Ecommerce: Surviving The Slump Is Important To Reap The Benefits Of A Bright Future
Do you know that there are now more than 5 billion people online globally, up nearly 200 million since last year? Almost 63% of the world's total population now uses the internet for shopping, gaming, and being social. Shrugging off inhibitions and fears over technology getting the better of us, many new users experienced online buying for the first time from the comfort of their homes during the Covid-19 pandemic. As the global e-commerce market reached a value of US$ 13 Trillion in 2021, analysts have predicted that it will reach US$ 55.6 Trillion by 2027, exhibiting a CAGR of 27.4% during 2022-2027. But is the sector on track to achieve this forecasted growth?
eCommerce is losing steam this year
We have to admit that eCommerce is possibly one of the first casualties of the 'post-pandemic' world. Like in every business cycle, there are always peaks and troughs; the booming eCommerce sector slowed down as restrictions started easing a bit. We bet you were on the list of people who felt the urge to shop in-store! Now add record inflation to this mix — and concerns of an imminent recession — and it's no surprise that consumers and markets have changed their behavior, resulting in eCommerce losing some steam.
So, are we facing an eCommerce recession already?
If you are a part of the eCommerce sector, we are sure that this question is bothering you. We can't assure you that this news is entirely false, but it might not be as bad as you imagine it. We'll explain why.
Research by Earnest showed that e-commerce spending was back to flat on a year-on-year basis at the beginning of April 2022 and is now decreasing only in the low-to-mid single digits. Physical retail, meanwhile, has been outperforming e-commerce in both spending and growth.
Even Shopify said that spending in its ecosystem — mainly eCommerce — grew just 16% year-on-year during the first quarter to $43 billion. That was a sharp deceleration from recent quarters, especially from the early pandemic when consumers rushed to buy anything and everything online.
Shopify also noted that it signed up fewer new merchants last quarter than during the same time a year ago, suggesting that interest in launching new e-commerce businesses has also decelerated.
This has led to a panic situation among investors and e-commerce businesses reporting first-quarter results. Amazon reported a sales decline for its core online stores business, and its shares saw a 40% slump since last summer, while Shopify marked a nearly 80% decline since November.
eCommerce adoption was not just a 'pull-forward.'It's a marker for potential growth.
You may be witnessing a slump in online sales now, but that doesn't mean we anticipate the end of eCommerce. Think about the steady growth of e-commerce in developing nations, where newer platforms and global giants are still reaping the benefits of a significant portion of their customer base going online.
While the growth rate seems to be slowing down, it isn't a situation devoid of hope. In the medium term, eCommerce growth is still maintaining an upward trend. Zooming in to look at this year on a weekly basis, things are already looking better than they did in March!
Digital engagement is still at an all-time high
While the declining online sales numbers might be discouraging for eCommerce folks like you, the persistent record numbers of digital engagement tell a different story. The two-year online sales growth rate reached 65% globally in the quarter. What!!
Consumers gravitate to seamless and cross-channel mediums with a never-before-felt level of convenience and an easy shopping experience. Nearly 60% of consumers have bought an item online, and 25% of shoppers rely on their smartphones while at the store to read up on products and engage with QR codes. It's good news for the eCommerce sector that discretionary spending is moving to goods and services from travel and commute.
Ecommerce is moving from exponential growth to logarithmic growth
Many of us think that the "e-commerce market" is just 'ONE' while talking about its growth, and it is not! It amalgamates many smaller markets, each dependent on ever-changing consumer habits and desires.
For example, by the end of April, US online sales of luggage and bags were up 62% year over year, online movie ticket sales were up 159%, online air travel spending was up 35%, and rideshare spending was up 52%. Over the same period, online electronics spending is down 27% year over year, home fitness e-commerce spending is down 34%, online grocery spending is down 13%, and digital spending on home furnishings is down 25%.
These insights convey an important message that some of the immediate messiness seen in the eCommerce market is just tough comps — lapping up outsized growth in earlier periods that will even out as time passes. Shopify, for one, says it expects revenue growth to re-accelerate later in the year, and it expects to add the same number of new merchants in 2022 as it did in 2021.
One way to get at this quantitatively is to look at the TAM penetration of e-commerce. The Census Bureau estimates e-commerce at ~$1.04Tr out of $6.5Bn of retail sales in the US in 2021 (16% penetration). This data is very promising, and while we may not see exponential growth for eCommerce like covid times, there will still be logarithmic growth, and that's what matters!
Digital adoption is irreversible, but Omnichannel convenience is the future
Can you imagine a life without online shopping? No, right? That is why we remain as optimistic as ever about the future of eCommerce in the long term. More choice, convenience, and better customer experience — areas where e-commerce tends to win — will always be important. Technology adoption by consumers and merchants will continue to drive more spending in digital channels. Yes, retail stores are great, and they do matter even for digital-first brands, but the key to success lies in building a strong omnichannel, as consumers are likely to continue spending more money online in the future.
But first, let's survive the dip
Blame it on the economic volatility of the Covid-19 pandemic for putting you on the path of an eCommerce recession. While we can bet our business that eCommerce is here to stay, the next few months will be challenging. Tougher fundraising could serve as a refuge for companies that aren't growing rapidly or making any profits. This also means layoffs, which we're already seeing. Perhaps, a buyer's market for acquisitions, cheaper adverts, and potentially some more shifts in consumer spending behavior and priorities, with short- and long-term effects, may help us find a way out.
The pandemic has taught us that the world cannot do without eCommerce.. Remember, businesses that play it right will reap the most benefits and take the most of the growth.
Not just surviving but winning in this market is still possible. But how? We'll tell you that in our next post.