The UK economy is forecast to enter recession later this year.
It should emerge towards the end of 2024, according to the British Chambers of Commerce.
This grim economic news comes off the back of the pound falling to the lowest level against the dollar seen since 1985. Escalating inflation; a tempest of headwinds including the Ukraine War, Brexit, climate crisis; and political wrangling over the solution – there are all sorts of shocks that have yet to be felt too.
For the UK eCommerce market – Europe’s largest and most advanced – what threat do these issues pose? How will consumers, businesses, and the eCommerce companies that rely on them, cope?
What does recession mean for consumers?
With the UK home to around 60 million eCommerce customers and commanding a 38% slice of the retail pie according to Statista figures, any hit to consumer incomes is certain to affect the outlook for the industry, and if recession strikes, that’s almost certain to occur.
A higher cost of living, rampant inflation, and the job losses we usually see in recessionary periods mean less disposable income that consumers are happy to spend on online purchases. We’re already seeing this happening – buy now, pay later lender provider, Klarna, saw its losses triple in 2021/2022 as customers cut back on discretionary spending.
What does recession mean for businesses?
If things were bad for consumers, they’re arguably worse for companies. As consumer demand drops due to less disposable income, businesses are having to entice them back. Yet, with rising supplier prices and utility costs, they are simultaneously under pressure to pass on these increases to customers through higher prices.
That means many companies are stuck between a rock and a hard place when it comes to staying competitive. Overheads and costs can be cut, but only so far. But does this extend to eCommerce?
Why eCommerce businesses have a fundamental recessionary advantage
The effects of a recession will hit all businesses, but eCommerce companies are arguably in a much better position to weather the storm.
Firstly, they don’t have to pay for large, dedicated business spaces. No bricks and mortar means much lower overheads – across rent, electricity, heating, security and more.
They have much more operational flexibility: product portfolios can be quickly and easily switched, there’s no risk of setting up shop in the wrong space or street, and customer bases are much bigger. Margins are generally higher than bricks-and-mortar businesses too, which means much more fat can be trimmed before the going gets tough.
What’s more, there are positive economic signs for the industry. Shipping rates are continuing to drop, reducing costs. And in previous recessions, eCommerce companies have consistently come out on top – the pandemic saw an enormous increase in the size of the sector.
How to optimise your eCommerce business through a recession
While there are positive signs, it’s crucial that eCommerce bosses make the right calls early on in a recessionary period so they can succeed while legacy business flounders:
Capitalise on organic traffic – Enlist the help of search engine optimisation (SEO) specialists who are experts at getting your business to the top of the search engine results pages. While many chose to invest heavily in paid advertising, the value of good SEO shouldn’t be neglected – well-optimised content is written, posted, then left to keep on delivering for years on end.
Prioritise customer loyalty and maximise CLV – Long and fruitful customer relationships are key to greater profitability and lower marketing and advertising costs. Boosting customer lifetime value is thus crucial. To do this, start loyalty programmes, reward repeat customers, and provide best-in-class customer service and support.
Stay up to date with consumer trends and habits – With great customer understanding, you can jump on trends and understand what customers want, using these to inform your business strategy. This will keep you three steps ahead of your competitors.
Optimise the customer experience – Improving your website, back-end and aftersales experience will help you meet the needs of your consumers. Now more than ever, they’re searching for value and convenience: by optimising your offering, you can get them on board and give them plenty of reasons to return, as well as encourage them to act as advocates of your brand.
Recessions are never easy for businesses, but as we’ve seen, the eCommerce market is on a much better footing than slower-moving, more tied-down bricks-and-mortar businesses. If you run an eCommerce company, how are you gearing up to cope with economic headwinds? Let us know in the comments section below.