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The COVID-19 pandemic brought e-commerce to the top, but now a new recession is tightening monetary policy and weakening global economic growth. With FAANG cutting overhead and staffing, smaller businesses are also following suit and even (in the worst case scenario) closing their doors for good.
There is no denying that digital brands have already been affected and will continue to suffer the consequences during 2023. Declining sales, struggles to maintain performance and technological optimization are some of the most anticipated, but not the most drastic, changes.
In this piece, we will dwell on some facts about the current recession in e-commerce and how it will affect the industry, as well as provide recession-proof tips to help you survive the economic downturn.
What is the impact of a recession on e-commerce?
For e-commerce business owners, the economy plays a big role in both consumer habits and operating costs. Could the whole situation be as bad as it was in 2008? Probably. Consumer spending is likely to decline as people have less disposable income and try to delay or at least limit excessive purchases.
According to the World Economic Forum, e-commerce began shrinking in 2022, with traffic down 13% in Q2, as well as conversion rates and revenue. In 2023 this negative trend will prevail. As a result, when a recession is imminent, business owners must plan ahead.
As most e-commerce businesses compete in the same industry and attempt to maintain sales even when consumer spending declines, there will be a sharp increase in competition.
However, there are more positive statistics that e-commerce will continue to grow despite struggling with the recession. And to make your business resilient, you just need to follow a few simple tips.
How to make recession work in your favor
When everyone around you is falling and shrinking, it is nevertheless a good chance to move ahead of your competitors in business. The trick is to follow recession-proof tips and keep evolving even in the face of the toughest challenges.
1. Automate routine tasks and cut overhead costs
Critically analyzing your operational efficiency is the first thing you should do. Having a clear understanding of your overhead is part of this (essential processes versus those that can be streamlined or even eliminated).
For example, automated inventory and product information management makes it easier to work with a wide range of products across numerous channels and reduces the likelihood of human error due to manual input.
In addition to streamlining customer service and customer follow-up after sales, outsourcing certain tasks to external agencies or freelancers can also reduce your overhead. Overall, automating and streamlining your business processes will help you achieve e-commerce during the recession and continue to grow when times are good again.
2. Identify top selling products and highest value customers
E-commerce should save where possible and prioritize the highest ROIs. Automate product segmentation using real-time data to see which products perform best and which fail. With proper data insights, your sales and advertising approaches can hit more targets when you stop promoting obvious outsiders.
Recent surveys show that most of the revenue is generated by repeat customers. As a result, focus on the customers who are regular visitors to your website rather than casting a wide net to attract new ones. This approach will help you review product offerings and pricing models.
When demand is high, stockouts can be avoided by keeping extra inventory. However, during a recession, demand decreases and it is unwise to spend money on excess inventory. Determine the minimum inventory level that is viable (taking into account your repeat customers and their needs), and stick to it.
3. Optimize your technology stack
Another way to cut costs during a recession is to rethink your technology stack. Although SaaS e-commerce solutions are ideal for startups, they can ‘suffocate’ established businesses, especially in times of trouble.
In addition to hassle-free hosting, maintenance, security and technical support, SaaS also comes with recurring fees and charges a percentage of total revenue. For example, BigCommerce monthly pricing can range from $400/mo for stores earning less than $400,000 to $20,000/mo for enterprise websites.
Shopify Plus is even more expensive, at $2000/month for stores making between $0 and $800,000 per month. If your store does more than $800,000 per month, the platform will charge an additional 0.25%.
When it comes to SaaS eCommerce solutions, you’re paying for ease of use and rich functionality, but that doesn’t mean you can’t get the same level of tools for a smaller price or even for free. According to proven cases, open source solutions have so many powerful tools and features and are more recession proof.
For example, the nopCommerce open source e-commerce platform offers enterprise features (multistore, B2B price catalogs, customer roles, etc.) at no cost. The source code offers almost unlimited customization options and helps the platform adapt to new market challenges and technological trends.
What’s more, open source is likely to survive and even grow during economic downturns, thanks to community contributions and innovations that are conditionally free. It works so efficiently and smoothly because the developer community produces only valuable features and products for end users.
4. Adjust pricing models and make better offers
Consumer spending tends to decrease during times of uncertainty. Online stores need to come up with fresh ideas to give customers more immediate value to combat the e-commerce recession. Effective pricing strategies can increase profitability and sales faster than other growth tactics.
During a low-revenue period, price optimization helps maintain positive margins, even when your sales slow down. In addition, there are common pricing models that still work and you should keep them completely in mind:
- Don’t price similar products exactly the same
- Set a price ending in 9 (‘charm prices’)
- Highlight price differences visually and graphically
- Use the buy-one-get-one deal to sell less popular inventory.
5. Invest in SEO and brand PR
SEO still works in a recession? In fact, it is unmatched (especially when compared to PPC campaigns). Using targeted marketing is less effective during tough economic times because many people who may want your goods will not be able to buy them right away.
On the other hand, SEO is much more cost effective and will continue to drive new leads to your website regardless of their immediate readiness to buy. But once the purchasing power is back, your product will be way ahead of competitors in the mind of potential customers. So, content is important as always, so take the time to research and create high quality web pages.
Growing the audience on social media is another great approach during a recession. Use this tactic to give customers accurate and current information about a range of products in their usual environment. That way, you can still grow your business and attract new customers without wasting money on ineffective customer acquisition strategies.
Make the most of tough economic times
Running an online store is unpredictable. Profits are affected by the ups and downs of the economy, delays and disruptions in the supply chain, and shifting customer purchasing trends. Therefore, it is a wise idea to have a plan in place so that you can continue to succeed even under difficult circumstances.
Considering the e-commerce trends of previous years, being adaptable to changes and flexible with available funds, both small and established businesses can survive the time of trouble with minimal losses (or even valuable gains).
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