Source: U.S. Census Bureau, Advance Monthly Retail Trade Survey, November, 2022
Less than 25 percent of all worldwide retail is made up of e-commerce, which is still in its infancy. Consumers have high expectations of social media and e-commerce behemoths like Amazon, Alibaba, and MercadoLibre, but very few merchants live up to those expectations.
The standard is rising, fulfilment times are becoming shorter, algorithms are getting better, competition is increasing, and website user experiences are getting better.
Many retailers and brands are finding themselves unprepared in the midst of the internet obstacle course. They are professionals in conventional retail activities such as product assortment, merchandising, promotions, customer service, and/or sales, but they are no longer sufficient.
Merchants must now increase traffic and SEO, optimise product sites, synchronise inventory, reduce returns, convert customers into repeat buyers, and much more. They are also required to do so profitably.
In addition to the social and technical developments affecting trade, the Covid-19 crisis shook the retail sector. A large portion of the e-commerce increase witnessed in 2020 was only ephemeral, but the pandemic triggered other fundamental shifts.
Over the first two decades of e-commerce, brands, and merchants experienced largely consistent growth from their online businesses. With the epidemic, everything changed.
A research report by VTEX ‘Three Investments to Drive E-commerce Growth’ talks about three distinct eras of e-commerce that have occurred, all in less than five years.
The three eras apply to both online and offline
Era of the Old Normal
Prior to Covid-19, e-commerce was foreseeable but frequently ignored. Many retail and brand executives saw e-commerce as a side project with limited resources and personnel.
Riley Reeder, Director of Information Technology at Al’s Sports Goods, a US-based sporting goods business, described this by saying, “Our e-commerce was, for lack of a better word, considered a leech to the stores. The stores believed we were there just utilising their inventory, some of their space, and that was kind of it.”
Era of Growth at All Costs
This era began in the middle of the year 2020. Despite the unfortunate conditions, the Covid-19 epidemic benefited e-commerce. When comparing the full-year 2021 to 2019, e-commerce sales in the United States increased by 68.5 per cent, the report said.
During this time, brick-and-mortar retail had 15.9 per cent growth, which is almost 5 times higher than what merchants see in a regular year, it said.
Throughout that time, most merchants, regardless of category, fared well, and all attention was focused on expansion, even if it meant making some unusual expenditures in areas such as the metaverse.
Era of Profitability
Ecommerce leaders are caught between a rock and a hard place, they are anticipated to beat their previous year’s revenues in 2021 and 2022, yet inflation has severely reduced margins and customer demand has shrunk and moved. Profitability has been the most important factor for merchants as margins have been endangered.
Despite the industry-wide focus on profitability in ecommerce, most businesses are struggling.
According to a recent Publicis Sapient report, 37 per cent of retailers believe ecommerce is not fulfilling their profitability expectations.
Furthermore, as per the report, the firms are developing new direct-to-consumer (DTC) channels and confessed that they are unsure if e-commerce is lucrative.
In 2022, inflation was high and dominated the retail debate. Whatever happens with the global economy and inflation, it is predicted the profitable era will last until 2024 as the market corrects (overcomes the hangover) and e-commerce growth normalises.
As a result, e-commerce executives must examine every strategic decision they make through the lens of profitability.
