#168 – Tariffs, Tai Chi, and T-Shirts

Q1 2025 E-commerce Review

Jun 22, 2025

Hi 👋 - From tariffs to AI to a new era of frugal growth, e-commerce companies are navigating a shifting landscape with agility. First quarter earnings show a sector that's not booming, but not breaking either. Companies continue to adjust to the post-ZIRP era. AI is moving from buzzword to business case and capital allocation is getting more disciplined. As always, thanks for reading.

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Q1 Results – Cruise Control

E-commerce held steady in the first quarter, despite an uneven demand environment. Growth cooled versus the fourth quarter, but not by much. After a few rollercoaster years, the industry seems to have regained its balance. Soft pockets remain – like home furnishings – but the broader picture is one of stability.

Source: Company financial reports. Notes: Amazon doesn’t explicitly break out e-commerce growth in one clear number. However, Amazon online store revenue (first-party e-commerce), third-party seller services (third-party e-commerce growth and changes in seller services penetration and pricing), and paid unit growth give a composite picture of above-market growth.

The rich-gets-richer dynamic eased up a bit in the first quarter. Shopify continued to outpace the market, but Amazon’s growth tracked more closely with overall US e-commerce, giving the rest of the field some room to breathe. Looking ahead, Amazon will need to scratch and claw to overcome the law of large numbers.

Q2 Guidance – Holding Steady

There’s been plenty of hot air around tariffs, market volatility, and macro jitters. But second quarter guidance tells a calmer story: steady growth. However, several firms including Amazon and eBay widened their guidance ranges in response to uncertainty.

Source: Company financial reports. Note: Q2 2025 growth rates reflect the midpoint of guidance.

Looking further out, eBay, ThredUp, and The Real Real all reaffirmed 2025 guidance. Etsy stopped short of providing formal guidance but struck an optimistic tone that product and marketing initiatives would drive growth improvements throughout the year. In short, while the CNBC commentator’s hair is on fire, companies are keeping their cool.

Tariffs – Much Ado About Nothing?

Tariffs haven’t been this trendy since the Harding administration. And the industry hasn’t had this much heartburn since the pandemic. Despite the swirl of uncertainty – timing, rates, you name it – one of earnings season’s biggest surprises was how little business impact there’s been. As Wayfair CEO Niraj Shah put it1:

There’s a big divergence between the demand we’re seeing and the headlines you see about consumer sentiment. Demand is pretty good.

Amazon hasn’t seen any slowdown of demand or major shifts in average selling prices. It did note some demand pull-forward in select categories. It also expedited delivery of inventory to get ahead of tariffs, elevating operating expenses.

Shopify saw much the same: steady demand and no change in cross-border patterns through April.

Managers are waiting for the smoke to clear. In the meantime, they’re playing the game in front of them, one quarter at a time. In other words: keep on keeping on. As Amazon CEO Andy Jassy put it2:

It's hard to tell what's going to happen with tariffs right now. It's hard to tell where they're going to settle and when they're going to settle. And so a lot of what we're thinking about short- and medium-term, actually turns out to be what we think about long-term, too, which is how do we actually have the broadest possible selection for customers at the lowest possible prices, and there's maybe never been a more important time in recent memory than trying to keep prices low, which we are heads down, pretty maniacally focused on and then get things to people quickly and take care of customers. And that is the heart of what we're doing.

Companies have responded to the new operating environment by tweaking their product roadmaps. Shopify, for example, rolled out several cross-border and tariff-related tools, including duties calculators and features to promote local purchases3.

While the situation remains fluid and hard to forecast, most companies view it as something to manage through, not panic over. A few even see tariffs as a relative advantage.

One consistent takeaway: supply diversity and marketplace models create resilience. Amazon’s two million sellers each operate differently – some prioritize growth, others margins; some absorb costs, others pass them on. That variability boosts selection and keeps pricing competitive for customers.

Wayfair echoed the value of supply diversity. Furniture – at least the kind Wayfair sells – is mostly unbranded and highly substitutable4. With 20,000 suppliers competing for 20 million customers, there’s constant competition on price, quality, delivery speed, and selection. So far, those sellers have been reluctant to raise prices. The company assessed the current tariff setup as a relative advantage. Here’s CEO Niraj Shah5:

In a scenario where there are tariffs, having a platform business model with a lot of suppliers who compete with each other and offer many substitutes creates a better set-up versus a traditional retailer where you’ve got limited suppliers and are the importer of record. It’s a relative benefit to us.

eBay and Etsy joined the chorus, pointing out supply diversity is a key strength, particularly in times of uncertainty.

Tariffs may pinch most retailers, but resale platforms could come out ahead, especially in fashion. ThredUp sources domestically and isn’t exposed to duties. If new clothes get pricier, secondhand starts looking even better, as CEO James Reinhart noted6:

Duty-free ultra-fast fashion that has flooded the US market over the past few years undoubtedly put some pressure on our price competitiveness. We believe the closure of the de minimis exemption is likely to cause higher prices for these goods and to reduce production volumes, both of which could be a positive.

The RealReal echoed this sentiment, noting that rising luxury prices could encourage more consignors to sell.

A secondary benefit is that large ad buyers like Temu and Shein, who benefited from the de minimis exemption, have drastically cut advertising spending. That’s made auctions less competitive and driven down CPCs for some keywords7.

Consumer Behavior – Still Spending, Just Not on Couches

Consumer behavior hasn’t shifted much over the two years. Shoppers remain cautious but continue to spend, just not on that $5,000 couch. They’re prioritizing value and delaying big-ticket discretionary purchases. Performance continues to depend on category exposure and value.

Amazon continues to lean into its core value proposition: broader selection, faster delivery, and lower prices. It’s working – US sales of everyday essentials grew twice as fast as overall e-commerce and accounted for a third of total volume.

eBay logged its fourth consecutive quarter of GMV growth, driven by strong demand for pre-owned and refurbished items. These categories now account for more than 40% of GMV and are outpacing overall platform growth, as value-conscious consumers look for deals.

Value is resonating at ThredUp, too, even with higher-income shoppers. The company, with an average order value of roughly $50, reported an influx of new middle- and upper-income customers, suggesting belt-tightening across the board.

Trends are similar at The Real Real, which saw strong supply growth as consignors look to offload and monetize high-end items.

On the other end of the spectrum, Etsy and Wayfair continue to feel the squeeze as shoppers pull back on non-essentials. In particular, furniture spending remains under pressure due a soft housing market.

AI – Little Fires Everywhere

AI mentions on earnings calls have gone parabolic over the past year. Now, there’s a bit more substance behind the hype – small sparks of progress here and there. No one’s P&L has been transformed, but the number of shots on goal are multiplying and use cases are stacking up. For now, progress is modest. Still, the pace of experimentation suggests broader impact may just be a matter of time. As with most things in tech, transformation goes gradually, then suddenly.

Amazon offers a useful 30,000-foot view. AWS’s AI business is growing triple digits, and CEO Andy Jassy sees the opportunity as still in its infancy. In the time-honored earnings call tradition of baseball metaphors, he put it this way8:

We’re not even at the second strike of the first batter in the first inning.

Amazon has more than 1,000 AI agents live or in development, touching everything from inventory and forecasting to chatbot support and helping you pick the right-sized t-shirt. Whether its logistics or ad optimization, Andy Jassy is all in on AI9.

AI tools are helping unlock supply growth. At eBay, simplifying the item upload process has led to more listings and higher GMV per seller. Tools like Magical Listing, which launched in September 2023, are boosting listing completion rates and cutting the time spent per post. To date, over 10 million sellers have used the tool to create more than 200 million listings. It’s the kind of incremental progress that compounds over time. If the tool saved sellers one minute per listing, that would translate into a cumulative 381 years of time savings for eBay’s sellers.

AI is driving operational gains at The Real Real. It’s using image recognition to speed up item authentication and pre-fill listing details10, helping products hit the marketplace faster. In the first quarter, about 10% of items were processed this way; the company expects that figure to hit 50% by year-end. It is also deploying AI to improve salesforce targeting of high-value consignors, enhancing supply quality and margin potential.

AI is also reshaping top-of-funnel engagement. Etsy has revamped its discovery experience, making the app more browsable and personalized. ThredUp has rolled out a suite of AI-powered features – visual search, image-based recommendations, "shop similar," and an upgraded recommendation engine – all of which are driving conversion improvements.

AI is also starting to show bottom-line potential. Shopify has been especially vocal here. Founder Tobi Lütke has said that before requesting new headcount or resources, teams must first explain why AI can’t get the job done. The company sees AI as a key lever for improving efficiency and effectiveness. As CFO Jeff Hoffmeister put it11:

Continued discipline on headcount across all three R&D, sales and marketing and G&A continue to yield strong operating leverage, while helping us move even faster on product development aided by our increasing use of AI.

Capital Allocation – Frugal Growth

There’s been a subtle shift in capital allocation. Cost-cutting is giving way to selective investment and a focus on growth. But this isn’t a return to the ZIRP-era all-you-can-eat-buffet. The tone is more measured, more sober. We’ve gone from easy money to frugal growth. And frankly, that’s a good thing.

Source: United States Census Bureau, Quarterly Retail E-Commerce Sales, Adjusted Sales Time Series, May 19, 2025.

AWS, with a front-row seat to enterprise IT budgets, says the belt-tightening of 2022–2023 is giving way to buzz around generative AI (see above).

Shopify is a case in point. Its financial priority has shifted from expanding free cash flow margins to driving growth in 2025. Still, executives stress that they’re cutting back in low-ROI areas while doubling down where returns are strong.

Similarly, Amazon plans to spend about $100 billion in capital expenditures this year – mostly on data centers and servers to feed AWS – while at the same time driving process improvements in its retail business12. Here, it’s doing a little corporate tai chi by investing in cost savings and process improvements. By redesigning its inbound network and boosting fulfillment efficiency, it’s speeding up delivery and lowering cost to serve. Management reiterated that it’s doing everything to keep costs low.

ThredUp is the most aggressive player on this front, though as one of the smallest, it’s not necessarily representative of broader industry trends. The company aims to hold gross margins steady in 2025 while reinvesting incremental revenue into both buyer and seller acquisition. This strategy is showing results: new buyers grew 95% in the first quarter, and April marked its strongest month ever for customer acquisition. Less ad competition from Temu and Shein hasn’t hurt either.

On the slower end of the growth curve, the knives are still out. eBay restructured in May, shaking up management, streamlining engineering, and combining product with marketing to speed up execution. Wayfair has been more aggressive: in January, it exited Germany due to weak performance and low returns; in March, it laid off over 10% of its tech team and shuttered its Austin office. Etsy, meanwhile, announced plans to divest Reverb, a marketplace for musical instruments acquired in 2019. This gives management more time to focus on its core business – which is stuck in reverse – but Etsy’s been slower than peers to tighten the belt.

Growth is slower, spending is smarter, and AI is quietly reshaping the playbook. The easy money’s gone. What’s left? A little discipline, a lot of experimentation, and a bunch of CFOs trying to do more with less. It’s not flashy, but it might just be sustainable.