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Investments to drive ecommerce profitability

Lalo Aguilar
Lalo Aguilar January 16, 2023
Investments to drive ecommerce profitability

We’re excited to announce the publishing of a new ecommerce whitepaper, Three Investments to Drive Ecommerce Growth. The report, based on interviews with dozens of VTEX merchants, ecommerce analysts, and industry experts, answers a question every ecommerce leader is asking themselves right now: If you could make only three strategic bets to drive long-term ecommerce growth, what would they be?

And the answers explored in the paper are quite enlightening! (Spoiler: they’re not all about ecommerce software either.)

Backed by research interviews we conducted, the paper pinpoints three under-prioritized yet critical investment areas on which every retailer and brand should focus to drive incremental growth now profitably.   

The new rules of commerce

We’ve just experienced three of the most volatile years in retail’s history—and there’s no sign that the turbulence is coming to an end. Since the onset of COVID-19, the rules of commerce have been completely redefined, and we now find ourselves in a new era of ecommerce—one that focuses on profitability over growth.

However, a recent Publicis Sapient survey found that 37% of retail decision-makers believe their ecommerce businesses are not meeting profitability targets.

This gap between expectations and reality is rooted in the immense challenge ecommerce leaders find themselves in. They must navigate an obstacle course of evolving consumer demands, shifting digital ecosystems, and economic fluctuations. Consumers have sky-high expectations from engaging with ecommerce titans like Amazon and Alibaba, but very few merchants meet those expectations. And the bar continues to rise for merchants: fulfillment times have shrunk, algorithms are ever-changing, competition is increasing, and website user experiences continue to improve.

Many retailers and brands find themselves in uncharted digital waters. Although they are experts in retail functions like product assortment, merchandising, promotions, customer service, and sales, they now require an entirely new set of skills to drive website traffic, improve SEO, optimize product pages, unify inventory, reduce returns, and retain customers. 

And they’re expected to do so profitably.

Harsh realities of modern commerce  

Although retailers and brands have made a great deal of progress since the emergence of ecommerce over two decades ago, according to the merchants we spoke with, today’s ecommerce profitability dilemma is being exacerbated by three harsh realities:

– 38% reduction in digital ad effectiveness following iOS 14.5 update 

There was a time when online merchants could acquire customers quite affordably simply by avoiding expensive physical store costs. Unfortunately, this is no longer the case. The online retail landscape is more competitive than ever, and merchants are finding it increasingly more difficult to drive traffic to their digital stores. One key cause is a steep increase in the cost-per-click (CPC) from Facebook and Google as ad prices rise relative to sales. To add insult to injury, Apple’s recent privacy changes, enacted in 2021, made ad targeting less effective, and Google has plans to deprecate the third-party cookie on Google Chrome by the end of 2024.

– 22.5% growth in retailer inventory levels in 2022, despite falling demand

Since the beginning of the pandemic, brands and retailers have been in a state of inventory chaos. Manufacturing and supply chain disruptions, as well as record consumer demand, brought inventory levels to alarmingly low levels in 2021. Supply chain issues were largely resolved by the end of 2022, but retailers and brands have seen slowing—and shifting—demand. As you’ll read in the paper, retailers repeatedly cited inventory chaos as an ongoing struggle with no clear solution.

– Shoppers abandon 69.8% of all ecommerce shopping carts

The dirty secret of ecommerce is that conversion rates are awful. Even if (and that’s a big if) you can convince a shopper to click on your ad, browse your website, and add a product to their shopping cart, odds are they still won’t check out. With nearly 7 out of 10 digital shopping carts being abandoned (and that number jumps to 85% on mobile), merchants are leaving a lot of money on the table. This is obviously a big hurdle to achieving profitability.

Take action!

Though these are three harsh realities faced by today’s online merchants, there are actions that merchants are taking to turn the tide and drive ecommerce profitability. We call them “Three Bets for Success,” and they explore the best ecommerce investments retailers and brands should consider taking right now. We invite you to read about them in our new whitepaper, Three Investments to Drive Ecommerce Growth.

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