The eCommerce landscape changed significantly due to COVID-19, and many businesses are still struggling to respond and understand the extent of its effects. Most Q1 and Q2 financial predictions and demand planning have been thrown out the window as the current reality comes into focus.
Everything is different, even when a few things feel the same. That makes it difficult to accurately predict and plan for the remainder of 2020, as well as 2021.
However, eCommerce companies, and other businesses, have to do that planning, to ensure viability and operational stability. So, we’re looking at four of the primary considerations that early 2020 has taught us, what the data says about next quarter, and lessons that need to be ingrained in how retail as a whole, and eCommerce especially, move forward.
1. Plan for only a partial return to ‘normal’
Even before the pandemic, online sales were rising. Not only did they climb 14.9% during 2019 to reach $601.75 billion in the U.S. alone, but this increase made up roughly 55% of the total growth for the overall retail sector.
However, during the pandemic, 43% of eCommerce stores reported an increase in sales, according to eMarketer. That reporting notes that some businesses “are having their best sales ever over the last four to six weeks, even compared to last Black Friday.”
Online sales have been rising steadily, which has helped eCommerce companies grow. And while that’s good news for eCommerce business owners, that doesn’t mean it’s safe to immediately anticipate a continued rise in sales.
Instead, for your Q3 and Q4 planning, it’s smart to build out a few different predictive models. Look at what would happen if your current growth were sustained, leveled off, or declined somewhat. No one quite knows what “normal” is going to look like for the rest of 2020, and potentially beyond.
We don’t know how skittish some customers will be when venturing back into traditional retail environments. There’s uncertainty around the possibility of re-infection and potential for shutdowns to occur again. That same eMarketer study suggests that home essentials and cleaning products, as well as some garden sales, are likely to remain up as an eCommerce category.
However, it also points out that looking at categories paints markets as a monolith and doesn’t showcase nuance. Your store’s sales live in that area of nuance, so planning for a partial return to normal can help you avoid overreach and spending. At the same time, take your high-demand scenarios and create pathways to getting there so you can adapt as needed.
2. Proactively look for shifts in customer purchases
Your individual niche in the overall eCommerce landscape is going to determine how your forecasts must be adjusted. We’ve seen a variety of industries spike in demand while others decreased, but it’s unclear how static such trends will be over the long term.
Some product categories may spike in your target markets as people adjust or can travel outside for longer periods of time. Watch the Q3 openings to see if demand spikes occur in those regions and prepare a rapid response (good and bad scenarios).
Trends to consider and watch include:
- Are customers reacting strongly to the end of lockdowns or is their re-emergence cautious?
- What about if lockdowns reoccur?
- Are weather conditions playing a decreased role in sales decisions?
- How are product categories related to yours performing? Is there an underlying threat here or a chance to piggyback?
- Are new groups purchasing your products? (i.e. Are parents buying your educational supplies instead of schools and daycares?)
- What trends are predicted to become permanent? (i.e. 70% of people prefer to watch new movies at home even if theaters reopen)
Purchasing scenarios to consider
To give you an idea, let’s think about three purchasing scenarios. Event and party supplies saw a stark decrease, down 55% in an early Q2 study. That same study noted purchases of home workout weights were up 307% while outdoor camping and exercise equipment were down by around one-third on average. And, lastly from that study, we see dog food spending is up 159% across eCommerce channels.
For party supplies, many customers would not be able to replicate the party online or in their own homes. You may know someone who had a birthday or anniversary during a stay-at-home order and simply pushed off their celebration until people could get together. This audience may have a larger than usual budget for their first get together after lockdowns are lifted, and would be able to buy online ahead of that lift.
Workout and activity equipment gives us a different view. Someone trying to stay healthy may have adjusted their budget and turned what they spent on the gym or outside gear into home exercise equipment. Depending on product cost, your customers could potentially have spent their budget earlier, meaning they have less cash available for a purchase. This could slow down the recovery of outdoor segments because there were indoor alternatives.
For pet food, this purchase is likely a fixed cost that most customers faced, and what they did was simply shift the source and purchase more upfront. If pet-focused eCommerce services made the transition and delivery more convenient than going to the store, there’s a potential for long-term cannibalization in this market. In this case, Q1 and Q2 were the chance for companies to make their best convenience argument, and we’ll see if it sticks in Q3.
3. Plan for ad confusion and cost changes
One additional element disrupted by the coronavirus that may surprise some eCommerce businesses is that advertising is struggling. According to the IAB, digital ad revenues for publishers is down 19% to 25%, based on channel, due to the coronavirus.
One potentially frustrating part of understanding advertising as the year goes on is that some top sites and searches may not yield the best results. News publishers have seen some of their highest traffic in recent memory, but those same websites are twice as likely to have ads backlisted because of COVID content, according to the report.
At the same time, around 16% of ad sellers are facing accounts payable challenges, which may impact how they work with you, as will the smaller accounts having an issue getting contracts processed or difficulty accessing databases.
There is some good news for Q3 and Q4, however. eCommerce is booming in the CPG household goods space. These sectors, plus general eCommerce retail, are expected to see minimal impact and disruption for search and publisher ads.
Consider allocating a little more in your budget and additional time for marketing teams to look for opportunities to be competitive on new keywords or alternative channels. There’s an opportunity in the uncertainty, but it’ll take time to uncover.
4. Strengthen supplier and distributor relationships
As the biggest fears start to subside for your business, it’s time to review who helped and look for ways to build on those partnerships. Take time to thank the people who’ve made your operations easier during this time.
And if some partners had to shut down temporarily or pull back on what they could buy or sell, approach them again. Ask how they’re doing and see how you can still work together. Give preference to the companies willing to talk about their operations and data, discussing what’s possible or where they’re struggling.
Honesty about operational status and capabilities is going to make Q3 and Q4 easier for you and them. At the same time, review what happened to your operations early this year and see if you need to shift relationships to protect yourself.
How Amazon changed eCommerce relationships
Amazon, for example, suspended a variety of inbound shipments for March through mid-April. The company was trying to respond to increased demand for a variety of essential goods, but sellers whose goods were paused had virtually no warning.
The ban lasted longer than Amazon initially announced, and the end came with restrictions that slowed the return to how things were before. In mid-May, the company said it was removing most restrictions on new product shipments based on quantity and restored functionality on its site, including many deals, coupons, and the “Frequently bought together” widget.
Many eCommerce companies could have been forced into new relationships if they wanted to continue to meet Amazon Prime requirements because Seller Fulfilled Prime was not accepting new seller/partner registrations during this time. It still isn’t according to Amazon.
To protect yourself and prevent the potential for significant harm around this type of disruption, look for alternatives to your current fulfillment. It can make sense to split inventory across warehouses or even 3PLs just to safeguard your business.
eCommerce is critical for modern retail
We’ll leave on a positive thought that most of us have come to discover during the past few months: eCommerce is a critical part of overall retail. When we can’t find something in stock nearby, or when we can’t (or don’t want to) go directly to a store, eCommerce is there for us. And, culturally, we’re embracing it.
Physical retail is going to look different after COVID-19, as will eCommerce. The most likely scenario is that eCommerce businesses will play a larger role than they have in the past because they reduce risks to consumers. Buying behavior may rebound, but if health concerns remain pressing, people may be choosier about when they put themselves at risk.
The buying response to COVID-19 relied heavily on eCommerce. The next black swan event will likely reinforce that. What companies can do to prepare for that eventuality, and all the quarters before it is to strengthen their service offerings, partner relationships, and planning to manage and mitigate risks.
Update your business plan to prepare for “the new normal”
To prepare for these changes the best thing you can do is revisit and update your business plan and financial forecasts. If your business plan is out of date and the idea of doing a major update sounds like a daunting task, you may want to check out LivePlan.
LivePlan simplifies business planning and makes it easier to keep things up to date. You can develop and compare multiple forecasts, bring in current financial info from your accounting software, and quickly gauge the health of your business through a single dashboard.
And if investing in a business planning tool just isn’t feasible at the moment, you can always download our free business template to get started. Whatever option you choose, just be sure you take the time to update your business plan. It’ll help guide your strategy as you navigate the changes in the eCommerce landscape.