How e-commerce companies can weather the new retail environment

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e-commerce companies have been once considered nearly invincible as they liberated themselves and made record profits. But lately, they’ve been challenging a new market shaped by three major trends: the slow growth of online shopping, the impact of recent iOS privacy updates on social media acquisition strategies (leading to higher costs), and macroeconomic uncertainty.

While these factors are largely out of the retailers’ control, we’re seeing several new companies adapt by securing existing customers and building their organic brand.

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In this post, we’ll take a closer look at the key trends and their impact on e-commerce, as well as a few tactics businesses can use to continue to thrive in this new retail climate.

New Retail Challenge

First, e-commerce growth as a percentage of total global sales has not continued to hold up as strongly as expected post-pandemic. Statistics reports that e-commerce accounted for 12.9% of total U.S. retail sales in Q4 2021, up from 13.6% in the previous year. It is likely that growth was slowed down for a few quarters and is now back on track, albeit still up.

Most brands will find it difficult to drive growth through customer acquisition in 2022.

At the same time, customer acquisition costs have risen due to recent iOS updates as Apple continues to roll out and build on privacy features. Devices running the new OS have limited third-party tracking capabilities that platforms like Facebook (or Instagram) depend on.

Brands no longer have access to previously available broad audience targeting and optimization capabilities, so brands are seeing performance degradation and higher total acquisition costs, causing many to leave these platforms.

Finally, there is a new threat fast approaching and clouding the e-commerce landscape: macroeconomic uncertainty with potential cutbacks in discretionary spending. This is already showing in the weak earnings of major retailers such as Target and Walmart, where we are seeing non-discretionary earnings growth accelerate due to inflation, while sales of discretionary goods are slowing down.

What can be done to combat these threats? E-commerce businesses need to focus on two main areas: (1) gain a foothold – get existing customers to stay longer and spend more, and (2) build a stronger brand – reduce reliance on social media to organically drive better customer acquisition and conversion rates.

Strengthen existing customers

The first step is to reduce customer churn and increase the average order value (AOV). This helps brands protect conversions and predict success while balancing profitable acquisitions as conversions drop due to larger industry changes (such as increased acquisition costs and supply chain issues).

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