The Great E-Commerce Reset

Dec 22, 2022 | Bubble Monitor, No Bull Economics

Bubble Monitor Chart

How should the market interpret FedEx’s recent report of declining volumes? While scary at first glance, it reveals a rebalancing mix of online and in-person retail sales. Overall retail sales are still outperforming pre-covid levels, revealing the good news that Americans are getting back to normal.

Key Points:

While FedEx’s declining fiscal 1Q demand trends softened further during 2Q, volume declines are expected to moderate during fiscal 2H23 (particularly in fiscal 4Q23). Despite a total volume decline of -9% during the quarter, a +6.9% general rate increase implemented in September & cost cutting measures (total cost cuts of $3.7B through fiscal 2023 are targeted with plans to idle 11 aircraft by fiscal year-end) helped drive growth in operating income & margin. Low double-digit volume declines in FedEx Express (U.S. domestic package business) reflect an “e-commerce reset” now that consumers are returning to in-person shopping. Pre-covid e-commerce represented 16% of retail sales mix before peaking at 22%. The mix is currently in the 18% to 19% range.

Monthly trends for FedEx

In addition to Fedex’s report of volume declines, management reported that the industrial economy is slowing around the world with Europe the hardest hit. Also, management reported that it has not seen any fundamental volume changes in China over the last few weeks despite relaxing covid lockdowns. Taken together, FedEx’s comments gave the market a good scare.

FedEx vs. S&P

Notably, FedEx’s Great E-Commerce Reset does not necessarily imply that retail sales growth has fallen-off the cliff. In fact, the most recent government data for advanced retail sales (November 2022) increased +5.4% y/y which remains stronger than pre-covid 2019 levels and much higher than China’s -5.9% y/y decline in retail sales during November.

Retail sales chart
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