How E-Commerce Companies Can Brave the New Retail Environment

Build stronger brands and reduce reliance on social media

Simon Wu 7 p.m.

Simon Wu Contributor

Simon is a partner of Cathay Innovation, a global venture capital firm investing in North America, Europe, Asia and Africa. He focuses on software, fintech, digital health and consumer investments.

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E-commerce businesses were once considered nearly invincible because they grew unhindered and posted record profits. But lately, they've been braving a new market shaped by three major trends: the slow growth of online shopping, the impact of the latest iOS privacy updates on social media customer acquisition strategies ( resulting in higher costs) and macroeconomic uncertainty.

While these factors are largely beyond the control of retailers, we are seeing a few emerging companies that have adapted by entrenching themselves with existing customers and building their organic brand.

In this article, we'll dive deeper into the top trends and their impact on e-commerce, as well as several tactics businesses can implement to continue to thrive in this new retail climate.

The 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. Statista reports that e-commerce accounted for 12.9% of total U.S. retail sales in the fourth quarter of 2021, up from 13.6% the previous year. It's likely that a few quarters of growth have been pulled forward and are now back to baseline, although still elevated.

Most brands will struggle to drive growth through customer acquisition in 2022.

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

Without access to the level of broad audience targeting and optimization capabilities previously available, brands are seeing lower performance and higher total acquisition costs, leading many people to turn away their spending from these platforms.

Finally, a new threat is rapidly approaching and clouding the e-commerce landscape: macroeconomic uncertainty with a potential drop in discretionary spending. This is already evident in the lackluster earnings of major retailers such as Target and Walmart, where we see the mix of non-discretionary earnings accelerating due to inflation, while sales of discretionary items are slowing.

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What can be done to combat these threats? There are two main courses of action that e-commerce businesses should focus on: (1) ingraining - getting existing customers to stay longer and spend more, and (2) building a stronger brand - reducing the reliance on social media to organically drive better customer acquisition and conversion rates.

Consolidate existing customers

The first step is to reduce churn and increase average order value (AOV). This helps brands protect conversion and reach forecasts while balancing profitable acquisitions as conversions drop due to larger industry shifts (e.g., increased acquisition costs and supply chain issues). supply).