2022 has been a slog. The horrific social, emotional, and economic toll of a raging war in Ukraine came right on the heels of a still festering global pandemic. Meanwhile, digital properties appeared to be resistant to the myriad macro factors happening around it. But cracks have begun to emerge across tech. When the stalwart of new-guard tech, Netflix, reported subscriber DECLINES many optimists -- finally -- unplugged their ears and started to listen to the realities of the environment. One such reality: the reliable growth from eCommerce has stalled. Traffic - it’s leading indicator and partner - is DOWN over the past 3 quarters. The wondering has turned to whispers and those are starting to crescendo - has eCommerce stalled?
Simply put, there is clearly some darkness, mingling with pockets of light. Here’s an insight-led view into the current spectrum of eCommerce.
The Shadow: Finding shoppers is costly
To be clear, acquisition costs. Budgets have been top-heavy since well before the dawn of clicks and taps. Between attraction, conversion, and retention, top-of-the-funnel always wins, and eCommerce has lived by this script for years. privacy-change pressure is a new wrinkle that is turning up the heat on acquisition supply and demand. The initiating incident, of course, is the Apple privacy setting choice that has anonymized lots of shopper activity that had previously been known. The shopper supply gatekeepers, namely Meta (Facebook and Google) and Google, now have less visibility over that shopper activity. And, coupled with the pressure of growing their ad revenues on a massive base, brands are carrying a burden of heavier acquisition costs (ppc, cpm). Demand is not only holding steady, but rising, as brands allocate more share of spend to digital.
Contextualizing this is crucial. Not only are costs rising, but paid traffic is actually comprising more share of total traffic, growing from 20% in 2020, to 25% in 2021.
Of course, verticals vary along the axis of paid v. unpaid, which means brands living in luxury are paying for the heaviest traffic tax.
The Light: Shoppers are shopping… on Marketplaces.
Comp’ing the blue-hot peak in 2020 has proven challenging for eCommerce. While headlines claimed "3 years of growth in 3 months" and similar, we saw growth decelerate in 2021. Frankly, that deceleration has been under-sold. Looking across the entirety of 2021, eCommerce growth was a modest 12% (globally). Inside the year, though, the growth was absolutely front-loaded, with sources reporting strong growth in Q1 - we report a blended global rate of 33% in the quarter. Remember, Q1 was primarily ‘pre-Pandemic’ mixed with a few weeks of volatility before the soaring subsequent quarters. The back-half of the year was not nearly as kind, limping to single-digit growth.
Marketplace growth, however, doubled eCommerce growth, clocking in at 25%. This is not simply a case of better-than-average growth, but of ecosystem growth and maturity. While the 25% growth represents the YoY GMV increase of marketplace retailers, it is the growing base of marketplace sellers that buttress the expansion. And those sellers are turning to marketplaces, in many cases, as an expansion of their D2C. Now, D2C brands have alternatives to stretching beyond their own sites to find shoppers and revenue off-site. Beyond traditional wholesale distribution, and even marketplace behemoths like Amazon, enterprise retail marketplaces are a path for D2C to serve as sellers and find growth. This act of channel diversification also provides an alternative to paid traffic. In place of the heavy cost of traffic acquisition, this indirect customer acquisition is more palatable, paid out as lower-risk via commission.
So will the shadows create an eCommerce freeze, or will eCommerce step into the light? Neither - winter isn’t coming, but choosing to remain wedded to a legacy approach to traffic generation or even a static business model will at best mean a race to lower margins and poor CAC and at worst leave brands and retailer in the dark.