While the e-commerce industry keeps growing throughout 2022, the growth is visibly slowing down. Global uncertainty due to the pandemic and uneasiness caused by the war in Ukraine results in supply chain disruption for manufacturers and retailers. Simultaneously, inflation makes prices go up, negatively affecting consumers’ purchasing power. And while economists don’t predict an immediate global recession yet, they still warn consumers to prepare for more stagflation (a combination of lower growth and inflation). For e-commerce teams, it’s a good time to check whether the business is ready for the slowdown and take some measures to secure survival during a recession.
In this article, we’ll observe the measures that can help e-commerce businesses feel more secure in the face of uncertainty and, if not make their business 100% recession-proof, dramatically increase the likelihood of getting through it.
Trends and challenges affecting the e-commerce landscape
Understanding the industry landscape is one of the keys to feeling more confident during times of slowdown and recession. It helps to be on top of the competition and answer customers’ expectations in the best way possible. Let’s look at some trends and challenges defining the current e-commerce landscape.
The change in customer behavior due to the pandemic inspired a giant leap toward the e-commerce business model making the industry boom. As a result, the e-commerce space became overpopulated, so the competition for each customer increased. Inevitably, it augmented the costs of marketing and customer acquisition, making the most popular marketing channels less effective.
Demand for personalization
Today, customers expect personalized experiences, and therefore are willing to share personal data with brands. In response, they want brands to recognize them, remember their interests, and provide offers and recommendations that resonate with them. Moreover, customers expect these experiences to be cross-platform and cross-device.
Cross-border trade gaining momentum
As the domestic landscape is becoming a bit overcrowded and more competitive, cross-border trade is where e-commerce businesses go to surpass the growth limits of domestic markets. Cross-border trade has challenges like providing shipping or payment options or operating with different currencies. However, it allows for winning new markets and securing business growth.
Access to more funding options
Securing an influx of cash has always been among the biggest concerns for e-commerce businesses. Classic types of funding, such as loans and credit lines, usually require long periods of time to approve and can be unavailable for smaller companies that don’t yet have enough assets or equity. However, some new funding options are becoming available for e-commerce businesses today, such as inventory financing or revenue-based financing. They are more accessible, flexible in terms of payments, take comparatively little time to approve, and don’t require collateral or sharing equity.
Summing it up, the e-commerce landscape becomes more challenging for businesses but, at the same time, provides some opportunities that might help prepare for the slowdown.
5 things you can do to survive the recession
Basically, the survival strategy is straightforward: increase your cash flow. It means growing your sales and decreasing expenses. Moreover, it’s about taking steps in advance because when the recession is in full swing, you might lack time and have less flexibility or fewer available options. The tactics described below can prove more effective if applied before or at the beginning of the slowdown. So, let’s look at what you can do.
Know your bottom line to survive an economic downturn
Let’s make it clear, knowing your numbers is an excellent overall practice. However, it becomes vital in the face of hard times. A key to survival is having a 360-degree view of your finances, such as your sales, cost of sales, operating expenses, taxes, and payment provider fees that you pay – like everything that goes in and out of your account. You can define what’s bringing you more cash quicker and what’s eating up your margins, so you can make changes to ensure more cash flow. Here, the volume of available data and its accuracy can be a game-changer.
The biggest challenge is that an e-commerce business can use multiple solutions to retrieve data from different sources, e.g., Amazon, eBay, Etsy, Stripe, etc., and integrate it with accounting. So data may get into accounting in different formats, leading to duplicates and other discrepancies and inaccuracies. Moreover, each solution comes with its UI, credentials, subscription, etc. Meanwhile, there are solutions that offer integration of multiple platforms, allowing you to have your data in a single ecosystem.
You can review and rethink the software you use and decide whether you can choose a single solution that can integrate all (or at least the majority) of your sales channels. Apart from cutting subscription costs, you might benefit from more accurate data to analyze and save the time you otherwise spend on managing multiple solutions.
Optimize your inventory management during a recession
Excess inventory is one of the major margin eaters for an e-commerce business. As recession inevitably results in slowing sales, the risk of overstocking increases. As a result, you face augmented carrying costs and increased amounts of obsolete stock that you’ll have to sell off drastically below your margins or write off completely. To avoid such situations, you’ll need to track your inventory more frequently and review your inventory management procedures. Here are some solutions:
- Track your best-selling and worst-selling groups of products to predict the demand more accurately and adjust ordering rules to have enough stock on hand to cover your customer needs and prevent goods from sitting on your shelves for too long.
- Clean up the excess stock by selling it at a discounted price. Though your margins will be pretty thin, you’ll still benefit from cutting your carrying costs.
- Optimize your packaging to reduce fulfillment and logistics costs.
- In some cases, it can be wiser to switch to a dropshipping model to save money on shipping and warehousing costs
- You can also negotiate stretching payment terms with your suppliers to win some more cash on hand.
Make customer loyalty work for you
As recession negatively affects customers’ purchasing power, acquiring new customers requires more effort, and its cost drastically increases. Customers are more reluctant to buy non-essential goods, and it takes them longer to make a purchasing decision. Moreover, in times of uncertainty, they tend to buy more from trusted brands and vendors. This way, during a slowdown, it’s essential to re-engage with your existing customers and put more effort into customer retention rather than try to win new ones.
- Thoroughly analyze your customer data, such as purchase frequency, the time between purchases, and what products they buy, to set up super personalized outreach campaigns to encourage people to come and buy from you again.
- Identify your highest-value customers and think about tailoring your customer experience around answering their needs.
- Think about offering your existing customers some unique added value to win their loyalty. There are plenty of things you can do: from special prices for repeated purchases to bundle discounts to adding little gifts with their orders.
- You can also offer your returning customers a subscription model for the goods they regularly purchase. This way, you can get your already happy customers into a recurring buying process so you can benefit from recurring revenue.
- Think about extending your product shipping and picking options to give your customers a wider choice and ensure they won’t drop off during checkout just because your shipping option is inconvenient. Depending on whether you also have a brick-and-mortar shop or you operate exclusively online, you can think of adding a buy-online-pickup-in-store or buy-online-pickup-anywhere option. The latter allows customers to have their orders shipped to convenient commercial locations like pharmacies, grocery stores, etc. It also allows you to cut some shipping costs.
Optimize your best marketing activities
It’s often believed that during a recession, marketing activities are something you can drastically cut. However, such an approach is a bit short-sighted and can hamper your bottom line in the long run. A wiser tactic can be optimizing your marketing activities to ensure maximal efficiency. So instead of simply cutting marketing budgets, there are some options you can try to implement.
- Reassess your brand message and positioning to understand whether it resonates with the changing customer needs and stands out from the competition.
- Cut some costs by exploring and engaging with new audiences. In the conditions of increased competition, marketing budgets might also increase due to higher advertising costs on the most popular channels. You can explore new marketing channels that start gaining popularity and try to go with TikTok, for example, instead of Facebook.
- Assess the time and effort needed to run some of the activities and think about outsourcing them to agencies or freelancers specializing in them.
Secure additional financial resources
Having some extra cash can sometimes be a life-saver. Anything can happen, and during a recession suppliers can also face hardships that might prevent them from fulfilling your orders in time, for example. So if you haven’t thought about applying for financing yet, it might be an idea to consider. However, you need to carefully choose the type of funding so that it won’t cost you more than it can bring in. While classic options, such as business loans and credit lines, can be difficult to get and also take a long time to approve, there are some unconventional variants tailored for e-commerce business needs.
- Revenue-based financing – an option that implies you get funding from investors who receive a percentage of your gross revenues in exchange for the money they invest. It’s a more convenient option for a funded business, as there are no fixed payments: they vary based on the level of the business’s income. So in a lower-revenue month, for example, your payment sum will be lower. Moreover, you don’t need to share the ownership with the investor, as you do with equity financing.
- Inventory financing is a short-term loan that a company acquires to purchase products to sell later. These very products serve as the collateral for the loan. It’s easier to get as businesses don’t need to rely on personal or business credit history and assets to qualify. Instead of giving you money, lenders purchase the goods you can later sell and return the investment. This option helps you have more cash on hand for your operation.
Summing up: how to recession-proof your money
A recession puts businesses in danger, and e-commerce is no exception. While customers’ purchasing power decreases, it becomes difficult to ensure you have enough sales to keep you afloat and continue operating. It’s critical to prepare your business for the hard times. A wise approach implies optimizing inventory management, marketing activities, customer engagement, and other business areas. To do that, you need accurate figures that give you a comprehensive picture of your business.
With Synder Insights, you can have all the necessary data consolidated in handy reports giving you plenty of useful insights into your business, customer behavior, product performance, and many more.