Recession is the next challenge
Covid-19, raw material shortages, rising container prices, the war between Russia and Ukraine, inflation and the energy crisis. These events happened all in a short period over the past three years and each of them had a big impact on the world’s economic situation. Likely, your e-commerce business felt – and feels – this impact as well. As a result of these global challenges, we are facing a recession in 2023 – which means two consecutive quarters of economic shrinkage. This will impact consumers spending patterns on a big scale.
Especially for European countries, the recession will be more serious. Of all developed economies, the EU is most affected by its geographic proximity to the war between Russia and Ukraine and its heavy dependence on Russian gas. EU countries wrestle with the impact of the energy crisis and inflation. And this affects the purchasing power of households and puts pressure on industrial production.
Which consumer changes will we see in 2023?
With a recession on the horizon and less available cash, the spending confidence from your customers will decrease. The recession will probably not change spending behaviour in the richest households but it will matter for people with an average income. Inflation and the energy crisis have pushed up the cost of living. Higher utility bills, increase in rent and expensive grocery shopping make life more costly. Find below four spending pattern changes that you can expect in 2023.
1. Harder to win customers
Trading under a dark economic sky will make it harder to win customers. One item that is ‘out-of-stock’ can quickly lead to more lost sales as customers prefer to buy multiple products in one order. A lost customer can be hard to win back. Besides that, think about all the upsell and cross-sell opportunities you lose due to a single product being out-of-stock.
2. More considerate choices
With less money in their pockets, your customers will make more considerate choices. If products are getting more expensive and their fixed costs increase at the same time consumption patterns will change. Your customers think longer before making a purchase. For that reason, we can already see an increase in demand for previously owned and/or used products: re-commerce. Another example is that businesses with a ‘green’ and ‘sustainable’ signature will appeal more to customers. By using sustainable materials for products and choosing environmentally friendly shipping and packaging methods you can offer your customers something extra.
3. Lower volume, higher quality
If spending power drops people focus on essentials first. The luxury spendings become scarcer. However, when consumers buy a luxury product it has to be worth the splurge. There is a shift to more quality-focused spending. Consumers will opt for smaller luxury items such as food, drinks and cosmetics. This trend was also present during the 2007/2008 recession.
4. Closer to home
Spending power is also something that affects our mobility. During the previous recession, the travel industry was hit hard. Similarly, during the first Covid-19 lockdowns, people were forced to stay close to home. That resulted in changed spending behaviour. People chose to support local businesses, were more conscious about their carbon footprint and focused on experiences closer to home.
If people have less disposable income, spending patterns will change. That means that your focus as a business has to change as well. But what to focus on? You can read it below.
6 opportunities for your business in 2023
For e-commerce, the Covid-19 pandemic offered a big opportunity. People had money, so demand was high. Due to the current economic situation, demand will be less in a lot of sectors because consumers have less money. What should you, as an e-commerce purchaser, focus on? Find below six things.
1. Analyse your supply chain
Is there ever a better time to analyse your supply chain? Try to find weaknesses within your supply chain and avoid building up too much stock. Purchase flexibly and search for the best possible supplier to support this strategy. Do not rely on a limited number of suppliers, as they might struggle as well. Additionally, if you integrate sustainability targets into your business you can do this also for your supply chain. Who and where do you purchase from? Which shipping methods do you use? That can make you more flexible within your supply chain, bring down your delivery times and be a potential USP for your business.
2. Lower the fixed cost base
For a start, your holding costs will be higher with inflation and rising energy prices pushing your rent and utility bills. Where possible reduce your fixed costs – for example, for warehousing. Additionally, this is the perfect time to get rid of any excess stock. Avoid that cash gets tied up in these products. Also, try to increase product availability with smaller cash impact by lowering your long tail first before investing in more of your most popular products.
3. Focus on internal efficiency
Especially when you work with smaller margins you need to focus on efficiency. Being flexible and agile is key if you want to stay in business within the current economic climate. Adding automation into your purchasing process is an important step to make replenishment more time efficient and accurate. Optimise your purchasing process to gain time that you can spend on strategic purchasing opportunities. Such as analysing KPIs, negotiating with suppliers and working collaboratively with sales and marketing teams to create a foundation for the moment demand is picking up again.
4. Reassess customer processes
Make sure your customer processes and sales experience are as smooth as possible. Especially now, when it costs more to persuade consumers to a sale. Focus on customer service, flexible delivery options and a hassle-free return process. Also, acknowledge that your customers want to pay with different payment methods. Expect the use of online wallets and offer financing options to make your shop more inclusive. That said, these tasks are not specifically related to the purchasing department but offer an opportunity to work collaboratively with other teams.
5. Redefine your audience
Alongside focusing on efficiency and reassessment of processes is the redefinition of your audience. That could be sector-specific but in some cases, you will have to choose to reposition yourself in the market. Younger generations – Gen Z – have bigger spending power but different needs than previous generations. Their expectations concerning technology, digital payment methods and brand story are different. However, getting access to these new audiences offers opportunities for your business.
6. Work collaboratively
As a purchasing department, you can play an important role in making your business ‘recession-proof’. You can make important gains in how you manage your stock and which products you purchase. Also, when you see that the market is changing you can give insights to other stakeholders within the business about repositioning. Make sure your whole business is on the same page and collaborate with the management team, sales and marketing. Examples to collaboratively work on are product pricing and environmental goals. In addition, also reassess your omnichannel processes. That aspect can make a difference in winning a customer, as e-commerce and in-store retail offer big service opportunities.
Flexibility breeds loyalty
As a purchasing department, you are at the forefront to attack challenges for your business. This coming year flexibility and smart entrepreneurship will be crucial to work with the challenges caused due to the approaching recession. Allowing technology and automation to become part of your business processes is an important solution. Focus on efficiency, reassess your position in the market, and rewrite your brand message. And, what about your pricing and your audience? It will take more to win customers but they will reward your business for excelling at more than only product availability. Satisfactory customer service, flexible delivery options and different payment methods are examples. Also, acknowledge that this is the moment to put sustainability goals in place.
Nonetheless, do not forget that your business thrives on accurate stock management. When you manage your stock well and have your most valuable products available for your customers, they will reward you. They might spend less and postpone bigger purchases for the moment but they will stay loyal to your business beyond 2023.