Staying competitive during an eCommerce slowdown
While the 2022 holiday shopping season is showing promise, eCommerce forecasts for 2023 are bracing for a slowdown during non-peak seasons and casting doubts on the future of online retail.
With consumers flocking back to brick-and-mortar stores (yet spending less), there is fear that the global economy will continue to slow and cause long-term disruption to the industry - or worse, offset years of impressive growth.
To safeguard against this uncertainty, it’s imperative that eCommerce companies keep a close eye on what’s happening in markets around the world and forge a sound plan forward to remain competitive.
Easing lockdowns, falling online sales
Recent waves of global economic and political instability have shaken economies and industries. The S&P 500 index declined 25% between January and September 2022, with eCommerce-related stocks taking a further plunge. Amazon’s dropped 32% in the same period and evaporated half a trillion dollars in value, and Shopify suffered a far more significant nosedive of 80%.
eCommerce sales are also experiencing a noticeable decline despite their robust performance over the past two years. Well-established eCommerce markets, like the US and the UK, have even retreated to near pre-COVID levels. This is because consumers are spending more on travel and entertainment, seemingly reversing the pattern of the lockdown era when both options were highly limited.
Figures from the International Monetary Fund showed similar results, with overall online sales taking off at the height of the pandemic but declining once lockdowns began to ease. These figures defy the belief that pandemic-fuelled digitalisation has irreversibly changed consumer behaviour. Instead, consumers are returning to the malls once that is an option.
Complex market nature
A closer look at this phenomenon reveals a more complex picture. Markets that experience the biggest spike and subsequent contraction in eCommerce sales are those with high adoption of online retail before the pandemic. Locations like Singapore and the UK had already widely adopted eCommerce before the pandemic, in which lockdowns only facilitated further growth. Meanwhile, online shopping still sits above pre-pandemic levels in emerging markets like Latin America and India.
At an industry level, the easing of lockdowns didn’t fully undo the gains in eCommerce over the two years (see graph above), and some categories are holding ground. According to UBS, online shopping penetrated the US grocery market in the second quarter of 2022 and has almost tripled its share compared to 2019.
Nonetheless, the decline of eCommerce sales and change in consumer behaviour has left retailers with far more stock than expected, driving some to a spiral of cut-throat discounts. Target and Walmart are already offering steep markdowns on electronics on their online channels before traditional Black Friday. Amazon has also broken its tradition of running Prime Day, an annual event, by introducing a separate event in October this year.
Takeaways for eCommerce brands
Despite the uncertainty, it is too early to tell whether this industry is seeing a significant readjustment.
Given the unique profit models of eCommerce businesses, there are a few things that retailers can do to prepare. Looking ahead on a product-by-product level, for example, can help deliver a more accurate picture of inventory levels, supply chain expenses and cash flow.
Adopting a more flexible business model (i.e. multiple suppliers and ordering goods more frequently in lower quantities), can also help companies adjust operations during unexpected circumstances.
While the global outlook for eCommerce remains uncertain, with proper planning, operational agility, and simply keeping a close eye on consumer trends - online retailers can retain their value and quickly respond to new opportunities.