Ecommerce No Longer Means Easy Money

The last two years have seen a significant focus on building ecommerce capabilities, particularly in retail. Firstly, COVID-imposed lockdowns left it one of few viable channels to exploit. Secondly, consumers exposed to the convenience of ecommerce expected continuation of service once lockdowns eased. Finally, as more organisation launched their ecommerce channels, competitors were forced to follow suit or face being left behind.

Given the exceptional circumstances in 2020, launching an online channel meant easy money. Both new and existing audiences were adopting digital shopping habits and payment methods like never before. In the US, ecommerce's share of retail sales jumped three points. Suffice to say that this unexpected ecommerce boon gave many organisations a false sense of confidence: our commerce strategy? Launching more websites. What is not to get?

Now the era of ZIRPs and easy money looks to be drawing to a close with runaway inflation forcing central banks' hand. At the same time, steadily rising acquisition costs, logistics expenses – not least due to astronomical fuel prices – and ongoing supply chain disruptions are squeezing ecommerce players from every angle. Oh, and this is even before we consider the fact that many retailers are sitting on piles of excess inventory they need to shift.

Not surprisingly, many in ecommerce are panicking. They need to demonstrate strong year-on-year growth because hey, that is what their board and investors expect, and yet the costs of driving this growth are increasingly prohibitive. As a result, discounting is accelerating with promotions starting sooner and cutting more deeply. After all, discounting is "free" right? No need to tap into those badly bruised customer acquisition budgets.

The challenge here is that while myriad organisations have launched websites and apps over the past two years, few have built twin ecommerce engines. Yes, growth is important, but so is building a sustainable business. In a world fuelled by COVID stimulus profits might not seem to matter – but oh boy, do they. Without low interest rates and easy financing as crutches, ecommerce players are discovering they lack operational rigour and sustainability.

With customer sentiment at an all-time low, it is likely the coming years are going to be tough. To win in ecommerce you need to be smarter in acquiring and retaining customers, more thoughtful in building digital experiences, and an order of magnitude more efficient in your operations. All while demonstrating to your financial backers that you are making ever dollar, euro, or dirham work harder than ever before. Oh, and (a path to) profits please!

Perhaps the saddest aspect of this whole affair is that sloppy ecommerce strategies will not just impact digital profit streams – in some cases they are going to set businesses back years as they try to unpick where they went so badly wrong. You can fire short-sighted ecommerce leaders, but then what? How long is it going to take you to find a suitable replacement and have them onboarded? All this, while you are losing market share and bleeding talent.

In the immortal words of John Stuart Mill: "As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." While I have heard several executives claim that recession fears are crippling their ecommerce ambitions, the truth of the matter is that growth-obsessed leaders likely wrecked those dreams a long time ago. The e in ecommerce no longer stands for easy.

– Ryan