, or Amazon Web Services, increased 12% year over year to $23.1 billion.

“We saw our highest quarterly worldwide operating income ever,” said chief financial officer Brian Nowak on an Oct. 26 call with investors. It increased $8.7 billion year over year.

Amazon operating income grew at a much larger percentage than total sales compared with Q3 2022 — 343%. That’s nearly quadruple Amazon’s operating income in the year-ago period, growing to $11.2 billion in the third quarter from $2.5 billion. AWS operating income was $7 billion, up from $5.4 billion in Q3 2022.

Fulfillment and supply chain investments pay off

“Our cost to serve and speed of delivery in our stores business took another step forward, our AWS growth continued to stabilize, our advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” CEO Andy Jassy said in a statement. “The benefits of moving from a single national fulfillment network in the U.S. to eight distinct regions are exceeding our optimistic expectations, and perhaps most importantly, putting us on pace to deliver the fastest delivery speeds for Prime customers in our 29-year history. The AWS team continues to innovate and deliver at a rapid clip, particularly in generative AI.”

In addition to taking a regional approach to its fulfillment network, Amazon has begun offering Supply Chain by Amazon, which Jassy referred to as “a fully automated set of supply chain services.”

Supply Chain by Amazon can:

• Pick up inventory from manufacturing facilities around the world
• Ship it across borders
• Handle customs clearance and ground transportation
• Store inventory in bulk
• Manage replenishment across Amazon and other sales channels
• Deliver directly to customers

And Amazon sellers can do all of that without “having to worry about managing their supply chain,” Jassy said.

Brendan Witcher, vice president and principal analyst at research firm Forrester, said Amazon is one of the best in the business at delivering. Because of that, he said, it will have the challenge of setting customer expectations to always deliver on time. Witcher said it was notable that Amazon is using AI to help with inventory planning and optimizing driver routes.

“The real litmus test for Amazon’s regional supply chain will be the ability to deliver one-day and same-day delivery this holiday season with this level of growth,” Witcher said. “Fortunately, some of the volume should spread out a bit given that holiday really began with Amazon’s customers with the October Deal Days sale.”

Amazon powers up its generative AI technology

Jassy echoed points about generative AI from Amazon’s Q2 call with analysts in August. He broke down Amazon’s generative AI into three layers.

1. Lowest layer: Compute to train large language models (LLMs).
2. Middle layer: LLMs as a service.
3. Top layer: Applications that run the LLMs.

The middle layer, Jassy said, allows customers to customize those models “using their own data but without leaking that data back into the generalized LLM.”

“In these early days of generative AI, companies are still learning which models they want to use, which models they use for what purposes and which model sizes they should use to get the latency and cost characteristics they desire,” Jassy said in the Oct. 26 call with analysts. He said Amazon Bedrock “is the easiest way to build and scale enterprise-ready generative AI applications.”

“It’s pretty exciting what they’re doing for third-party sellers on the capabilities of generating web pages, generating product imagery for third-party sellers,” Forrester’s Witcher said. “They really do understand the small-business seller, to be quite blunt.”

How is Amazon doing financially 2023?

For the fiscal third quarter ended Sept. 30, Amazon.com Inc. reported:

• $143.1 billion in Amazon Q3 sales. That’s up 13% from $127.1 billion in the year-ago quarter.
• Amazon sales in North America in Q3 grew 11% year over year to $87.9 billion.
• International sales increased 16% year over year to $32.1 billion.
• AWS sales in Q3 grew 12% year over year to $23.1 billion.

For the nine months ended Sept. 30, Amazon reported:

• $404.8 billion in Amazon sales. That’s up from $364.8 billion in the year-ago period.
• Year-to-date Amazon operating income reached $381.2 billion. That’s up from $355.7 billion in the comparable period last year.
• International sales grew to about $91 billion, up from $83.5 billion.
• AWS sales grew to nearly $66.6 billion from $58.7 billion in the comparable period in 2022.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s Amazon earnings article.

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The Walmart sales event will begin at 7 p.m. on Monday, October 9 with deals on electronics, home, apparel, toys and other products, the retailer says.

Both retailers are major players in the U.S. ecommerce landscape.

Amazon is No. 1 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers. Walmart ranks No. 2. Amazon also ranks No. 3 in the Online Marketplaces database, which ranks the 100 largest global marketplaces. Walmart is No. 9 in that database.

What to expect this year from Walmart during Amazon’s Big Deal Days

Walmart is promoting the sale as a time to start shopping for holiday purchases. Customers should expect “hyper-personalized content and a curated shopping experience” the retailer said in a press release. Unlike Walmart+ Week in July, this sale is not limited to Walmart+ members, and anyone can shop the deals.

Walmart highlighted some deals that will be included in the sale, including the Apple Watch SE, Mega Barbie The Movie Dreamhouse and various Keurig models. Consumers can also consult the deals coming soon page on Walmart.com.

Holiday Kickoff purchases can be ordered with curbside pickup, same-day delivery, two-day shipping or late-night express delivery, Walmart says.

Walmart has a history of competing with Prime Day

Walmart previously held sales events that overlapped with major Amazon Prime sales. In July, the first Walmart+ Week coincided with Amazon Prime Day in July. Both retailers held online sales across different categories of merchandise. Walmart sat out the event in July 2022, however.

2022 was the first year Amazon held a second Prime sales event in October, called the “Early Access Sale.” Walmart didn’t hold a full competing event last fall. The retailer highlighted “flash deals” on its website at the time, and promoted Halloween sales, Digital Commerce 360 previously reported.

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President and CEO Andy Jassy told investors on Amazon’s Q2 earnings call that the ecommerce giant has been improving its artificial intelligence and machine learning technology. It has also been making its fulfillment network more efficient. Jassy also said Amazon Business, its B2B division, is one of its fastest growing offerings.

Amazon is No. 1 in the Top 1000, Digital Commerce 360’s ranking of the largest North American online retailers. Amazon is also No. 3 in Digital Commerce 360’s Global Online Marketplaces Database, which ranks the 100 largest such marketplaces by 2023 third-party GMV. The latest analysis of the industry as whole is published within the 2023 Global Online Marketplaces Report.

For more detailed coverage, read our Amazon Q2 earnings story.

1. Amazon has been refining its AI

Jassy last week said AI “is going to be at the heart of what we do.” Moreover, he said every business division within Amazon has multiple ongoing generative AI initiatives.

Among those initiatives, Amazon has built CodeWhisperer, an AI-powered coding companion that recommends code snippets directly in the code editor. This is meant to accelerate developer productivity in the coding process.

But Amazon’s work in the AI sphere is still in an early phase, he said.

“Generative AI has captured people’s imagination, but most people are talking about the application layer, specifically what OpenAI has done with ChatGPT,” Jassy said. “It’s important to remember that we’re in the very early days of the adoption and success of generative AI, and that consumer applications is only one layer of the opportunity.”

2. Faster fulfillment in Amazon’s Q2 and beyond

In its fiscal Q2, Amazon reduced the miles its drivers traveled to deliver packages to customers by 19%, Jassy said. It did so through “regionalization,” or its logistics overhaul that shifts its fulfillment network from a national one to a network divided into eight regions that can each operate on their own.

This has led to a 20% reduction in number of touches for each delivered package, Jassy said.

“When shipments come from fulfillment centers that are closer to customers, they travel shorter distances, which cost less in transportation, gets there faster and is better for the environment,” Jassy said.

He said Amazon’s development and expansion of same-day fulfillment facilities has driven this increase in efficiency. He added that the same-day facilities are Amazon’s fastest fulfillment mechanism and one of its least expensive.

The same-day facilities are located in the largest metro areas around the country, Jassy said. Amazon intends to double the number of these facilities, he said.

“While we’re seeing strong early results from this regionalization effort, we still see several ways in which we can be more efficient in this structure and we believe will improve productivity further,” Jassy said. “We’ve also re-evaluated virtually every part of our fulfillment network this past year and see additional structural changes we can make that provide future upside.”

3. Big business, small business

Jassy emphasized Amazon Business’ $35 billion annual run rate for gross sales. It serves more than 6 million customers.

Still, he said, Amazon has only a fraction of the features it needs “to address more of the enterprise at this point.” For example, there are features to make bigger procurement workloads easier for companies.

Merchants that use Amazon’s “Buy with Prime” feature, on average, increased their shopper conversion 25%. That “makes a real difference to their business,” Jassy said.

He added that those who “participate in Prime Day activities, in aggregate, experienced a 10x increase in daily Buy with Prime orders during the sales event period versus the month before we announced Prime Day.”

Although Jassy and other Amazon representatives did not mention its small business sellers on the Q2 earnings call, Amazon did mention them in its earnings release.

It said more than 60% of Amazon sales in its marketplace came from independent sellers, most of them small and medium-sized businesses.

U.S.-based independent sellers sold more than 4.1 billion products and averaged more than $230,000 in sales, Amazon said. It also announced a filter on its marketplace to search for small businesses.

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Crocs Inc. (No. 104)

Crocs reported revenue grew 12% year over year to a record $1.1 billion in its fiscal second quarter ended June 30.

“Both the Crocs and Hey Dude brands continue to gain share and bring in new consumers with our comfortable offerings, as evidenced by DTC growth of 26% in the second quarter,” CEO Andrew Rees said in a written statement.

Crocs acquired Hey Dude Shoes in January 2022 for $2.5 billion. Hey Dude brand DTC sales grew 29.7% in the second quarter, and digital sales grew 36.7% in that time period. Total Hey Dude revenue was $239.4 million in the quarter, up 2.9%. 

Crocs were a top seller in Amazon’s Prime Day sales event, according to data from Web traffic measurement firm Similarweb Ltd. However, the retailer is facing “quite a lot of pressure” from gray market sellers on Amazon, Rees said in an earnings call.

Keurig Dr Pepper Inc. (No. 110)

Keurig Dr. Pepper reported net sales grew 6.6% in the second quarter ended June 30 to $3.7 billion. Sales growth was led by Keurig’s Liquid Refreshment Beverage category, which includes carbonated soft drinks, seltzers, and energy drinks. Dr. Pepper and Squirt were among the most popular brands, the beverage company said. Meanwhile, sales of single serving K-Cup pods were down 2.3% in the quarter.

Keurig did not share specifics about digital sales in the quarter. Digital Commerce 360 estimates online sales made up about 6% of total sales in 2022, reaching $859.5 million.

Harley-Davidson (No. 430)

Harley-Davidson’s consolidated revenue declined 2% in the second quarter ended June 30 to $1.4 billion, the retailer reported. The decline was driven by a 4% drop in revenue from Harley-Davidson Motor Company (HDMC), which sells motorcycles and related products. Part of the decline was offset by 19% revenue growth at Harley-Davidson Financial Services (HDFS), which provides financing and insurance to dealers and customers. 

The motorcycle retailer did not share specifics of online sales. However, Harley-Davidson is expanding its online marketplace of pre-owned motorcycles.

Mattel (No. 200)

Mattel net sales declined 12% in Q2 ended June 30 to $1.1 billion, the toy company reported. The retailer attributed the decrease to declines in the toy industry as a whole, with the expectation that consumers are waiting to make purchases for the holiday season, CEO Ynon Kreiz told investors. 

Following the release of the Barbie movie, Mattel entered 165 product partnerships in thousands of stores, Kreiz said. So far, toys and products related to the film have sold out across distribution channels, Kriez says. Mattel did not share specific figures on digital sales. Mattel president and chief operating officer Richard Dickson was recently appointed as chief executive officer to Gap Inc. (No. 20), effective Aug. 22.

Overstock.com Inc. (No. 50)

Online home furnishings retailer Overstock said revenue was down 20% year over year to $422 million for the quarter ended June 30, 2023.

The online furniture retailer completed its acquisition of competitor Bed Bath & Beyond in June for $21.5 million. Read more coverage of Overstock’s quarterly earnings here.

Tractor Supply Co. (No. 97)

Tractor Supply net sales grew 7.2% year over year in the second quarter $4.18 billion. Comparable store sales grew 2.5% over the period, which ended July 1.

The retailer announced plans to reach 3,000 U.S. locations from the current 2,164 by opening 90 new stores per year. About 30% of current stores, 700, are now organized in the Project Fusion layout, CEO Hal Lawton told investors. The retailer is adding drive-thru pickup lanes to these stores for omnichannel orders. 

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The consumer protection agency filed a lawsuit in Washington state federal court claiming that Amazon’s website manipulates users into enrolling in Prime. Subscribers pay $139 a year for the service, which provides privileges like speedy free delivery, video streaming and access to 100 million songs. The cancellation process for Amazon Prime is also difficult to find and requires multiple steps, the FTC alleged. The FTC said Amazon referred to the process internally as the Iliad, after Homer’s lengthy epic poem.

The agency has recently targeted subscription cancellations, proposing a rule in March that would require companies to make it as easy to cancel as it is to sign up.

The FTC filed the lawsuit on the same day Amazon announced its annual Prime Day sale and Walmart announced its Walmart+ Week sale.

Amazon is No. 1 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers. Walmart ranks No. 2.

Amazon is also No. 3 in the Online Marketplaces database, which ranks the 100 largest global marketplaces. Walmart is No. 9 in that database.

FTC suit against Amazon

In its complaint, the FTC said consumers must click through five pages on the desktop web store or six on the mobile app to cancel Prime. The FTC also claimed Amazon failed to turn over information investigators sought, taking more than 18-months to produce materials.

The FTC said Amazon’s tactics violate a 2010 consumer protection law designed to protect online shoppers. The agency previously used the law to ding MoviePass and its former parent company, Helios and Matheson Analytics Inc., Intuit Inc.’s Credit Karma and Ericsson’s internet phone service Vonage over subscription auto-renewal and cancellation practices. Vonage paid $100 million to settle the FTC’s suit and Credit Karma $3 million to reimburse consumers.

“Amazon tricked and trapped people into recurring subscriptions without their consent, not only frustrating users but also costing them significant money,” FTC Chair Lina Khan said in a statement.

Amazon didn’t immediately respond to a request for comment.

Competing membership programs

Prime membership has been a key differentiator for Amazon, helping it convert occasional shoppers into loyal devotees who make the company their default choice when shopping online. Walmart Inc., Amazon’s biggest competitor, launched the Walmart+ subscription in 2020 for $98 a year, offering many of the same benefits.

About 167 million Amazon shoppers had Prime memberships as of March. That’s unchanged from a year earlier, according to market research firm Consumer Intelligence Research Partners. More than 90% of consumers who try a free 30-day Prime membership become paying members, according to the Chicago research firm.

Analysts say Prime membership has stagnated in the country since Amazon boosted the annual price from $119, a sign that a subscription is less attractive to consumers struggling with a stubbornly high inflation rate.

In the U.S., Prime members spend about twice as much on Amazon as non-Prime members. Amazon’s revenue from subscription services, which is mostly from Prime memberships, was $9.66 billion in the quarter ended March 31. That’s about 7.6% of its overall revenue for the period.

Amazon changed its process for cancelling Prime subscriptions last summer after pressure from the European Commission and national consumer watchdogs. The company introduced a simplified two-click process.

The suit is the third the FTC has filed against Amazon in the past month. The company agreed to pay $30.8 million to settle allegations that it failed to delete data about kids collected by its Alexa speakers and that its Ring doorbells and cameras illegally spied on users. Amazon said it disagreed with the FTC’s allegations but agreed to settlements to resolve the cases.

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Amazon’s total sales include its own product sales, sales from its marketplace, as well as marketplace seller fees, advertising fees and revenue from Amazon Web Services (AWS).

Amazon reported net income of $3.2 billon in the first quarter, a dramatic swing from the $3.8 billion loss a year earlier. Ecommerce sales dropped 0.06% year over year to $51.093 billion in Q1.

Amazon revenue breakdown

Amazon’s results suggest the company’s efforts to reduce costs are starting to bear fruit. Operating expenses increased 8.7% in the quarter, the slowest pace in at least a decade. The company’s North America segment was profitable on an operating basis for the first time since late 2021.

Amazon Web Services generated $21.4 billion in sales, a 16% rise from a year earlier and higher than the $21.2 billion analysts had expected. The cloud-computing division is the company’s largest source of income. Despite AWS’  better-than-expected Q1 performance, Amazon said it began laying off employees in the AWS operation amid slowing sales growth in its most profitable division.

That 16% rise from Q1 2022 is the slowest growth rate reported since Amazon began breaking out the segment and the fifth consecutive quarter in which growth slowed year-over-year.

Earlier this year, chief financial officer Brian Olsavsky warned that AWS growth would slow in 2023.

Advertising sales rose more than 21% to $9.51 billion in the quarter. Revenue from third-party seller services — which include commissions, shipping services and other fees that Amazon collects from sellers on its marketplace — jumped 17.7% to $29.8 billion in Q1.

“Amazon did what it needed to do in Q1 by reversing — or at least stalling — its most troublesome declining growth trends,” said Andrew Lipsman, an analyst at Insider Intelligence, told Bloomberg News. “Amazon’s stronger-than-expected performance for its key profit centers of AWS and advertising indicate that the enterprise and the digital ad sectors may be turning the corner.”

Amazon is No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales. It is No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.

Amazon announces BNPL option

Several hours before releasing its earnings, Amazon announced a new buy-now-pay-later option called Citi Flex Pay on Amazon Pay. Under the program, eligible Citi credit card members can pay over time with Citi Flex Pay when using Amazon Pay during checkout at participating online retail sites. The deal with Amazon marks the first time Citi credit card members can use Citi Flex Pay through a digital wallet.

Amazon already offers BNPL through Affirm. Amazon also accepts Apple Pay, and in March Apple announced a BNPL plan of its own.

Operational changes at Amazon

Amazon has made several moves in recent months to cut its operating costs, most notably by laying off thousands of workers from its ecommerce unit. In early January, CEO Andy Jassy said planned job reductions totaled 18,000 workers. That’s a full 1% of Amazon’s workforce — and well above earlier expectations that Amazon would slash 10,000 jobs.

The Seattle-based company employed almost 1.47 million people as of March 31, a decrease of 10% from the period a year earlier and down from more than 1.54 million workers three months earlier.

Second-quarter guidance on Amazon revenue

Seattle-based Amazon said it expects sales in the current quarter to reach between $127 billion and $133 billion, keeping in line with analysts’ forecasts.

Other news from the first quarter

On April 26, news site The Verge reported Amazon had decided to close its Halo division, which sold fitness- and sleep-tracking devices. Amazon had stopped selling its three Halo products and plans to lay off portions of the Halo team, the news site said.

“We have made the difficult decision to wind down the Halo program, which will result in role reductions,” Melissa Cha, Amazon’s VP of smart home and health, told staffers in an email The Verge obtained.

Some analysts said Amazon has more work to do. “We keep waiting for profit and cash flow to turn here,” Stefan Slowinski, an analyst at BNP Paribas Exane, told Bloomberg. “With all of the headlines on restructuring and closure of businesses, we’re really not getting that coming through in the numbers.”

Amazon earnings

For the fiscal first quarter ended March 31, Amazon reported:

• Amazon revenue from third-party seller services of $29.8 billion. That’s 17.7% increase from the comparable quarter of 2022.
• $9.5 billion in revenue from advertising services, a 21% jump from a year earlier
• Operating cash flow of $54.3 billion for the trailing twelve months, an increase of 38% from the $39.3 billion for the trailing twelve months ended March 31, 2022.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports.

Bloomberg News contributed to this report.

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Amazon’s total sales include its own product sales, sales from its marketplace, as well as marketplace seller fees, advertising fees and revenue from Amazon Web Services (AWS).

Amazon revenue breakdown

AWS generated $21.38 billion in sales. The cloud-computing division is the company’s largest source of income. That’s a 20% increase from a year earlier. But that 20% increase is the slowest growth rate reported since Amazon began breaking out the segment.

In a call with journalists, chief financial officer Brian Olsavsky warned that AWS growth would slow in 2023.

“We realize everyone’s trying to cut their budgets — we are in our main Amazon business, in our infrastructure as well,” Olsavsky said. “We do expect to see some slower growth rates for the next few quarters.”

“The expected deceleration in AWS was even worse than expected and means Amazon can’t rely on that business units’ operating profits as much in coming quarters,” Andrew Lipsman, an analyst at Insider Intelligence, told Bloomberg News.

Amazon’s net income decreased to $278 million, compared with $14.3 billion in the fourth quarter of 2021. Amazon attributed the swing to a pre-tax valuation loss of $2.3 billion from its investment in Rivian Automotive, Inc., which makes electric vehicles.

For the year ending Dec. 31, Amazon reported a net loss of $2.7 billion. That marks the worst annual loss since the retailer went public in 1997.

Amazon is No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales. It is No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.

Operational changes at Amazon

Amazon has made several moves in recent weeks to cut its operating costs, most notably by laying off thousands of workers from its ecommerce unit. In early January, CEO Andy Jassy said planned job reductions totaled 18,000 workers — a full 1% of Amazon’s workforce — and well above earlier expectations that Amazon would slash 10,000 jobs.

Additionally, Amazon is seeking to sublease millions of square feet of underused warehouse space. 

In a statement announcing Q4 earnings, Jassy said he was “encouraged by the continued progress we’re making in reducing our cost.” He noted that the company remained “quite optimistic about the long-term opportunities for Amazon.”

The drop in ecommerce sales in Q4 marked the fourth such decline in the most recent five quarters.

Revenue from third-party seller services — which include commissions, shipping services and other fees that Amazon collects from sellers on its marketplace — jumped 20% to $36.36 billion. in Q4.

First-quarter guidance on Amazon revenue

Seattle-based Amazon said it expects sales in the current quarter to reach between $121 billion to $126 billion, keeping in line with analysts’ estimates.

Other news from the fourth quarter

Amazon now allows Buy with Prime merchants to display customer reviews from Amazon.com within their own online stores. The retailer also announced an integration with BigCommerce, an ecommerce platform, that will help merchants easily enable Buy with Prime on their storefronts with no coding required.

Amazon launched RxPass, a new Prime membership benefit from Amazon Pharmacy that offers unlimited eligible prescription medications for $5 per month, including free shipping.

For the fourth quarter, Amazon reported

• An operating income loss of $412 million from North American operations.
• A 47.8% drop in global operating income to $2.53 billion from $4.85 billion a year earlier.
• $2.87 billion in net income, a 9.37% decline from the $3.16 billion a year earlier.

For the year ending Dec. 31, 2022, Amazon reported

• A net loss of $2.7 billion, compared with net income of $33.4 billion in 2021.
• Operating income of $12.2 billion, less than half the $24.9 billion of 2021. The North America segment operating loss was $2.8 billion, compared with operating income of $7.3 billion in 2021.
• Operating cash flow of $46.75 billion, a 1% rise compared with $46.33 billion in 2021.

Percentage changes may not align exactly with dollar figures due to rounding.

Bloomberg News contributed to this report.

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It was that kind of year. Neither earth-shattering nor dismal. Neither ground-breaking nor a return to the norm.

We got the first indications of this in January. The COVID-19 pandemic wasn’t over, but the retail industry was pretty eager to act as if it was. The National Retail Federation planned a return to the real world for its Big Show. But just days before attendees were due to arrive, coronavirus cases spiked in New York and the keynote speaker — Honest Co. founder, actor and celebrity Jessica Alba canceled. Still, the show must go on, as actors say. The Big Show did come to New York. But not many attendees did.

There was another indication back in January that 2022 would be less than remarkable. The big business story in retail that month was that Kim Kardashian’s underwear label Skims had doubled its valuation to $3.2 billion in nine months. That suggested innovation in 2022 would involve attaching a celebrity’s name to a version of an actual innovation from two decades earlier.

By February, there was a throw-the-spaghetti-against-the-wall-and-see-what-sticks air about the entire retail world. Target Corp. offered Starbucks beverages as part of its curbside pickup. Peloton, Home Depot, Wish.com and Shipt all decided to try new CEOs, and Amazon laborers — who hadn’t had much luck working with the giants of organized labor — decided to organize themselves.

Then, on Feb. 24, Russia invaded Ukraine.

In the following weeks, the retail world behaved admirably. Toy companies became symbols of the resistance, while major companies around the globe cut ties to the Russian economy. In the meantime, there were other ominous signs for ecommerce. A global supply chain crisis was poised to worsen. And inflation for the year ending March 2022 hit 8.5% — the largest 12-month increase since 1981.

By April, the bad news had everyone in ecommerce worried that things were falling apart. Everyone seemed to be losing money and/or going deeper into debt. Buy-now-pay-later options grew popular with shoppers and retailers. Amazon.com Inc., No. 1 in Digital Commerce 360’s Top 1000, posted a $3.8 billion loss. Bed Bath & Beyond said its net sales fell 22%. Young adults borrowed money and engaged in crypto speculation, and Etsy sellers went on strike.

April showers are supposed to give way to May flowers. But in 2022 … not so much. The bad news continued. Surplus inventory levels soared. Ecommerce growth continued to slow. Wayfair Inc., No. 7 in Digital Commerce 360’s Top 1000, announced a hiring freeze. EBay’s sales fell and Target’s earnings plummeted. In the meantime, the spaghetti-against-the wall craze continued as Amazon started subleasing warehouse space while opening a clothing store, just as Walmart announced plans for delivery by drone.

In June, things grew darker. Bed Bath & Beyond’s CEO stepped down as sales fell further. So too did the CEO of The RealReal, No. 40 in the ranking of Digital Commerce 360 Top 100 Online Marketplaces. Meanwhile, Apple and PayPal both made it easier for shoppers to go deeper in debt.

July was supposed to be a time of great excitement in ecommerce, as Amazon held its Prime Day sale. But shoppers were underwhelmed. As if in response to the disappointment, Amazon announced a drop in ecommerce sales (albeit for the quarter before Prime Day), Shopify slashed its workforce, and soaring inflation pushed consumers to amass BNPL debt to pay for groceries.

In August, things grew both darker and brighter. Best Buy, No. 6 in the 2022 Digital Commerce 360 Top 1000, said U.S. online sales dropped 14.7%, while Macy’s said its Q2 online sales fell 5% and multiple retailers struggled to unload excess inventory. By contrast, Walmart said its online sales rose 12% in the second quarter, albeit largely because of inflation. Overall ecommerce numbers grew, but at a pace that was well below what the industry had grown accustomed to. U.S. ecommerce spending in Q2 marked its fourth straight quarter of single-digit growth following the 45%-50% jumps during the first year of the pandemic, according to a Digital Commerce 360 analysis of U.S. Department of Commerce figures.

The industry responded once more by throwing pasta against the wall. Peloton said it would sell on the Amazon marketplace, and Walmart added streaming video to its membership program.

In September, things turned macabre. Bed Bath & Beyond’s chief financial officer died by suicide. Shortly before that, the world learned that Chewy founder and activist investor Ryan Cohen — who had driven Bed Bath & Beyond shares higher during the meme stock craze — had sold his entire stake in the retailer. Shares fell 40% in the wake of Cohen’s action. Unsurprisingly, Bed Bath & Beyond soon announced it had another dismal quarter.

By now, the pattern was clear. Times are tough; pasta must be thrown. So Amazon announced it would have another Prime Day sale. Meanwhile, Kanye West severed ties with the Gap, suggesting that in 2022 true innovation might mean removing a celebrity’s name from someone else’s innovation.

In October, the ecommerce world watched as that second Prime Day — dubbed the Amazon Prime Early Access sale, in a sign that in 2022 true innovation might mean changing the name of an earlier innovation — fizzled.

Meanwhile, in a particularly disturbing development, online prices for food hit a new record high. Then, in a move that no one thinks would help those prices fall, The Kroger Co. said it had agreed to buy rival Albertsons Cos. Inc. for $24.6 billion.

As October ended, Digital Commerce 360 warned that “online retailers again will have a tough go of it this season, trying to convince shoppers who are contending with inflation and recession fears not to skimp on their gift lists.”

November, of course, is when the hopes and fears of all of ecommerce converge in the Cyber 5 period. Early in the month, there were some pieces of bad news that suggested Cyber 5 results might prove disappointing. Alibaba Group Holding Ltd. decided not to disclose full sales results for its signature Singles’ Day shopping festival for the first time, after forecasts that the figure may suffer a decline unprecedented in the event’s 14-year history. Alibaba owns and operates Taobao and Tmall, which hold the No. 1 and No. 2 spots in the ranking for Digital Commerce 360 Online Marketplaces. And Singles’ Day is the world’s largest shopping festival.

Meanwhile, Amazon said it planned to cut about 10,000 jobs — the largest ever headcount reduction at the ecommerce giant as it braces for slower growth and a possible recession.

Yet December — like 2022 itself — saw the release of news that was both good and bad. Cyber 5 results, the effects of inflation, struggles over supply chain and inventory levels, all proved to be neither earth-shattering nor dismal. Neither ground-breaking nor a return to the norm.

Early in December, the industry learned that web sales grew 4% to reach $35.27 billion in the Cyber 5, or the five-day period of Thanksgiving through Cyber Monday, according to Adobe Analytics. Amazon and Walmart were the big winners. That news came just days after the U.S. Commerce Department said the value of overall retail purchases dropped 0.6% in November — the largest decline in 11 months.

Also in December came the piece of news that most perfectly summed up the entirety of 2022 in retail. Celebrity Justin Bieber blasted H&M for what he called the “trash” of the all-new Justin Bieber-themed merchandise sold by H&M, suggesting that the biggest innovation of 2022 involved attaching a celebrity’s name to innovations they don’t like.

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Amazon reported total sales of $127.10 billion in Q3, a 15% jump from the $110.81 billion a year earlier. The nation’s largest retailer returned to profitability after two consecutive quarters of losses. Still, the $2.87 billion in net income in the third quarter was a 9.37%  drop from the $3.16 billion of Q3 2021.

Ecommerce sales jumped 13% to $53.39 billion in Q3 2022 year over year. But year-to-date numbers show a 0.3% decline in ecommerce sales.

Amazon’s total sales includes its own product sales, sales from its marketplace, as well as marketplace seller fees, advertising fees and revenue from its software Amazon Web Services.

Amazon is No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales. It is No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.

Industry watchers were largely impressed with Amazon’s Q3 performance.

“Amazon continues to push past the ecommerce competition despite another rocky quarter for many tech companies. The challenges of this past quarter reflect that while Amazon remains above water, the ecommerce giant must continue to find new ways to stay above their competitors and remain relevant in the online retail space,” said Brent Ramos, director of product, search at Adswerve, which provides data services to marketers, analysts and others. “Although Amazon’s October Prime Early Access sale saw lower numbers than its annual July sale, which was to be expected amid worries of slowing economic growth and a lighter holiday shopping season, it still delivered on its purpose: to boost sales over the two-day shopping event.”

Fourth quarter guidance

Seattle-based Amazon warned that holiday sales will be less than Wall Street analysts had expected. Net sales are expected to be between $140.0 billion and $148.0 billion in the fourth quarter, growing between 2% and 8% compared with fourth quarter 2021. Analysts had forecast Q4 revenue of $156 billion, according to Bloomberg News.

There have been indications that Amazon’s fourth quarter would not be particularly bright.

The fourth quarter will include results from Amazon’s second Prime Day event of 2022, the so-called Early Access sale. And data from web measurement firm Similarweb suggests that the second event did not perform as well as the July event.

The October Prime Day earned 46% less revenue, Similarweb said, suggesting dampened consumer demand for online shopping, likely due to the struggling economy and close proximity to Amazon’s last sale event.

Similarweb bases its estimates on machine learning algorithms that are fed by millions of websites’ and apps’ first-party analytics (e.g., Google Analytics), both proprietary and sourced through partners. 

Inflation worries

Amazon’s marketplace

Week-to-week marketplace ecommerce order volume on the Amazon marketplace in the third quarter was mostly flat, with a slight increase in the average weekly movement, according to Extensiv, which publishes a weekly analysis of marketplace volume. Extensiv tracks that volume through customers of its platform, which coordinates fulfillment, warehousing and third-party logistics providers for marketplace sellers.

The Amazon marketplace saw an average weekly gain of 1.4% in the third quarter, Extensiv said. However, the average number of sellers was down 10%.

Competition has been growing for Amazon’s marketplace, particularly from the marketplace owned by Walmart, Inc. (No. 2 on the Top 1000.). But data from Jungle Scout shows that Amazon remains the go-to marketplace in the U.S.

• 75% of U.S. consumers have purchased from Amazon recently, compared to 43% who have shopped on Walmart.com.
• 63% of consumers begin their search for a product online on Amazon over Walmart.com (43%).
• Consumers are more likely to have an Amazon Prime membership (57%) than a Walmart Plus account (31%).
• Consumers prefer to shop on Amazon over Walmart.com for electronics, books, and clothing. 

Marketplaces seller software vendor Jungle Scout based its findings on data from its Consumer Trends Report, a quarterly, survey of more than 1,000 U.S. adults, and its annual State of the Seller survey of more than 3,500 first- and third-party Amazon and/or Walmart sellers.

For the third quarter, Amazon reported

• An operating income loss of $412 million from North American operations
• A 47.8% drop in global operating income to $2.53 billion from $4.85 billion a year earlier
• $2.87 billion in net income, a 9.37% decline from the $3.16 billion a year earlier

For the nine months ending Sept. 30, 2022:

• An operating income loss of $2.60 billion from North American operations
• Global operating income of $5.8 billion, a decline of 61.1% from the comparable period of $24.42 billion
• A $3.00 billion net loss, a dramatic swing from the $19.04 billion in net income a year earlier.

Percentage changes may not align exactly with dollar figures due to rounding.

Bloomberg News contributed to this report.

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Digital Commerce 360 projects ecommerce revenue will reach $224.31 billion during the holidays this year, up from $211.41 billion for the same two months in 2021. That means online sales growth would be in the single-digit range for the first time dating back to pre-2015, the first year for which revised Digital Commerce 360 seasonal data is available. That’s a drop-off from 2021’s 10% online sales increase the muted 10.0%, which already was less than a quarter of the 40.8% surge in online seasonal sales during a COVID-19-fueled 2020.

Consumers to scale back on in-store shopping

Retail sales through all channels — including physical stores — are likely to rise 4.0% for the season, Digital Commerce 360 estimates. Shoppers will spend $916.42 billion overall with online and offline combined, up from $881.17 billion last year. That growth would also be a significant slowdown from 2021, when total retail grew 13.4% over the holiday period but is still higher than the median 3.2% in the five years before the pandemic.

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Analysis of North America’s leading 1,000 online retailers. Includes over 200 charts, rankings by 2022 web sales, benchmarking data, growth analyses by category and merchant type, and a detailed analysis of post-pandemic ecommerce. 

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In 2021, physical store sales drove overall retail growth during the holidays as vaccinated shoppers flocked back to stores, eager to resume shopping traditions. Store sales soared by 14.5% year over year, outpacing 10.0% online growth, Digital Commerce 360 estimates. But that will subside in the 2022 season, giving way to the importance of comparison shopping and the ease of doing so online. In-store spending will considerably decelerate to 3.3% — which still is more than double the five-year median before the pandemic.

And the digital share of total retail sales will hit 24.5%, meaning nearly $1 in every $4 spent on retail purchases during the 2022 holiday season will come from online orders. That’s still less than the peak of 24.7% penetration in 2020 but does mark an increase over 24.0% last year.

A summary of previous holiday seasons

The last couple of holiday periods threw big challenges at merchants. In the first year of the pandemic — a pre-vaccine 2020 — retailers were grappling with store closures and enforcing social distancing during a season known for its crowded aisles and long lines. The sudden shift in consumers’ reliance on ecommerce led to what the industry called “Shipageddon.” Overburdened carriers couldn’t keep up with unprecedented demand from online shoppers, resulting in a massive number of delayed packages at arguably the worst time of year.

By 2021, retailers instead were navigating massive supply chain issues. Many merchants struggled to get enough merchandise into their warehouses before the high-volume season. A raw material shortage made it tricky to manufacture goods, shipping containers were scarce, and massive bottlenecks at ports meant holiday shipments were idle. That all worked to stunt ecommerce growth last year.

Now, it’s inflation and surplus inventory that are troubling retail executives and causing consumers to expect deep discounting.

How Digital Commerce 360 derives holiday projections

The Digital Commerce 360 research team studies various factors when considering how the ecommerce market might perform in the future. We analyze historical online and in-store spending behavior and follow how digital’s share of total retail has trended. We examine the year-to-date performance of the overall market, using retail data from the U.S. Department of Commerce and individual publicly traded online retailers.

Additionally, we use the following insights to inform our numbers: traffic patterns to ecommerce sites, shipment volume, discounting levels, recent shifts in pricing and average order value, retailer and consumer surveys, consumer confidence indices, editorial interviews, holiday marketing that we track and more.

Here are five insights that contributed to Digital Commerce 360’s holiday projections:

1.) Year-to-date online sales growth has been weak

There’s not a lot of spending momentum heading into the season.

Through the first half of 2022, ecommerce grew a moderate 7.0%, according to retail data released by the U.S. Department of Commerce. Q2 marked the fourth straight quarter of single-digit growth in online sales as the market has continued to normalize after giant spikes in ecommerce spending earlier during the pandemic.

Starting in Q2 2020, COVID-19 drove four straight quarters of 40%-plus year-over-year increases in digital revenue. Online consumers maintained their prior spending levels as the market lapped the first pandemic year, but growth tapered off. According to Commerce Department data, shoppers spent 6.7% more on the web in Q1 2022 vs. the same quarter the prior year. And in Q2 2022, growth reached 7.3%.

The Commerce Department won’t publish ecommerce figures for the third quarter until mid-November. But there likely will be a higher bump than Q1 or Q2 as Amazon.com Inc.’s popular Prime Day sales event was moved later to Q3 this year, and the increase in online traffic typically translates into a bigger sales day for many retailers.

Other firms with ecommerce spending data available for a bigger chunk of the year also show single-digit growth so far in 2022. Adobe Analytics registered an 8.9% year-over-year increase in digital revenue for January through August. Data from technology vendor Salesforce Inc. showed more sluggish growth for the same eight months of 2022 — just 3.0% in the U.S.

2.) Inflation woes likely to make shoppers scale back on holiday purchases

Up until mid-summer, prices for goods on ecommerce sites had been rising year over year for more than two years straight — 25 consecutive months — according to the Adobe Digital Price Index. In July, online shoppers finally got a small reprieve, with a 1% drop in the cost of items vs. the same month in 2021. Although prices on the web rose again year over year in August, they dipped by 0.2% in September. But through the first nine months of 2022, the median inflation rate was 2.0%, according to Adobe data.

Average selling prices will increase monthly between 8% and 12% for the remainder of 2022, according to Salesforce predictions. And surveys suggest the economic landscape is impacting consumers’ willingness to spend heading into the holidays — especially as the higher cost for necessities like groceries and gas has left shoppers with less money for discretionary items.

Nearly two-thirds — 63% — of online retailers anticipate high inflation will cause consumers to purchase fewer gifts overall this season. That’s according to a Digital Commerce 360 survey of 70 merchants conducted from July through September. More than half — 56% — of respondents cited rising inflation as a major obstacle for their businesses heading into the holidays.

Merchants seemingly have accurately gauged consumer sentiment, according to a Digital Commerce 360 and Bizrate Insights survey of 1,088 online shoppers in September. More than half — 52% — of consumers named competitive pricing as one of the most important factors in choosing an online retailer this season. Four in 10 respondents reported they would comparison shop more because they expect prices to be high, and 35% said those high prices would lead them to buy less for the holidays.

With shoppers’ magnified price consciousness, retailers’ customer service policies like price matching and price adjusting will take on added importance this year. 16% of online shoppers said they would seek out retailers that offer price matching more than in the prior year.

3.) A more promotional holiday season

The 2021 holiday season was a far less promotional one than usual. Product scarcity coupled with soaring costs for retailers — on everything from materials and labor to freight and last-mile shipping — meant consumers didn’t get the same holiday deals last year and paid more for gifts.

Online retailers offered weaker year-over-year discounts in five out of eight tracked merchandise categories, according to Adobe data. That was largely due to increased competition among consumers for limited quantities, which meant merchants didn’t need to offer heavy promotions to sell off products, and items were left at full price for longer or not marked down as much.

But there will be a big swing in discounting levels this year as merchants face the opposite inventory problem.

Big retailers, including Walmart Inc. (No. 2 in the Digital Commerce 360 Top 1000), Target Corp. (No. 5), Macy’s Inc. (No. 16), Nordstrom Inc. (No. 20) and Kohl’s Corp. (No. 21) acknowledged an inventory glut when reporting their Q2 earnings. And nearly one in five — 19% — of respondents in Digital Commerce 360’s retailer survey conducted in Q3 also reported they have too many products sitting ahead of the holidays. 27% of merchants surveyed said they have enough inventory but not in the right categories for gifting and gathering season. That means they’re likely to mark down less in-demand items.

The well-documented surpluses have dominated headlines, and shoppers know how much extra retailers have left in stock. That means consumers wield a lot of power leading into a big shopping period by passing on lackluster sales and waiting for retailers to slash prices further. A third — 33% — of merchants surveyed said consumers will expect more promotions now that they’ve seen the news. And a quarter — 25% — of online shoppers said they are anticipating better deals this year than in past holiday seasons, according to the Digital Commerce 360 and Bizrate Insights survey from September.

Adobe is predicting “massive” discounts that will “hit record highs (upward of 32%) this holiday season.” While the firm expects the period between Thanksgiving and Cyber Monday to offer the best deals, bargains as high as 15% were likely to kick off in the second week of October. Discounts will probably stretch until the end of the year, with promotional rates as high as 20% in the weeks after Cyber Monday, Adobe says.

Because consumers are generally worried about their finances, they’ll hunt for and be tempted by good deals on gifts for others and stock up on cheaper items for personal use. So this year’s deeper discounting is likely to at least partially offset inflation, and online sales growth will be temperate.

4.) Holiday shopping season kicks off even earlier

Retailers are perpetually making a case for early holiday buying so they can distribute revenue more evenly throughout the year and to ease the burden of fulfilling high order volumes during peak season. But more sales in October may mean fewer online orders in November and December, which would translate into a smaller year-over-year increase in ecommerce.

Early purchasing picked up steam in 2021, and merchants’ nudging will be effective this year, too.

Many shoppers will likely snap up deeply discounted items online to avoid increased prices later. 41% of online retailers in the Digital Commerce 360 survey reporting they’ve extended return windows for the season, there’s one less reason for shoppers to hesitate to get a gift before the official holiday kickoff.

Additionally, retailers’ holiday marketing has started earlier and earlier for years now. This year, nearly two-thirds — 64% — of online merchants began their seasonal campaigns in October or earlier, according to the Digital Commerce 360 retailer survey. That’s up from 59% in 2021. What’s more, a quarter — 25% — of respondents kicked off holiday messaging during the summer, up from 16% the prior year.

And consumers have responded. More than four in 10 — 44% of — online shoppers said they would begin checking off gift lists in October or earlier, according to the Digital Commerce 360 and Bizrate Insights survey. That’s up from 40% in 2021. And more than a quarter — 26% — of consumers reported that they had already started their holiday buying in August or earlier. In 2021, that share was just 16%.

Amazon’s July Prime Day sale also influenced in early-season spending. 17% of online shoppers who placed an order during the two-day summer sale said at least a quarter of their purchases were gifts for the upcoming holidays, according to a Digital Commerce 260 survey of 875 online shoppers in July. And while that’s not a huge share, it will have an impact on the winter holidays. Especially since Amazon ran a second big early access sale for Prime members in October, when consumers were even more mentally prepared to holiday shop.

These changing dynamics mean consumers now spend some dollars they have historically reserved for the November-December season earlier in Q4. In some cases, that spending is even being pulled into Q3. And that erodes growth figures for online sales during the traditionally defined holiday period.

5.) Consumer confidence fluctuates in 2022 but on the rise heading into the holidays

Consumers have faced a lot of economic uncertainty recently. Aside from inflation, shoppers are weathering steep declines in the stock market, rising interest rates that are making borrowing more expensive and geopolitical upheaval with Russia’s war in Ukraine that’s causing spikes in energy costs. And the stimulus payments that helped line consumers’ wallets and encourage spending in previous years have stopped rolling in.

And that rollercoaster is reflected in some economic indicators. The Conference Board’s Consumer Confidence Index is based on a survey that measures consumer sentiment on current economic conditions and prospects for the next six months. The numbers reflect the general public’s degree of optimism on the state of the U.S. economy. In 2022, confidence has generally scored low vs. prior years outside of 2020. In the five years leading up to the pandemic, the median monthly index was 120.2. The monthly median for 2022 through September was 14.5 points lower at 105.7.

After registering three consecutive month-to-month decreases, the index dropped to its lowest point of the year in July at 95.3, down 13.3 points from 108.6 in April. But since mid-summer, it has been on the rise. September’s confidence reading hit 108.0, nearly recovering to hover near mid-spring’s high.

While this index isn’t always a predictor of online spending growth — like when 2020’s lower figures translated into the largest seasonal ecommerce bump tracked by Digital Commerce 360 — last month’s reading is good news for retailers hoping for consumers primed to spend.

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