Ecommerce trends have changed significantly over the last few years. The percentage of total retail sales made online grew an average of 1.07 percentage points a year from 8% in 2012 to 15.5% in 2019. But the COVID-19 pandemic caused a dramatic spike in ecommerce sales of 3.6 percentage points up to 19.1% in 2020, which remained flat into 2021.
But in spite of this increase, factors such as inflation uncertainty and the rising cost of energy have created anxiety among ecommerce businesses as we move into 2023. This has been compounded by a drop in consumer spending power and a reduction in US GDP growth prediction.
While these assertions appear alarming on the surface; however, they fail to take into account the circumstances in which economic change is occurring. To properly anticipate ecommerce trends as we move into 2023, it’s important to explore the causes of recent economic change.
The relationship between the pandemic and consumer spending
While retail sales in the US have increased by about 10% in the last year due to the rising cost of gasoline and other goods, household cash flow has been in decline. In the first quarter of 2022, consumers had around 10% less discretionary income compared to Q1 of 2021. As such, they’ve been unable to make as many non-essential purchases.
But the reason for this decrease in consumer spending is because the government’s Economic Impact Payments – AKA stimulus checks – ended in 2021. These checks provided up to $1,200 per person to compensate for lost income and encourage economic activity during the COVID-19 pandemic.
With additional cash in their pockets and fewer retail options, consumers began spending more money online. Now that those payments have stopped and households have less money coming in, consumer spending has shrunk.
The current financial situation isn’t a sign of poor fiscal health. It’s a return to normal behavior. In fact, the investment banking company Goldman Sachs fully expects American consumer spending power to return in 2023.
Similar circumstances also apply to fears over debt and unemployment. While households have more debt as a ratio of their income than before COVID-19, this ratio is still 10 percentage points lower than the average of the last 10 years. And although unemployment is officially at 3.5%, this is incredibly low by historical standards. Wage growth is also expected to continue.
In summary, it’s true that consumers haven’t been spending as much money in 2022. But rather than signaling economic recession or a catastrophic drop in ecommerce revenue, it comes as a response to anomalous factors that have now passed. Over time, consumer spending is likely to create welcome economic change.
What to expect from 2023
Overall, the general outlook for consumer spending in 2023 is positive. The apparel market, for example, is expected to grow annually by 3.98% CAGR from 2022-2026, with a volume growth of 9.7% in 2023.
But that doesn’t mean ecommerce brands don’t need to adapt to changing consumer behaviors. We’re already seeing several trends that are set to affect future online purchasing habits.
Further decreases in online shopping
Unable to visit brick-and-mortar stores during the pandemic, consumers turned to ecommerce to satisfy their purchasing needs. While this trend remained consistent in 2021, the return of physical stores suggests that a decrease in online spending in 2023 is to be expected.
Social media remains a vital ecommerce tool
Recently, social media platforms such as Facebook and Twitter have found themselves in a controversial spotlight. But no matter how they’re portrayed in news segments and online articles, no alternative is on the horizon to take their place. Social media still attracts billions of users worldwide and it remains an important channel for ecommerce engagement.
The average age of online users has increased
Older generations might have shunned trendy technology in the past, but the pandemic has brought a large number of them online. This has created a new older audience that ecommerce brands need to take into account moving forward.
Expecting more from online vendors
The increase in online shopping has also led to higher consumer expectations. Brands are expected to provide clear, accurate processing and delivery information and updates, and give as many options as possible for convenient purchasing. There’s also an expectation for free and easy return options, as well as “buy now, pay later” payment plans to help customers avoid financial strain.
The risk of uncertainty
Although most ecommerce brands aren’t at serious risk, it must be said that their ongoing success is far from guaranteed. The global energy crisis could place additional financial strain on both businesses and consumers, and inflation could lead to further reduction in consumer spending.
Goldman’s growth forecast for next year’s US GDP has also lowered from 1.5% to 1.1%. This weakening economic growth is consistent with a stagflation environment, an economic cycle characterized by slow growth, high unemployment, and inflation.
As I recently spoke with marketing and growth expert Ryan Deiss, CEO of Digital Marketer, this is his advice to businesses who are trying to plan for the uncertainties of 2023:
“The truth is, no one knows what’s going to happen. So the best you can do is scenario planning:
Scenario A: Assume everything stays the same.
Scenario B: Assume sales are off 20% but costs remain more or less the same.
Scenario C: Assume sales are off 20% and costs increase 10-20%.
These are just some examples, but you get the idea. The point is, if you allow yourself to “live” possible scenarios in the future, you’ll not only be less surprised if they happen, you’ll also have a baked-in plan for what to do should a given scenario come to pass. Guessing is gambling, but we can all game plan.”
The final takeaway for economic trends in 2023
While certain statistics suggest a less-than-positive outcome for ecommerce brands, wider trends across the last 10 years paint a much more optimistic picture. The economic factors that ecommerce brands can’t control could pose an obstacle, but they’re not set to demolish the commercial giant of online shopping. As we move into 2023, hoping for the best and preparing for the worst will allow brands to react effectively to any changes in the ecommerce landscape.