The e-commerce situation is changing after two years of pandemic-related sales increases. Consumers have returned to in-person shopping and are also reining in their spending habits with inflation. Big e-commerce companies like Amazon and Zalando have noticed and are shifting their strategies. Meanwhile, small DTC-only companies are banking on personalized experiences and assortments to lead them through a tricky time for retail.
Amazon reported a 3% drop in online sales in the first three months of 2022, and forecasted only a modest 3% sales growth for the current quarter. Goods inflation is another contributor to slower sales. It’s risen in the U.S. by 13% on a year-by-year basis, the most since 1980. Online retailers including Zalando, Etsy and Ebay have also reported a sales slump, showing that the rising costs within supply chains are affecting businesses, too.
Zalando posted a decline in sales for the first time since its founding in 2008. Zalando also shared a profit warning for the rest of 2022 as the retailer expects price increases in distribution will affect the business for the rest of the year. Its first-quarter sales fell by 1.5% to $2.3 billion (€2.2 billion) after posting an approximately 47% increase in the same time period last year. The significant slump has forced the company to reposition its business.
A Zalando spokesperson said, “The whole industry has been experiencing pressure on the cost base driven by inflation on key commodities such as fuel, electricity and labor. This impacts all parts of the supply chain from sourcing and transport to warehouse operations and packaging costs.”
Companies have been noting rising costs in their supply chains since shipping delays began in 2021. The continued lockdowns in China have meant that goods are being stalled or re-routed on shipping routes. Many e-commerce providers are considering nearshoring as an alternative.
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One of the ways Zalando is looking to mitigate an ongoing sales slump is by refining its product offerings in the coming months. “We see that emerging from the pandemic is leading to increased demand for occasion wear and footwear and reducing demand for loungewear and casualwear articles such as sweaters, jersey and jeans. We are monitoring consumer trends closely,” said a Zalando spokesperson.
According to the e-commerce retailer, its online marketplace strategy provides an advantage to the retail-wide slump. Zalando differentiates itself with its omnichannel Connected Retail model, which connects the Zalando e-commerce to stores, allowing Zalando to adapt quickly to changes in demand and offer its customers the most relevant product choices. Along with keeping its assortment current, the company is opening new fulfillment centers in Poland and Germany in 2023 and is beginning construction on another one in Paris.
“We see that once people have shopped online, they rarely turn their back on it completely,” a spokesperson said. “Our program allows for stores to reach millions of new customers while customers get a wider assortment and an opportunity to shop locally.”
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For now, it appears the e-commerce slump is centered on big retailers, as DTC-only brands continue to see sales growth. Katherine Lantuch, founder of e-commerce site Nicoblu which sells occasionwear, said, “We do not feel impacted by any slump. Our sales are growing exponentially, and we hear our customers talking about how much they enjoy shopping with us online and have no plans to return to physical store locations any time soon.”
To compete with the Amazons of the world, DTC-only retailers are calling out their small but mighty differentiators.
“More than ever before, e-commerce brands need to offer truly unique, beautiful and versatile products. That’s not only to stand out online, but also to stand out from department stores that tend to carry very similar offerings,” said Lantuch. Nicoblu is in its second year of business and is on pace to double its revenue. However, she acknowledged that, even so, DTC and smaller brands need to be proactive and plugged into geopolitics and plan for “worst-case” scenarios every step of the way.
