Ecommerce was already on a clear rise over the past few years, but wow – what an incredible spike we saw in Q2 2020 with lockdowns and the new norm of shopping from home during the coronavirus. If you zoom out and look at quarterly ecommerce sales, the hockey-stick growth is clear:
The question now on everyone’s mind, though, is what will the end of this year look like for ecommerce brands? These are the five factors at play:
1. Economic Uncertainty
Typically, consumer spending goes up dramatically in Q4 due to holiday season shopping, powered by big sales events like Black Friday. But this year consumers are worried about their finances.
- A Deloitte survey found that 38% of consumers intend to spend less this year than last year. And it’s not just lower-income consumers who are feeling constrained. Among those with HHI of $100k or more, 35% expect to cut spending.
- The election always impacts the economy, and specifically consumer confidence. More than 1 in 4 (26%) of consumers said the outcome would affect their holiday spending, according to an Adobe survey.
2. A renewed interest in physical products
The decline in spend on travel, hospitality, entertainment, and restaurant sectors will be a huge factor in Q4. When consumers aren’t spending on plane tickets, hotels and restaurants, they have more to spend in retail.
Over the last 10 years, experiences or experience gifts have been on the rise. Now, COVID has reduced these options and the pendulum is swinging away from experiences and back towards more products.
Additionally, because people are working from home and spending less on work clothes, lunches out, and commuting, and are feeling the strain of social distancing and home-schooling, they want to “reward” themselves with luxury items like jewelry or higher-priced custom goods like the kind DTC brands tend to offer.
3. The shift to online shopping
Due to the pandemic, ecommerce growth in the U.S. has effectively skipped two full years, and online sales hit levels not expected until 2022.
This year, 16.1% of all retail sales are expected to happen online, and those sales are expected to be so strong that they will offset the 3.2% decline in brick-and-mortar spending this year, which will drop to $4.711 trillion.
The holiday season boom is also expected to offset the drop in consumer spending that we saw in Q2, as online sales are expected to hit $180 billion. The NRF found that the majority (60%) of consumers say they plan to purchase holiday items online this year. The stage is set, then, for ecommerce brands to have a breakout Q4.
4. What about Black Friday and Cyber Monday?
The pandemic has completely shifted how consumers look at the holiday shopping season. In many ways, Amazon stole the thunder of Black Friday by hosting Prime Day in mid-October, essentially kicking off the holiday season with two days of deals that amounted to $10.4 billion, with $3.5 billion of that from third-party sellers.
However, the Deloitte survey challenges the belief that shopping will start earlier this year; it noted that the shopping season is actually cut short by 1.5 weeks compared to last year. The reason? Faster shopping and curbside pickup options.
This may not bode well for retailers, though, as people who start shopping before Thanksgiving tend to spend more ($1,527) vs. those who start later ($1,149).
Regardless, there is less emphasis on big sales events as online retailers and marketplaces are more in control over when and where they have them. Walmart, for instance, will spread out Black Friday over three days in November.
This means multiple opportunities for brands to leverage additional site and app traffic, but it also means a more complicated digital landscape for them to navigate.
5. Advertising in a crowded digital space
As we saw from Prime Day, when there is a massive sales event, it takes more budget to stand out from the competition. Average CPC for Sponsored Brand ads was up 23% on Prime Day year-over-year, Forbes reported, and average spend on Sponsored Brand ads was up 263% year-over-year on the first day of Prime Day, and up 238% on the second day.
What does this mean for brands? We think major retailers will sustain their ad dollars this season, but for brands to stand out on the ecommerce platforms and in the digital environments we all live in, they will have to do more than sustain. Typically about a third of retail ad budgets are used in Q4 alone, and this year it may have to be more, especially if you are a smaller brand looking to break out.
We all need help navigating this complicated and hyper-competitive ecommerce environment throughout Q4. Contact us today to see how we can guide you through your ecommerce strategy and equip you with the tools you need for success.