E-commerce was meant to get significantly bigger, and thus everything was to get easier. But e-commerce only grew slightly, and yet everything - from sourcing to advertising - got harder.

For two years, e-commerce was a dream - a hope that e-commerce had a multi-year step-change, growing in a few months what would have taken years. The yearly charts showed e-commerce penetration increasing as much as in the previous ten years in a few weeks. It was a dream because the assumption was that e-commerce would continue to grow from that elevated point.

It didn’t. Instead, every quarter since, e-commerce penetration has been falling back closer to the trendline it was on before the pandemic.

But e-commerce is bigger than the pre-pandemic trendline would have suggested. It is bigger in dollars spent. E-commerce is 25% above the trendline; a $975 billion annualized run rate instead of $780 billion. One way to measure e-commerce is through its share of total retail, but it’s just as relevant to look at overall e-commerce spending. As a share of retail, e-commerce is smaller than the pandemic boost predicted, but it is bigger than the shrinking penetration implies.

However, many e-commerce companies have over-stocked, over-invested, over-hired, and over-built due to misreading the market. For example, Amazon said it built too many warehouses, and Target had too much inventory. The zero interest rates driving the bear market contributed too. An investment in Amazon or Shopify stock in January 2020, months before the pandemic, would have yielded an exceptional return up to the end of 2021. Since then, Amazon’s or Shopify’s stock price has decreased enough to make Walmart (a mostly brick-and-mortar business) a stock that outperformed the two e-commerce leaders.

E-commerce growth got overshadowed by sourcing, fulfillment, advertising, and other core pillars getting more expensive, slower, or less effective. Containers from China only recently went down from costing ten times more but are still taking three times longer to import. For most of 2020 and 2021, Amazon had no warehouse space to store additional inventory for sellers, forcing them to scramble to find alternatives. And Apple made changes to the iPhone operating system rendering mobile advertising (for example, Facebook) less effective.

Many of those challenges remain today. Importing goods is expensive and slow, and direct-to-consumer advertising is challenging. Because of the first two and other issues, margins are getting compressed. Many businesses show flat or negative year-over-year growth. And new problems, like rising inflation and a possible financial recession, are fueling more uncertainty.

Ultimately, e-commerce is bigger, but sourcing products and reaching consumers is harder. The two sides are not caused by each other but happened to coincide. The industry went from euphoria to despair in less than two years.

For at least the short-term, that means inventory forecasting, unique advertising approaches, and multichannel reach are some of the critical areas that are more valuable than anything else. The e-commerce growth figures are a distraction. Whether the market got bigger or not doesn’t solve any of the fundamental challenges.

Before e-commerce can reach 25%, let alone 50%, retail sales penetration, there are challenges yet unanswered. The interesting questions, then, are not about the e-commerce market share but the underlying complexities that power it. For example, does that mean that Amazon will get multiple times bigger or that direct-to-consumer will power most of that growth? If latter, through which channels and at what cost they will reach consumers?