The landscape of ecommerce in 2023: overview, pain points, solutions
In the episode with Jason Greenwood, we discuss the state of ecommerce in 2023, and look at it from a particular perspective: through the lens of several segments of the digital commerce market.
Founder and Lead Consultant at Greenwood Consulting, speaker, author, and mentor. Jason specializes in complex B2B/DTC environments helping brands establish omnichannel strategy, select and architect commerce tech stack, and find the right partners for the implementation. Jason has been doing that for more than 20 years and also has his own podcast called The Ecommerce Edge.
The landscape of digital commerce: B2B transformation and Omnichannel becoming sexy again
— Jason, let's start with the environment. What is the current tech landscape of digital commerce? Are there any trends we should keep track of?
The interesting thing is that during Covid, and during the frothy economic bubble that started to pop in 2022, there was just an absolute explosion in commerce technology, and that exploded in tandem with the TAM (Total Addressable Market). There were lockdowns almost everywhere in the world. As a result, people started to do the vast majority of their shopping online.
Even looking at myself: I already did the vast majority of my shopping online anyway, the one stronghold where I hadn't shopped online before was grocery. And what I found was that during Covid, just for sheer convenience sake, I started shopping online with “click-and-collect”. And that behavior change has stuck. Now I prefer to shop online for grocery and I prefer to either have it delivered or “click-and-collect”, either way. And the convenience of being able to shop online for grocery has forever altered my approach to that segment of my personal spend.
Now everything's opened back up, the Total Addressable Market led to every VC looking at:
- How can we shift as much money as possible into digital channels?
- How can we support SaaS platforms that have anything to do with commerce, whether it be ERP, CRM, CDP, PIM, point of sale, ecommerce platforms, personalization platforms, MarTech platforms?
In my opinion, the B2B segment had to undergo the most significant transformation. B2C and DTС were already pretty mature from a digital commerce perspective at the start of Covid, they’ve been well-placed for almost a decade now: lots of very mature technologies, ecommerce platforms, personalization platforms, search merch, lots of very mature POS platforms.
Up until the Covid hit, 50% of B2B commerce transactions were done manually. B2B had to make a much bigger leap to get to the level of maturity of DTC/B2C. During Covid field sales reps couldn't go and visit their customers anymore. All of a sudden, B2B businesses had to very rapidly build out their ecommerce capabilities because that's how their customers wanted to shop. Covid put a rocket under B2B.
As the pandemic waned, there was a combination of rapidly shrinking TAM and customers going back to physical spaces and shopping in retail again. And companies all the way from Shopify down to the smallest niche commerce focused on technology.
Most of them had the expectation that this behavioral change towards digital shopping would last beyond Covid. Now, omnichannel is becoming sexy again because the vast majority of consumers won't do all their shopping online. We’ve returned back to the trendline with a less than 1% lingering Covid-bump in most markets, and in most regions, and in most verticals.
The vast majority of small ecommerce businesses fail
—Now, let’s split the commerce market into different segments: small and large retailers, and B2B commerce. What are the challenges small retailers face this year?
Small retailers face very similar challenges to what they have always faced — trying to reach escape velocity as a business and as a brand.
The vast majority of them fail. That's the reality. That's what the data shows everywhere in the world and what we're seeing is that there's been mass consolidation in the industry, and it's harder and more expensive now than ever before to build a brand. Digital channels, digital acquisition channels in particular, have exploded in cost and have exploded in complexity.
Organic reach was very high on almost every single digital platform when it comes to digital acquisition and digital marketing channels. Slowly the Googles and the Metas of the world started to take over. The Apples of the world started to take over. Now we're at the point, where they managed to choke off the Internet from access without going through them as gate keepers. CAC has exploded.
Now if you are relying completely on performance marketing for your growth, it is going to be almost universally unsustainable. It's even been proven with brands that secured significant amounts of VC funding during Covid and pre-Covid.
Customer loyalty doesn’t exist anymore
We can look at a lot of DTC brands, that took on millions, hundreds of millions of dollars of VC money to secure market share via emotionally paid and performance channels. They expected their customers would remain sticky and loyal, and that CAC would be sustainable. But customer loyalty doesn't really exist anymore. If it ever did.
The data from the UK and from the US shows that something from 70 to 90% of customers will only ever buy through a website one time. This is the challenge. Customers are buying based on need or on desire. Brands that can best create desire in our industry are in demand.
Most customers are emotional beings. We buy based on emotions. So, as retailers, we're not trying to create demand, we're trying to create desire, the want. This is hard for a lot of brands to do. In order to create desire in the marketplace, you have to be a very, very smart brand that does very, very smart marketing. Otherwise, it's gonna be very difficult for you to create a sustainable business.
The large ecommerce brands are like the Titanic
—And what about the bigger brands, the bigger retailers, who have the budget, but might have some other issues?
I believe that larger brands are performing well, because they are gaining market share over the smaller brands and they have the deep pockets to economic storms, as well as the contraction in TAM.
Additionally, most larger brands already have omnichannel capacity, including a physical store presence and strong online capabilities. With modern omnichannel technologies such as order management systems, warehouse management systems, inventory management systems, and the ability to pivot and to leverage, physical assets are better utilized now than ever before. They're not just a place for people to come walk in and shop. You have to figure out a way to drive traffic and footfall to those stores. You are actually driving the value of those physical locations through your digital channels and vice versa.
The advantage of the biggest brands is that they're not solely dependent on digital channels for customer acquisition.
Many retailers were worried that after the pandemic, ecommerce would account for 50% (it was between from 10% to 30% before the Covid started) of retail worldwide, requiring them to completely restructure their businesses to adapt to the shift. Every aspect of the company, including logistics networks, procurement, and distribution, had to change to accommodate such a dramatic shift in channel mix.
But this did not happen, and retailers must now pivot back to finding an appropriate channel mix. This is particularly important for larger companies, and especially in 2023, as global supply chains begin to loosen up.
Now they should find the appropriate balance between physical store footprint versus digital investment in the next few years. Digital transformation is complex and touches many areas of the business. Large ecommerce businesses are like the Titanic, they can't change course overnight. It's just impossible. Especially if they're a public company and they're responsible for shareholders — it's even more difficult.
Their biggest challenge is to find out how to bring more agility and nimbleness to their channel mix and become more channel agnostic over time.
B2B companies are interested in having a DTC channel
—And now coming to the last category, the B2B. What are they facing this year? What are their pain points this year?
One of the major difficulties is that consultants try to shoehorn technology designed for direct-to-consumer (DTC) and business-to-consumer (B2C) models into business-to-business (B2B) environments. It poses a significant challenge for the B2B space, because B2B market has been immature.
There has been some progress in addressing the challenge of retrofitting B2B functionality into legacy of DTC and B2C platforms. For instance, BigCommerce B2B edition and Shopify's efforts to integrate B2B functionality into their platform are steps in the right direction. Moreover, there are other platforms that have always had strong B2B functionality, particularly in the mid-market and higher.
There are various SaaS platforms available, that have good B2B functionality, such as VTEX and Pepper, and some mid-market and above platforms like Salesforce Commerce Cloud for ecommerce. Adobe Commerce also offers solid core B2B features. However, there is still a gap in B2B functionality for smaller businesses that generate around 20-30 million or less in GMV per year. There are not a lot of solutions out there for them.
Additionally, we need to adapt and customize supporting technologies like search and personalization for B2B, but there are extra challenges and considerations involved in ensuring that these solutions work well for B2B merchants.
B2B has unique customer engagement elements that set them apart from the B2C/DTC environment. For instance, B2B businesses know their customers and understand that they are likely to be repeat customers - which makes them very different to B2C/DTC brands.
By providing personalized experiences to these customers, they hope to increase customer loyalty beyond, what is typical for a business-to-business relationship. Additionally, the data structures in the B2B ecommerce space are very different.
Let's just take an example - product data, as it relates to price. So, in the B2C/ DTC world, price is an attribute of the product. In the B2B world, price is an attribute of the customer. Now, the downstream impacts of those two things across every aspect of the commerce journey are immense.
Or the need to be able to request a quote digitally through the commerce environment. Being able to get that code approved by, say, an Account Manager or an SDR, SDM, BDR, BDM, and then getting that seamlessly injected into the full commerce journey all the way through the checkout.
Simple things like that alone mean that the needs of B2B starts to get complex very fast. So, B2B brands want to have more information about the end consumer of their goods. They want to establish a DTC channel within the first 12 to 18 months, and they want to de-risk themselves from total dependence on their wholesale customers. If they can get to a place where about 25% of their revenues are made from DTС, there are really good opportunities for them from a margin perspective plus they are getting direct feedback from the market about their products and services.
And vice versa, establishing a B2B channel can help DTC brands to expand their distribution to more channels by relying on their wholesale customers for distribution and sharing the customer acquisition costs with resellers. This approach can help to de-risk rising packaging costs and reduce the need for DTC brands to be the sole distributor of their products across all channels.
This trend is cross-pollinating in both directions. B2B companies are interested in having a DTC channel, while DTC companies are interested in having a B2B channel - to achieve a better channel mix that can help reduce risks over time, especially as the market evolves.
Now is the ideal time to reassess the ecommerce technology
—And what is the common piece of advice to all of those categories this year?
What I have observed, is that during times of economic uncertainty, businesses tend to be cautious and cut back on investments and freeze any investments in new channels, new technical development. They are hesitant to start new digital projects.
Although it is understandable, Covid taught us that freezing investments may not be the best approach. At the beginning of Covid, 95% of our ongoing software development projects were put on hold. Customers initially halted development projects due to uncertainty, but within 60 days, as it became evident that online sales were going to increase, they not only requested to recommerce the halted projects but also to accelerate them.
But good digital execution takes time. It's a journey, not a destination.
To build a digital solution that works efficiently and effectively for both the business and the end-customer, it's important to take time to architect and design the solution properly. This involves capturing all requirements, re-engineering the organization, designing processes, and working on data design and solution architecture. Software implementation also takes time.
Brands should not hesitate to progress and continue moving forward rather than being hesitant like a deer in headlights. It's crucial to focus on bringing in the elements of either more revenue or better efficiency, or ideally, both.
It's important to consider what actions can be taken now. In fact, historically, after major recessions, there tend to be periods of significant economic growth. If you can focus on building during the quieter periods of contraction, when things are not as busy and chaotic, then your internal resources will have more time to dedicate to new initiatives, buildouts, and integrations in your business. This means that you can take advantage of these opportunities and potentially see growth in your business even during uncertain times.
I believe that now is the ideal time for businesses to reassess their technology, systems, processes, and people. When you don't have money, you have time. And when you have time, you can use it to become more efficient and make more money in the long run.