E-commerce companies were once considered nearly invincible as they grew unfettered and saw record profits. But of late, they’re braving a new market shaped by three major trends: stunted online shopping growth, the impact of the latest iOS privacy updates on social media customer acquisition strategies (leading to higher costs) and macroeconomic uncertainty.
While these factors are largely out of retailers’ control, we’re seeing a few emerging companies that have adapted by entrenching with existing customers and building their organic brand.
In this post, we’ll dig deeper into the key trends and their impact on e-commerce, as well as with several tactics companies can implement to continue to thrive in this new retail climate.
The new retail challenge
First, e-commerce growth as a percentage of total worldwide sales has not continued to persist as strongly as expected post-pandemic. Statista reports that e-commerce stood at 12.9% of total U.S. retail sales in Q4 of 2021, down from 13.6% in the previous year. It’s likely that a few quarters of growth was pulled forward and is now reverting back to the original course, albeit still elevated.
Most brands will find it tough to spur growth via customer acquisition in 2022.
At the same time, customer acquisition costs have risen due to recent iOS updates as Apple continues to implement and ramp up privacy features. Devices running the new OS have limited third-party tracking capabilities that platforms like Facebook (or Instagram) depend on.
No longer having access to the level of broad audience targeting and optimization capabilities previously available, brands are seeing a drop in performance and higher total acquisition costs, leading many to shift spend away from these platforms.
Finally, there’s a new threat rapidly approaching and clouding the e-commerce landscape: macroeconomic uncertainty with a potential drop in discretionary spending. This is already evident in the lackluster earnings from major retailers such as Target and Walmart, where we’re seeing the mix of non-discretionary revenue accelerate due to inflation while discretionary item sales slow down.
What can be done to combat these threats? There are two primary courses of action e-commerce companies should focus on: (1) entrench — getting existing customers to stay longer and spend more, and (2) build a stronger brand — reducing reliance on social to organically drive better customer acquisition and conversion rates.
Entrench existing customers
The first step is to reduce churn and increase average order value (AOV). This helps brands protect conversion and hit forecasts while balancing profitable acquisitions as conversions drop due to larger industry changes (e.g., increasing acquisition costs and supply chain issues).