flinder CFO Fatima Salhab shared her observations and reflections on how the e-commerce sector has managed over the last 12 months, how 2023 trends will shape things and some top tips for founders ahead of the next year.
What changes and possible challenges has the e-commerce sector seen over the last 12 months?
Supply chain has been a big challenge for many e-commerce businesses this year. Brands with a diversified logistics and inventory strategy have managed this impact much better than those that are too reliant on just a few.
Digital advertising costs have risen this year, and are still rising, placing increased strain on performance marketing models. Brand building has always been important, but it’s moved up a level as a strategy to attract and retain customers. Very aware of consumers consciousness, more and more brands are focusing on integrating ESG (Environmental, Social and Governance) into their brand strategy, with a heavy emphasis on purpose (not just net-zero). This will continue as a key theme in 2023.
Marketing has certainly changed. Some businesses are no longer sure about their key customer behaviours. There is too much choice for buyers and it’s now difficult know which marketing works for you without applying a great deal of marketing attribution. It’s highlighted how reliant some businesses are on paid marketing.
Direct-to-consumer is still rising post COVID -19. It plays into the trouble of marketing effectively as consumers are spoilt for choice while businesses compete heavily for buyers’ attention.
While consumer spend has slowed, Black Friday and Cyber Monday sales in the UK actually rose by 6% in 2022 from last year which is a positive sign.
Businesses that were weak during COVID -19 went bust, those that did well are doing really well now. If a business has managed the supply chain disruptions of 2022 seems to come down to whether they supply goods directly from the manufacturer to consumers on a just-in-time business model. The just-in-time model proved to be a problem for some businesses when supply challenges arose, causing those businesses to suffer. Many of businesses that survived COVID-19and associated supply challenges now have more robust business models.
E-commerce is still growing and expanding, year on year, and is projected to continue which is a good indicator of the sector as a whole.
What companies should we be watching in the next year?
Businesses like Purple Dot, for example, who answer a gap in the e-commerce market and solve ongoing friction points for e-commerce businesses will be ones to watch. Purple Dot is a great solution for e-commerce brands to allow them to create a pre-order experience that eliminates operational headaches and that shoppers love and keep coming back to. With pre-orders, brands can always be selling.
As traditional e-commerce was built around the assumption that when an order comes through online, stock is in the warehouse. This prevented brands from executing a pre-order strategy at scale — because with pre-orders, stock isn’t in the warehouse yet. Pre-orders came with a good share of pain and frustration previously with things like warehouse meltdowns, lack of customer trust and poor customer experience. Solutions like Purple Dot stem ongoing supply problems so any businesses that address common pain points in e-commerce businesses will be very useful in the next year.
What potential trends do you see for 2023?
I suspect e-commerce businesses will be thinking about their levels of stock and how to better manage them. Those who are holding large amounts of stock will need to address that issue because of the panic that supply chains brought this year. It highlighted the need for a better inventory system and management.
Brand loyalty will continue to grow and it’s something that e-commerce businesses need to focus on and foster. Extending and enhancing customer lifecycle and lifetime value will be key. E-commerce businesses need to always be looking for ways to surprise and delight customers in their product offering and marketing.
Optimising the e-commerce operating model is another important area to apply focus to. Current inflation will mean brands need to consider how to optimise their model rather than just continually passing on costs to their customers. However, as founders, you need to be careful how much you change your core proposition. It was one of reasons for the recent fall of former e-commerce success story Made.com.
Employ greater use of micro-influencers and agencies popping up to link brands with these kind of people.
Utilise the trend of social selling, e.g. through Snapchat or WhatsApp for example, as a channel direct to the consumer.
As mentioned, focusing on your supply chain and logistics is important for the year to come. Be sure to develop deeper relationships and consider your sourcing strategy to de-risk your supply chain management.
ESG will be a critical strategy for differentiation. Environmental and sustainability awareness has been an ongoing trend in e-commerce. Online retailers have been addressing demand from customers for more sustainability through efforts like corporate social responsibility and eco-friendly approaches in the supply chain. Focusing on these topics in your overall business approach will drive long-term brand loyalty.
Top advice for e-commerce businesses?
Focus on demand planning. With supply chain challenges and changing consumer demands, regular demand planning will be key to managing working capital and customer experience. This is part of looking at your inventory system and whether it supports your business model going forward.
This one isn’t new, but it’s even more important with current macroeconomic trends. Build and update an honest and realistic forecast to model scenarios and actually use it to track performance. Make sure you build it with strategic drivers so you can dig more into the why.
Review your SaaS subscriptions regularly make sure you are still using them fully and receiving value from them.
Make sure you’re tracking your customer acquisition costs. Staying on top of your contribution margin and unit economics as CAC rises is key to being profitable, both today and across the lifetime of your customer.