Trends in the E-Commerce Industry
Since its arrival in the mid-1990s, e-commerce has grown from an obscure internet phenomenon into an online retail juggernaut, achieving global sales in excess of $5 trillion by 2022. Using the power of the worldwide web to deliver goods and services to buyers on every continent, e-commerce allows consumers to shop the world without ever leaving home.
After two years of unparalleled growth, created by pandemic lockdowns that closed most bricks and mortar stores, e-commerce now faces a global economy wrestling with high inflation, the strong possibility of worldwide recession, fallout from the conflict in Ukraine and regional economic dampeners such as Brexit. Uncertainty abounds. Will e-commerce go from strength to strength this year, or will the juggernaut skid off the road? Read on to discover more about e-commerce industry trends and their impact on UK trade and businesses in 2023.
What is E-Commerce and How Does it Work?
E-commerce, (electronic commerce) is the buying and selling of goods or services via the internet. It utilises a variety of technological data, systems and tools to match online sellers with buyers, allowing goods and services to be bought and sold without the need of a physical retail location.
In its most basic form, e-commerce is an online shop window that showcases products and services to worldwide buyers via company websites or marketplaces such as Amazon or eBay. Consumers select the products they want and make a purchase using a credit card or other form of payment such as PayPal or Google Wallet. Logistics fulfilment is linear, with goods typically delivered to the buyer’s address via courier or international and national postal systems.
Opportunities in the E-Commerce Industry
E-commerce is predicted to maintain growth through 2023 and 2024, reaching global sales of more than $7 trillion by 2025. So, where will the most fertile opportunities lie in this continuing bonanza?
What’s in a Label? Everything
As rapidly advancing technology levels the playing field between the e-commerce giants and the minnows, personalising a customer’s online shopping experience and fine tuning their search results is becoming crucial to increasing sales. Online marketplaces and retailers have discovered that up to 5% of gross merchandise volume depends on the quality of product search and recommendations.
Machine Learning (ML) is most often used to enhance customer experience through improved search and tailored recommendations. However, ML is only as good as the data it’s trained on, and gathering high-quality data to train ML models remains a challenge. Data labelling, powered by human insight, is one way to better shape ML applications. 2023 will likely see e-commerce companies pouring vast resources into the training of ranking algorithms and improved data labelling to enhance search results and get the edge over their competitors. The battle for customers will shift from the shop window to the lab and from the product to the code behind the product.
Tech companies and contractors with a commercial understanding of AI and machine learning may see high demand for their services as small to mid-size e-commerce operators outsource their data-labelling needs. Expect a vast ramp-up of tech expertise at the large online sellers as they expand their in-house operations. This will place more demand on UK based IT and tech businesses than they can supply, forcing many UK e-commerce operators to seek tech support from overseas. Buying large-scale support services from international suppliers will increase risk for UK businesses and may leave them vulnerable to currency fluctuations as the value of sterling reacts to continuing political and economic turmoil abroad and at home.
Say Hello to Social Commerce
Social media platforms have become an important part of the e-commerce landscape as consumers increasingly use them for discovery, research, and purchasing. This has led to the fusion of social media and e-commerce – creating a hybrid known as social commerce. Buying that is influenced by photos, video, stories, likes, and extreme experiences is not a fleeting trend. Global sales via social media platforms were estimated at $992 billion in 2022, and forecasts suggest that social commerce sales will reach $2.9 trillion by 2026.
As social commerce expands to become the dominant force in online selling, expect platforms and marketplaces to increase their investment in social media to drive reach and consumer engagement. Influencers, viral stories, eye-catching videos and powerful images, will play an even greater role in the business of selling. Brands and online retailers will need to pay much closer attention to demographic differences, re-shaping their messages and access points to target consumers not based on the old divisions of age, wealth, location or education, but by their choice of social media platform, (e.g. Gen Z customers using TikTok more than Google to find product recommendations), and the kind of stories and experiences they engage with.
As e-commerce suits so many industries, particularly fashion, textiles, entertainment, travel and hospitality, so social commerce may generate sales from anywhere with a viral story. As online retailers increase their use of social media to sell, so opportunities for increased international sales await those who can capture them. E-commerce businesses with a robust social media presence and a suitable logistics and cross-border payments infrastructure may enjoy a spike in demand at any time, from anywhere on the planet, as messages on social media spread to audiences far outside the company’s usual markets.
Multichannel businesses sell and communicate with their customers through multiple channels at any given moment. Typically, this would mean having a website, a Facebook shop, and an Instagram account. Omnichannel is the next level up, encompassing every viable avenue to reach and sell to customers. This means all the multichannel routes, plus using cross-branding partnerships, immersion into events and programmes, influencer marketing, email, text, WhatsApp and other peer to peer communication tools to reach potential buyers no matter where they are or how they are engaging online. According to McKinsey, the more channels a sales company has, the more market share a company gains.
Currently, only 52% of e-commerce sites have omnichannel capabilities, but selling everywhere all at once is the future of e-commerce. Building omnichannel capabilities into an e-commerce site requires an intimate understanding of the consumer audience to create the kind of seamless experience that causes a customer to return. Companies that have robust omnichannel strategies retain almost 89% of their customers, whilst companies with weak omnichannel strategies have a 33% customer retention rate. Expect a significant increase in omnichannel marketing in 2023, as the 48% of e-commerce businesses who haven't yet adopted this plan of attack, engage in a desperate race to catch up.
No matter what they sell online, organisations without an omnichannel strategy must expand their sales channels to remain competitive. This means understanding all the channels their customers use, and how they want to use them, throughout their entire brand engagement and buying journey. For businesses that sell internationally, this includes the point of checkout. Understanding how offshore customers prefer to pay, and building that preference into the payment experience, is essential to omnipresent success.
Challenges in the E-Commerce Industry
There will be no stopping the e-commerce juggernaut in 2023, but there are still potholes lurking in the road. Worldwide recession, choked supply chains, currency devaluations, rising interest rates, stubbornly high inflation in many major markets – they all carry the potential to derail the online sales train.
Customer Experience vs. Online Inventory
There’s a well-known quote that says “If you build it they will come”, but in e-commerce, it’s more a case of “Will you have it when they come?” Inventory is everything in online selling. Websites and marketplaces that reveal too many ‘sold out’ products have lower customer retention rates than businesses that match their online offerings to real-time in-stock inventory.
Unfortunately, the holes in website inventory are likely to persist in 2023, as global supply chains remain incoherent even as pandemic effects fade away. The war in Ukraine, climate change induced weather events, high inflation and energy costs, and a worldwide labour shortage have hurt manufacturing and transportation systems, and China’s repeated efforts to control Covid-19 with large-scale lockdowns have not helped the situation. Even taking into account China’s recent re-opening, it may still take many months for supply chains to return to normal. Expect e-commerce businesses to struggle with inventory throughout the year, hurting smaller operators more than the giants who have the financial muscle to buy at scale.
As if Brexit red tape wasn’t enough to slow down imports, global supply chain issues will only exacerbate the current shortages of inventory for UK e-commerce stores. Additionally, sterling has still not recovered from its record drop against the US dollar in September 2022. A weak pound will make buying from overseas suppliers more expensive for many online businesses, yet problems in the domestic economy may make it impossible to pass those costs through to the consumer. The potential for a severe profits squeeze remains high.
Mobile devices account for 71% of retail traffic and 61% of online shopping orders, making smartphones the most important element in the e-commerce pipeline. Enabling customers to shop with their phone is no longer an exception - it’s an expectation, especially with younger millennials, Gen Z and the emerging Generation Alpha as they repeatedly select m-commerce as their preferred way of shopping.
The trend towards mobile is increasing - by 2024, global retail m-commerce sales are expected to reach nearly $4.5 trillion, and make up 69.9% of total retail e-commerce sales. Brands and e-commerce platforms that wish to stay competitive must embrace this mobile mentality. This means designing mobile-first experiences (not just shrinking their desktop experience to a smaller screen). It also means offering phone-friendly payment options like Apple Pay and Google Wallet and making mobile checkout a swift and simple experience. E-commerce operators who fail to embrace this change will be left behind as Gen Z and Gen Alpha represent ever-higher volumes of online sales. 2023 could be the year when mobile immobility decides the winners and the losers in the fight for e-commerce dominance.
An abundance of creative support services means UK e-commerce businesses should have no problem morphing their desktop platforms into a true mobile experience. However, converting their existing payments systems into a mobile alternative may prove more difficult. Embedded finance, APIs and virtual IBANs are becoming increasingly necessary to the running of an effective mobile payments platform that works seamlessly across international borders. Encumbered with legacy systems that prevent or hamper these type of products, traditional banks will struggle to deliver the international payments solutions online retailers need. Instead, e-commerce businesses should look to more innovative fintech providers for the answers they require.
E-Commerce Wins, But UK Companies Could Still Lose Out
E-commerce will continue to evolve in 2023 as e-tailers exploit more channels to reach buyers, and the experiences they provide to consumers become ever more personalised. External economic threats will have little impact on the e-commerce outlook, as the way people shop has changed forever. Even if the world suffers a financial hiccup in 2023, the global online shopping industry will still see growth. However, UK e-commerce businesses may lose out if economic turmoil becomes a reality and adverse foreign exchange rates drive up the cost of inventory and fulfilment. Protection against financial volatility will be paramount. UK e-commerce businesses must widen their offerings to customers at the same time as they build defensive walls around their finances.
E-Commerce: Global Perspective is Key to Success
E-commerce businesses that engage in cross-border trade must reduce the financial impact of potential uncertainties by mitigating their exposure to currency risk in 2023. Exchanging money into another currency and transferring it overseas can be daunting and confusing. Aware of this, Clear Treasury assign a dedicated account manager to our clients to help you cut through the jargon and provide you with a friendly and personal service.
Our API service provides businesses that conduct high volumes of foreign exchange transactions with the convenience they need to manage their requirements effectively. By acting as your embedded API partner, we can help you exchange currencies and execute international payments in a matter of seconds at scale. We can also facilitate frictionless international payments to help your business leverage virtual IBANs: a non-tangible account that enables you to send and receive money internationally hassle-free, through the routing of multiple virtual accounts to a single ‘physical’ account.
Mitigate the impact of currency risk on your international payments, including forward contracts, stop losses, and more. Open your free Clear Treasury account today for quick, secure, and cost-effective international currency transfers.
Become A Client
Daily Analysis: All Eyes on Monthly US Jobs Data
Our daily analysis of EUR, GBP and USD.
Weekly Round-Up & The Week Ahead
Our weekly round-up and a look at the week ahead for EUR, GBP and USD.
The Rise of B2B Cross-Border Payments
Businesses that wish to protect their overseas markets or expand their international trade, must innovate their payments processes internally, or in concert with a technologically advanced fintech provider. Read on to discover more about the rise of cross-border B2B payments and what your business needs to do to stay ahead.