Strategies for ecommerce brands during the 2022 recession.

The data tells us an ecommerce recession might be coming. It also tells us what to do about it.

All the indicators paint the same picture. Traffic, conversion and revenue are down in 2022, compared to the same periods last year.

In this article, we will dig deep into the data, but more importantly, we will share some tried-and-tested strategies to weather the recession.

It’s time to be brave when others get scared.

Why is this happening?

Rising inflation, averaging 9% in the UK ¹ adds to the pains of the pandemic and Brexit, amidst a general climate of uncertainty. This has led British consumer confidence to be 40% lower than one year ago ². 

In addition to the macroeconomic landscape, there is another really simple reason why economic growth in ecommerce is now stalling. 

Having enjoyed dramatic growth in 2020 and 2021 due to the pandemic, the market is now correcting itself. However in addition, it has also welcomed during that growth period a lot of new players and investment, which are now competing in the smaller market. 

As a result, we are seeing all relevant ecommerce metrics fall down. 

Ecommerce traffic is down 13% in Q2 2022. 

We have analysed the brand search volume of the top 250 retailers ³, and compared their volumes in Q2 2022 to the same period last year. 

Our analysis shows that ecommerce brands have declined a 13% in search demand. 

Digging a bit deeper, we can understand how this decline is playing out across a few categories. 

Categories such as home and home improvement are particularly hit with a 30% decline in demand year-on-year. This could be related to their relatively good health during Covid. 

In addition, as these retailers rely on big-ticket items, low consumer confidence can really take a toll on demand. 

Other categories experiencing decline include Beauty (-19%), Consumer Electronics (-18%), and Sports (-16%). Again, some of these categories enjoyed dramatic growth during the pandemic, so what we’re seeing is partly “Covid unwinding” too. 

On the other hand, the fashion category seems to be resisting the decline, however, this is in the context of a few years of decline and stagnation, current market consolidation and heavy discounting. We know fashion executives are still concerned about performance, particularly in Europe and in the mid-market and fast fashion segments. In 2021, Business of Fashion reported executives not expecting recovery until beyond 2022, so the new developments in the cost of living crisis only make for a more pessimistic prognosis. 

What about Luxury?

Lastly, the luxury segment within fashion seems to be weathering the decline so far. The luxury segment can be relatively resilient to financial recession and has experienced a few really good years, as consumers trade up (and down) from mid-market, and as the number of millionaires grows. 

There’s no question that this segment will also experience some tough trading conditions as the recession establishes itself and bites even more into consumer confidence. But if the recession of 2008 is anything to go by, there’s hope in this segment to avoid massive declines. 

Ecommerce conversion rates are down in 2022

Consumer confidence doesn’t just affect the amount of traffic to ecommerce websites. Behaviour related to conversions such as visiting PDP pages, adding to baskets and purchases can also suffer. 

Data from IMRG and Capgemini shows a decline in most conversion-related metrics such as Checkout and Payment. This essentially shows a more cautious customer that whilst might be browsing as much as they used to, they are not as inclined at parting with their money.  

As an aside point, it’s important to bear this in mind when analysing sites’ performance. You will need to take into account a market-driven conversion slump when analysing the effectiveness of different measures on conversion rate and similar conversion metrics.

Ecommerce revenues are down in 2022

Since traffic is down and so is the conversion rate, ecommerce revenues are falling even faster, given the compound effect. 

Data from Salesforce Shopping Index shows a 9% decline in Q1 in the UK, an estimate that now feels low, as inflation accelerated during the following quarter. We expect Q2 to register an even bigger decline. New data from Salesforce should be ready soon.  

Looking at Europe, the decline is 13%, whereas the US is 5%, and globally just 3%. 

We expect the Salesforce Index to show somewhere around a 15% decline for Q2. The historical data shows bigger losses in revenue than traffic, due to the “double whammy” effect from traffic (fewer people visit ecommerce sites) and conversion (those who visit, buy at lower rates). 

Strategies for ecommerce brands to thrive from this recession.  

This is not the first economic recession we ever had. 

This means that we have data and analysis on the behaviour of brands that thrived from previous recessions. 

Mark Ritson has published a fantastic article on how to navigate the recession. 

Here, we just want to take the most relevant ideas for ecommerce companies 

Keep your marketing/technology investment up. It pays off. 

Most brands will see their trading slow down, which makes executives nervous about investing in customers. As ecommerce leaders, we need to hold the fort and protect our investment and resources. This shouldn’t be an individualistic survival play, but rather making the most of the opportunities that recessions bring. 

In a scientific, rational way. 

Whilst much of what happens during a recession is unpredictable (when will it come, how big will it be and when will it end), we know two things will happen: 

• Most companies will cut their marketing spend, downsize teams and generally de-invest. 
• Companies who (therefore) maintain or increase their spending will gain a competitive advantage. 

What the research from the last decade ⁴ tells us is that those companies who keep or grow investments during the recession will not see growth during the recession (as the market is contracting), but they will do when the market grows again. 

The reason is simple, they made the most of tough times to gain a competitive advantage through an improved customer experience and greater share of voice.

Meanwhile, competitors were panicking, losing their best people and the space in their customer’s minds. 

To be sure, improve efficiencies and cut costs. 

Sure. As revenues and profit decrease, the company will need to make adjustments and cut costs. Ideally, this can come from problem-solving and gaining efficiencies rather than all-encompassing cuts. 

Teams that might be less busy given the market downturn can turn their brains towards operational efficiencies. 

In doing this, companies can find it easier to protect their customer investment in technology and marketing. 

Understand how consumers might be trading down 

The recession doesn’t just cause people to buy less. 

Customers can sometimes get creative about how to navigate their personal finances, trading down some brands for others. By doing this, they can keep their lifestyle with minimal adjustments.

• Those who bought at Ocado might now try Aldi.
• Those who bought their shoes at Nike.com might now hear about Deichmann. 
• Those who were hoping to fly to Thailand might be tempted into a train-based staycation. 

By targeting customers of brands at higher socioeconomic segments in the category, you can actively pursue new customers not available before. Trialling new customer segments can bring new customers to the brand, helping mitigate the outcome of the decline from existing customers (who might themselves be trading down even further). 

Speak value to cost-conscious customers

A similar strategy revolves around positioning during a recession. 

As customers are now paying more attention to savings and costs, messaging needs to dwell on value, where possible and relevant. 

Does the product last more than the competitors’? If so, consumers will appreciate not having to replace it for years. 

Does the product replace a number of other products? If so, people will appreciate the savings. 

Finding extra value in your products and communicating this is not the same as generic price cuts. 

Cutting prices during the recession as a tactical measure to keep revenue coming only eats into profits and decreases the perceived brand value.

It’s tempting, it seems to help, but it will hurt you in the long run. 

—

Stay strong, fight to keep your investment up and change the way you play.
We will come out stronger at the other end.

Footnotes

1. Office National Statistics, May 2022.
2. Gfk
3. Top retailers as per Internet Retailing
4. Harvard Business Review