What are the factors behind e-commerce sales slowing down in 2022?
In the last 2 years we’ve seen strong growth in e-commerce sales across the board. However, as seen in this graph, the percentage has decreased in the last quarter. Indeed, retail sales still made up 16 to 20% of total sales last year, compared to the last 2 quarters during which it has gone down significantly. Even though e-commerce is still growing, we have hit a bump. It is simple… People have started going to stores again.
In general, the clients and partners that we work with planned for e-commerce to continue growing in the upcoming years. Today, the majority of business cases demonstrate that start-ups and companies in general are now struggling. A projection was made for e-commerce to represent 30% of all sales, whereas it now represents just 12 to 15%. This makes a huge difference as to how money is invested in infrastructure and human resources.
E-commerce is normalising
The projection of e-commerce thriving was recognised internationally. Indeed, one case study in the UK in which a few hundred CMOs were interviewed back in August 2021 said this growth was going to continue in 2022. But realistically speaking, can you tell an investor to expect a big decline in growth? The reality is that we are experiencing the backlash of the pandemic. It is natural that e-commerce growth is normalising. We are still on the right path, but it is simply slowing down.
- Recession: consumption isn’t growing as much as last year because people don’t have as much money, which directly slows down the speed of growth.
- Corona: a lot of people who did not use to buy online now know how to, the effects of which will be seen next year.
- Industry: e-commerce will struggle in the next couple of months when it comes to luxury goods. However, essential goods became normal to buy online during the pandemic. Thus, the struggle is industry dependent: they will not all see a decline in sales.
- Supply: this is also an issue as there is more demand in the market. At the moment, if a business has the choice, they will give resources to retailers first instead of e-commerce businesses.
Reflecting on our role as marketeers: a potential short-sightedness?
Companies are letting go of part of their staff who were hired for this immense growth that we saw, and planned, last year. Indeed, two years ago we were planning and budgeting based on data we were used to. Since the pandemic, we have been calculating trends without considering that the situation has changed. Our lesson should be to adapt the way we forecast with a less long-sighted approach, in terms of months instead of years.
Furthermore, profitability is becoming more and more important. We’ve seen a lot of ‘stupid money’ being spent: that which has been generated by companies that don’t know how online works, but who rapidly developed budgets for it. Money was spent in a way that did not correlate with ‘online physics’.
Traditional budgeting and performance marketing are two significantly different approaches, which became technically complicated when brought together. Now that we see online demand going down and a higher degree of competition, it becomes tougher to manage online retail and for e-commerce to be profitable for common day goods.
Companies which are purely online are generally more flexible in the ways they spend their money. Those who are learning this for the first time in the last year, who have to move, order and manage their goods, as well as manage a new online business is extremely challenging.
Indeed, there is a whole new level of controlling, forecasting and budgeting that needs to be understood. Thus, flexibility is key in terms of how you steer and manage the business, and long-term plans are no longer enough, or realistic.
We have successfully built more and more infrastructure to cope with these changing trends. However, as we are hitting a bit of a ceiling, what should traditional companies do with their investments in e-commerce and deal with the planning that was highly unrealistic?
For those who have recently developed an online department, a common concern is the lack of communication between the traditional business and the new online one. This gap needs to be closed, and brought into a single operation. Indeed, it is crucial to understand what is happening online in combination with what is happening offline, in order for all disciplines to be merged.
A smart approach is to rethink budget planning. It is crucial to regularly look at goals and evaluate how objectives and results are aligning. For companies new to the online world, their business requires a change of mindset.
It is about education and learning that even if e-commerce represents 15% of your company, an understanding must be developed on how online is being used, how it can change the experience of your customers and the potential of your business.
Thus, there is a need for e-commerce awareness and organisational change. Indeed, most businesses stay comfortable in their traditional ways. As digital marketeers, we must elevate this voice, and explain that although e-commerce isn’t the full solution, it is a significant part of what the future of your business could and should look like.