According to 1st Quarter 2022 Retail E-Commerce Sales Report by U.S. Department of Commerce figures, U.S. e-commerce growth slowed during the first quarter. Online retailers were feeling the pain, particularly small store owners selling on Amazon. Unsurprisingly, Amazon's e-commerce segment sales also dipped 3% and 4% YoY respectively in the first and second quarter of 2022.
Meanwhile, through Rainforest’s lens, we also observed a meaningful slowdown in YoY growth and profit margin contraction in the last three months across the hundreds of brands assessed by the Rainforest team.
In this article, we will take you through the possible reasons behind this and some strategies to help set yourself up for a strong remainder of 2H 2022.
#1 - Easing of movement restrictions
During the height of the pandemic, consumers were forced to buy online, be it daily necessities or luxury goods. With most economies opening up early this year, most predictions around a massive acceleration in e-commerce adoption fuelled by Covid was likely overly optimistic.
Besides that, people are also shifting their spending to services as well as travel due to pent up demand as international borders open this year, after bingeing on goods early in the pandemic.
#2 - Stagflation fears
You are likely to have seen the word “stagflation” numerous times in recent news headlines. Basically, it is the dreaded combination of stagnant economic growth and rampant inflation. The American economy contracted for two consecutive quarters in the first half of 2022. Inflation, on the other hand, has not been forgiving in the U.S. either, recently hitting a 41-year high of 9.1% in June and eased slightly to 8.5% in July 2022; with global inflation following a similar pattern.
In the recent Consumer Trends Report Q2 2022 by Jungle Scout, in every four customers, three have adjusted their overall spending and significantly cut out “impulse purchases” amid higher goods prices and rising interest rates. In the same survey, more people said they are willing to switch from their favourite brands to new brands if the latter are cheaper.
#3 – A temporary inventory glut
Prior supply chain issues had many retailers overstocking their goods to unmanageable levels, including Walmart, Target and Home Depot. This brought about a wave of price slashes to clear excess inventory at the expense of profit margins. Smaller online sellers in the same categories likely saw their market share taken away as a result of unnatural price competition.
All is not lost
Despite all these headwinds, e-commerce as a whole is still on a healthy uptrend, albeit on a slower trajectory resembling the pre-pandemic days. According to Insider Intelligence, U.S. e-commerce sales are expected to grow 9.4% YoY in 2022, the slowest since 2009 but improve to 12.1% YoY growth in 2023 to hit $1.2 trillion.
Tips to help you weather the storm
What can be done to mitigate the impact from the aforementioned headwinds?
- If you’ve been having doubts about your past pricing strategies, now is the golden opportunity for an overhaul. Revisiting pricing for your product portfolio can help you make up for narrowing margins. For instance, you may want to fix the selling price of some overly promoted items with staggered increases at an optimal pace if it has been causing a drag on your overall margin.
- Kickstart or double down on your social commerce and turn attention toward organic marketing. Nearly half (48%) of consumers read social media comments to learn what’s being said about a brand before making a purchase. Thus, having a strong social media presence outside the marketplaces you sell in is more critical than ever before especially costs of paid advertising are also on the rise these days. A note to bear in mind is that consumers today are also leaning toward video-based content over static images when it comes to social media content consumption. When building a social media presence, e-commerce sellers should leverage this rising video content trend to garner organic traffic and direct them to their own storefront later.
- Work on optimising your inventory management. Start this exercise early. Be sure to keep enough inventory for products where you expect to have an edge over your competitors, i.e. those that you can maintain healthy margins with no or minimal price increase. This exercise can help you gain market share, increase your conversion rate, and help you negotiate pricing or payment cycles with suppliers.
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