- Inflation is causing changes in the ecommerce industry. The thriving online sales environment we saw during the pandemic has been reigned in as consumers are looking to save more and spend less.
- 3rd party data used to be the preferred way of targeting new customers, but ecommerce retailers will soon have to shift to 1st party data in order to harvest cookies and data.
- Ecommerce businesses can protect themselves from inflation by expanding their product selection, providing an ideal customer experience, and starting the move to capturing 1st party data before their competitors.
Much has been written about emerging and current trends in ecommerce and the promises and challenges ahead. With ecommerce sales in 2021 at over $4.9 trillion worldwide due to the pandemic, in 2022 we’re seeing the inverse: inflation.
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Inflationary + Post-Pandemic Effects on Ecommerce Trends
Consumers are facing the worst inflation in over 40 years. A Pew Research poll from May 2022 stated, “70% of Americans view inflation as a very big deal”.
Because inflation reduces the purchasing power of consumers, it stands to reason consumers will reduce spending on non-essential goods. In these early months of inflation consumers are dipping into savings to keep up their spending. But don’t expect that behavior to continue.
Earnings reports from brand names such as Proctor and Gamble and Kimberly-Clark are a good indicator of inflationary buying. When inflation becomes too burdensome it will erode brand name demand and substitution to generics will occur. As long as these consumer discretionary companies continue to report record profits and earnings, then the inflationary period is going to continue.
Ecommerce stores that capitalize on consumer’s shift to generic or “off brands” will pick up new clients. If you have an e-commerce brand with high quality products comparable to a larger competitor, you can hone your messaging toward picking off their clients. Review search engine optimized keywords to work in your favor and drive organic traffic.
Amazon under new CEO Andy Jassy is rolling back the inflationary strategy from Jeff Bezos. In mid-2022, according to the WSJ, “U.S. sales in brick and mortar shops have grown faster than online purchases for four consecutive quarters, real-estate research house Green Street points out.”
Amazon has closed, canceled, or delayed the opening of 43 delivery hubs and fulfillment centers in the U.S.. Green Street estimates that European e-commerce sales will grow 11% per year between now and 2025, down from an earlier estimate of 14%. Online sales in the U.S. are only expected to grow only 7% annually over the same time period.
Macro e-commerce growth is not expected to be as large as was predicted during the pandemic. Be prepared for less growth for a sector and adjust your strategy towards taking share from competitors.
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Changes in Buyer Behavior
Target’s stock dropped over 25% in valuation over news (May, 2022) that shoppers are spending less on discretionary categories like apparel and home goods. Rising logistics (shipping) costs passed on to consumers makes premium discretionary products less desirable, too.
Consumers purchased massive amounts of technology to outfit their homes for stay-at-home work and school. Clothes purchases during COVID were popular, and a pullback in this category makes sense when the dollar does not go as far in this inflationary environment.
If you sell goods that are considered discretionary or saw a spike during COVID, you might see a sizable dip in your business. Focusing on turning a healthy profit on the first sale to a new customer may no longer work for you.
The remedy is to employ customer lifetime value metrics and look at customer relationships from a wider perspective. Seek opportunities to widen the shopping cart with complementary products and product recommendations delivered at the right time using email, SMS and retargeting.
Technology Changes with 3rd Party Data
2022 is seeing the transition away from browsers allowing 3rd party data. Apple has led this push and Google is following.
If you’re unfamiliar with the term 3rd party data, it’s data that you buy from outside sources that are not the original collectors of that data. This can also include 3rd party cookies from sites that are from outside sources.
For example, the Facebook like button appears on millions of sites. Google Ads show you products from a website you were previously on. In both of these cases 3rd party cookies were responsible for serving information to you. Ever had an experience where you see an ad from Google or Facebook and you swear your phone is listening to your conversation? Thank 3rd party data.
3rd party data produces highly targeted ads, but the future of ecommerce sees it’s about to become extinct the way we know it today.
If you’re monetizing your website then you use some form of 3rd party data. Apple and Firefox block 3rd party cookies by default and Google has indicated they will stop the practice, too. Some believe these cookies account for up to 90% of Google’s revenue, so this is a major announcement. Additionally, Apple has blocked automatic data sharing in their iOS App Store and Google has indicated they will do the same (hello, Google Analytics 4).
Facebook reported in February 2022 that Apple’s blocking of 3rd party data on iPhones will cost them $10 billion this year. That’s how much of an impact these changes will have.
Time is running out for 3rd party data, and if you rely on this data you need to prepare for the pending changes that are about to take place.
Prepare by shifting to 1st party data. This means cookies and data hosted by the native website and no others. Google is transitioning to Google Analytics 4 and Facebook is utilizing Google Tag Manager Server to place their tracking natively on your site.
Beyond that, start harvesting your own data by employing email and SMS capture on your site. Email programs like Klaviyo act as a CRM with complete customer profiles and buying history.
The pandemic party brought prosperity to e-commerce and now we’re in the sobering aftermath. Look to protect from inflation by expanding your product selection and grow by providing a better experience than your competitors. Look at customer lifetime value to evaluate your customers and install CLV tools if you haven’t already. Finally, start moving to capturing 1st party data and harvesting your own trove of data from your customers.
These obstacles are the latest challenge your e-commerce business will face. As an ecommerce agency, you can use our free resources to overcome them yourself, or talk to our team if you’d like some assistance.
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