As the dust settles on what’s been a hell of a ride for Aussie online retailers for the best part of two years, we find ourselves going back to the future. You see, e-commerce has declined year-on-year, but is still ahead of where it was two years ago. So, it’s bad, but it’s still good — does that make sense?
It’s a bit of a blood bath out there at the moment for some online retailers that didn’t realise that what goes up must come down. Look at Shopify, which loaded up on hires in 2021, only to retrench en masse in 2022. It happens to the best of us.
Many businesses grew that otherwise wouldn’t have, or shouldn’t have. Bad habits were formed while the going was good, and now those bad habits are being shown up. I have never been approached by so many businesses that are saying “we loved the revenue growth, but now we want to be profitable”.
Here’s what I mean.
One retailer I spoke to said of his business “we grew 100% during COVID-19, but we were not a 100% better business”. In other words, we were living in a false economy, spurred on by inflation. Unemployment stayed lower than anticipated, businesses and individuals were loaded up with cash, and encouraged to spend it — and spend they did. And wasn’t it fun?
Now we find online retailers struggling for cash, and I’m anticipating a monster month of discounting in November, as online retailers scramble to clear inventory cover that’s climbed to over six months, draining valuable cash from the balance sheet. Remember, inventory can kill a business.
Commercial properties are a dime a dozen at the moment, complete with ready to go fitouts, as businesses shed operating expenses, desperate to get back to profitability.
Wages have crept up to often more than 15% of revenue — too high for an online business, and the cost of freight continues to rise.
So, who is thriving? The businesses that carried on carrying on during COVID-19.
The businesses that maintained operating expenses as a firm ratio, rather than ‘loading up for growth’.
The businesses that focused as much on gross profit as much as they did on revenue.
The businesses that planned their inventory well, and operated to a strict budget.
Be prepared for a big cull of online retailers in 2022 as only the operationally strong will survive.
In 2022, the key to online growth is product, as we go back to the future. Product always has, and always will be, the key driver to e-commerce success, supported by strong marketing and creative.
The glory days of paid media are coming to an end, and businesses will need to focus on first-party customer data. So get the data, and work out how to use it later. For example, how about those 15,000 dormant customers on your database, or that customer account feature you’ve been putting off for years?
It’s going to get harder to obtain revenue growth, so consider shifting focus to profit. After all, the easiest way to grow your profit is usually not to grow your sales — sometimes it’s to slow down your sales by cutting out unprofitable marketing spend.
Businesses need to focus on lowering the landed costs of their goods, by opting for sea freight over air freight, or leveraging early settlement discounts to suppliers, using funding options like Wayflyer, with the supplier discount trumping the interest rate.
Businesses need to consider expanding their product range, doubling down on categories that make up large percentages of their revenue, or expanding into sub-categories of the above-mentioned popular categories.
It’s time to shed those bad habits, and get back to what you dreamed of when you started your business — a product that solves a problem, not a ROAS target, and remember, revenue for vanity, profit for sanity.
