E-commerce was supposed to be easy to use, and everything would get easier. However, it didn’t grow as quickly as it should have. In addition to advertising, everything else in e-commerce got harder since 2022. It's time to get back to the fundamentals of E-commerce business.
E-commerce had a good run during the pandemic
For two years (2020 and 2021), e-commerce was regarded as a promising growth channel, with many people believing that it would eventually grow into a multi-year phenomenon. The yearly charts showed that the penetration of e-commerce had increased significantly, and it was expected to continue growing. However, since last year after the pandemic, it has started to fall back into the trendline it was before the outbreak.
Despite the various factors that affected e-commerce, it is still bigger than the prior trendline. It is estimated that it has a market value of around $975 billion, which is 25% above the prior trendline. One way to measure e-commerce is by the percentage of total retail sales, but it is important to note that this is not the same as the total spending on e-commerce. As a share of the total retail industry, e-commerce is less than the pandemic boost that was predicted.
Companies – big or small – was overly optimistics
Many e-commerce companies have over-built, over-hired, and over-stockd due to a misreading of the market. For instance, Amazon built too many warehouses and Target had too much inventory. The rising interest rates and the post-pandemic syndromes also contributed to the decline in the stock prices of e-commerce companies. In January 2020, for instance, an investor who bought Amazon or Shopify stock would have been able to gain an exceptional return by the end of 2021. However, since then, the stock prices of these companies have decreased. Since then, the stock prices of Amazon and Shopify have decreased enough that they have made Walmart a better performing stock than the two e-commerce leaders.
The various core pillars of e-commerce, such as advertising, fulfillment, and sourcing, started to get harder to implement in 2020 and 2021. For instance, due to the lack of warehouse space, Amazon had a hard time finding new ways to store additional inventory for its sellers. Also, due to the changes made to the iPhone operating system, Facebook’s mobile advertising became less effective.
E-commerce Business needs to focus on solve real problems
Due to the various factors that affected e-commerce during the pandemic, those problems are still not going away at the moment. Also, due to the high cost of importing goods, margins are getting squeezed. New problems such as the rising inflation and a potential financial recession are also contributing to more uncertainty in the market.
For e-commerce companies, the key to success is to focus on the areas that are most critical to their business, such as product design that appeals to customers, inventory forecasting and effective advertising. Whether or not the market grows doesn’t address those issues.
One of the most important factors that e-commerce companies need to consider is where to place the bets in terms of sales channel. For instance, if Amazon is able to grow its market share, will it be able to reach a larger portion of the market or will it be affected by the various channels that it operates?