As any rock musician knows, it’s hard to produce two hit albums back-to-back. Unless you are the Beatles or Led Zeppelin, most second albums fail to live up to the high expectations of the first effort. This is often referred to as the “sophomore jinx.” In 2021, e-commerce had its sophomore jinx moment. As more people become vaccinated and physical stores reopened, the explosive e-commerce growth rates of 2020 naturally fell back down to Earth. But e-commerce is no “one-hit wonder” and the size of the prize for any brand is too big to dismiss heading into 2022.
According to data from Statista, e-commerce in the U.S. will amount to $469.2 billion in 2021, an increase from $431.6 billion in 2020. In the third quarter of 2021, the share of e-commerce of total retail sales in the U.S. was 13 percent, down from a high of 15.7 percent in the second quarter of 2020, but still up from prepandmic levels of 11.3 percent in the fourth quarter of 2019. What’s more, shopper habits have permanently changed with a bias toward online shopping. Earnest Research found the online share of grocery shopping rose to become 15% of U.S. grocery spending during early 2020 and has remained at that level as of November 2021. According to Dan Frommer’s annual Consumer Trends report, 60% of shoppers said they prefer online grocery shopping to their old way of shopping, compared to just 45% in November 2020.
With another strong year of e-commerce growth coming to close, let’s review the biggest trends that shaped this growth (both positively and negatively) and lessons to take into 2022.
Supply chain challenges and rising inflation
If you could summarize 2021 in a single image it would an empty supermarket shelf. Unprecedented consumer demand combined with raw-material shortages, port congestion, and a lack of adequate workers resulted in supply shortages. In turn, these shortages contributed to prices increasing at their fastest rate since 1982. These disruptions caused new challenges for brands and retailers, many of which had to cut back on discounts and promotions or reduce the size of their packages and offer smaller quantities at the same price. Many brands learned the hard way that out of stocks not only hurt their sales but can have severe marketing costs as well – for example, a study from Profitero showed it took three to four days to recover their position in Amazon search results when they are out of stock for just one day, and five days to recover on Walmart.
Economists expect supply chain problems and elevated inflation to continue deep into 2022. There is no quick fix and brands must prepare for this new normal by being both agile and flexible. They must be ready to shift available supply to different regions and even different stores. They must be better at marketing products based on supply rather than demand, as well as having the ability to quickly pivot away from products that are out of stock. More scrutiny must be paid to the profitability of products sold online and investments made in creating e-commerce-specialized assortments and packaging offering higher margins. Silos need to be broken down and marketing, supply chain, and finance teams need to be holding hands and singing kumbaya.
Embracing news types of commerce
For most brands, 2020 was all about survival and building out the basics of their e-commerce operations. In 2021, they finally had a chance to come up for air and push the envelope into new areas – embracing newer types of commerce at greater rates and investing in up-and-coming platforms to ensure they are well positioned in 2022.
New technologies favor first movers. Brands who carry an explorer’s mindset into 2022 will set themselves up for long-term success and competitive advantages.
The rise of aggregators
Investors are pouring cash into “aggregators” – firms that buy smaller brands who sell exclusively on Amazon. Hahnbeck, a U.K. consultancy firm, found there to be 80 aggregators that have raised more than $11.5 billion in disclosed funding. These businesses are helping smaller brands grow faster and become more profitable, and they are starting to disrupt the consumer packaged goods (CPG) industry.
These aggregators have poached digital marketing, brand managers, and analytical talent from the likes of Walmart and Wayfair, as well as top CPG companies and agencies. They are growing fast and competing for talent, digital ad dollars, and already displacing other brands in Amazon search rankings.
The rise of aggregators should be a wake-up call for CPG brands and is a significant threat to watch in 2022. Profitero found that just 17% of brands surveyed for its 2021 eCommerce Organizational Benchmark Report believe their companies are ahead of the curve when it comes to organizing for e-commerce, which is the same number as the company’s 2019 study. Meanwhile, a whopping 71% feel they’re just keeping pace or still catching up to the competition. Selling online is getting more competitive each year. The amount a brand invested in 2021 to get to where they are today will need to scale by a multiple of two (if not more) to preserve those gains. 2022 is not a time for brands to get complacent. They will need to be more efficient and ensure spending and resources are being allocated to the right place, or else they risk losing sales to these smaller brands.
The growth of marketplaces
Sales from marketplaces, such as Amazon, eBay, and Facebook Marketplace, have been increasing each year. According to Digital Commerce 360, online marketplaces accounted for nearly two-thirds (62.5%) of global e-commerce in 2020, up from 60.1% the year prior.
In 2021, third-party sellers came out in force to take advantage of the ongoing inventory and supply chain problems. This caused challenges for brands who risked losing the “buy box” to third-party sellers when items went out of stock. On Amazon, third-party sellers’ share of worldwide unit sales has been trending upward in recent years, increasing from 52% in the first quarter of 2020 to 56% in the third quarter of 2021. Walmart’s marketplace also experienced huge growth in 2021. According to data from Marketplace Pulse, the number of third-party sellers on Walmart nearly doubled over a 12-month period, increasing from nearly 70,000 in December 2020 to nearly 130,000 in December 2021.
Heading into 2022, brands must consider how they want to play on these marketplaces – particularly marketplaces run by large trading partners like Amazon and Walmart. More brands are exploring what’s known as a “hybrid” model – where they sell some of their assortment directly to retailers like Amazon to be listed on their websites and sell another part of their assortment directly to consumers via the Amazon marketplace. The benefit of the former is more control over areas like pricing, the ability to launch new products without needing to “sell in ” to distribution, greater flexibility and ownership over supply chain, and often access to more data. But it’s not for everyone and brands should weigh their options carefully.
As the old rock and roll songs goes, e-Commerce “is here to stay.” The brands who shuck the instinct to become complacent and instead, double down, will be printing gold in 2022.
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