Impacts on the Ecommerce Industry in a Post Pandemic Climate

The pandemic upended our lives and consumer behavior worldwide forced businesses to make a decisive switch to adopt digitization. This pushed the growth of Ecommerce brands to a $4.9 trillion growth worldwide. The result? There are now more than 2 billion online consumers globally. As a result, Ecommerce brands have experienced exponential growth with online retail covering 16.8% of the total retail market. At the same time recent economic shifts have seen a change in market trends globally. These trends include rising inflation rates, rising costs, lower consumer spending and tightened investor spending. 

While the effect of these trends can be seen in varying degrees across the US, Europe and APAC markets, the shift is clear. As the post-pandemic climate becomes our new normal, we reflect on how these markets have been impacted by the above. 

Rising Inflation Rate vs Consumer Spending Power

In the United States, the inflation rate rose to nearly 8.5% in March of 2022, this is the highest recorded in the last 40 years. Generally, prices have increased, amounting to a total of 3.1% as compared to 2021. Majority of the US inflation push comes from the shortage of supply caused by fewer cargo ships, sea port blockages and trucker shortages. Similarly, in Europe, inflation is set to surpass that of the U.S for the first time in over a decade. In March the figure topped at 7.4%. The main driver here is the recurrence of shortages caused by the crisis in Ukraine. That coupled with food and energy costs have driven up inflation to unprecedented figures in 2022.

Despite the rise in inflation, companies such as Amazon and Ebay have managed to retain customers through brand loyalty. Providing more alternatives to home goods and services has made big players such as these the leading Ecommerce giants in most markets.

A similar effect can be seen in the APAC region, but less so than in Europe. As APAC is heavily reliant on imports for raw materials in manufacturing industries, the region has also seen a rise in inflation to 4.5% as a result of manufacturing hubs experiencing movement restrictions. 

These supply chain disruptions have pushed prices up affecting Ecommerce businesses globally. It has yet to be seen if they will pass on the full cost to customers as some businesses have started. 

Rising Costs Fuelled by Shortage of Raw Materials  

Customers are more likely to have repeat purchases with brands that provide seamless delivery experiences and are able to provide cheaper alternatives with targeted marketing opportunities. Inflation alone will not deter customers when it comes to necessities such as basic home goods and services. 

Top and bottom lines are being challenged by slowing sales growth and a challenging economic environment.The rise in inflation has contributed to an overall increase in costs for ecommerce brands globally. 

Not only in raw materials but fulfillment costs have also seen a climb. Customer demands have been set by Ecommerce giants such as Amazon and as customers expect faster shipping times, these costs have been handed to Ecommerce retailers to tackle. 

The reality of most Ecommerce businesses has been one of high growth and low profits and with consumer sentiment decreasing with the loom of an impending recession, a sustainable approach towards growth is the only way forward. 

Customer lifetime value is a key differentiating factor for Ecommerce businesses that are looking to widen profits despite rising costs. 

Shifts in Consumer Spending looming creating uncertainty across Markets

The shift in consumer behavior from brick and mortar to online shopping is certain to continue moving forward. At the same time, the extent of consumer growth has been challenged by recent market shifts in 2022. 

A recent survey by Mckinsey to reflect consumer spending in the US market showed that the rise in inflation has not pushed US consumers to spend less yet. US consumers in May spent 18% more than they did in 2020. 

This shift in spending is largely due to the savings experienced in the pandemic years with consumers reporting $2.8 trillion more in savings in 2022 than they did in 2019. This covered every age group with the highest seen among millennials - the new favorite across all Ecommerce brands for digital advertising. 

The only impact inflation seems to have on spending is the volume growth which can be clearly seen in the Europe region. In 2022, savings fueled consumers have been driven to spend on travel and consumption with a strong labor market backing up consumer spending on all fronts. 

However, in Central Europe, for example, the crisis in Ukraine is proving to be signaling the end of the consumer boom. Most analysts see summer as the last seasonal push for spending as consumers shift to purchase cheaper goods and services in the household and necessities market. 

Cuts in Spending due to Investors pulling back 

The wholesale Ecommerce market has moved completely online. Gone are the days where Ecommerce businesses have to rely on trade shows to maintain connections, the new marketplace is the online web. This has also created a nice entrance for investors to be able to show interest in Ecommerce businesses easily while doing their own research on any company that appears online. 

The trend of investors is here to stay, but with the recent market shifts investors are expected to be more strict with spending and venture capital with Ecommerce businesses globally. They are relying heavily on regions with developing to mature economies such as APAC which have seen through financial crises in the past and sustained consumer spending. 

The entrance of millennials and Gen Z players in the market also sees an interesting shift of social commerce trends playing out. These factors play a much bigger part in investors deciding whether an Ecommerce business is investing in the right digital formats to ride the storm we all see coming. 

In the US, the trend of social commerce reigns strong with an emphasis on brands who are prioritizing homegrown commerce over cross-border shipping. There, only 7% of sales are international, thus brands who are able to localize their manufacturing, advertising and fulfillment centers are the ones who are coming up top in this competitive industry. 

Prioritizing spending where it counts is the ideal way forward for brands looking for a sustainable growth model. Higher customer demands means that Ecommerce businesses looking to retain their market share need to focus on investment in delivering customer-centric experiences that drive customer loyalty in the long run.

Focus on Sustained Growth outweighs current Market Trends

While it might seem like an uphill battle, the cyclical nature of the economy clearly shows that the ecommerce industry is here to stay. Ecommerce businesses that prioritize investing in the right areas of their businesses while prioritizing customer-centric business models will see clear wins even in these uncertain times. 

Keen on learning how a personalized delivery experience can build better customer journeys despite a challenging market? Speak to our sales team today.