There is no doubt that e-commerce has brought huge growth to many brands, but this year's e-commerce channels will be more challenging

At the end of 2019, many well-known brands are considering expanding the e-commerce market, but do not think that this will become a huge sales boost.

With the new crown epidemic sweeping the world, e-commerce platforms have become the main shopping channel for Americans. Amazon is clearly the beneficiary, and its net sales in 2020 increased by 37.6% to $386 billion. The e-commerce business of many brands has achieved substantial year-on-year growth, ranging from 40%, 80% to 120%.

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This growth will be difficult to continue this year, and the Amazon brand will face six challenges:

1. Fierce market competition
During the epidemic, more and more sellers realized the importance of the e-commerce market, and the arena was crowded with people. Thousands of new sellers have joined, making it more difficult for brands to maintain their rankings, increased advertising competition has led to rising advertising costs, and declining brand influence threatening market share.

Amazon has 9.8 million registered sellers and 1.9 million active sellers worldwide. It is estimated that by 2021, 354,000 new sellers will join the platform, which means that 3408 new sellers will arrive every day. These competitors will be prepared, and those brands that hope to take advantage of the trend and achieve amazing growth on Amazon will be defeated.

Amazon has expanded its retail business globally and currently covers 20 countries. After expanding the market, Amazon can purchase and cross-sell products at various sites. For example, products purchased from local brands in the UK may be sold on the Swedish site. Therefore, the seller's competitors have expanded from online to offline, and Amazon has intensified this competitive situation.
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2. Profit pressure
According to reports, this year's supplier negotiations are particularly intense, and the e-commerce market requires higher profits and preferential treatment. Co-marketing expenses increase, payment deadlines are extended, and other services such as mandatory payment of strategic supplier services (SVS) and product placement. It is reported that Amazon is building a framework, and suppliers need to pay SVS service fees before they can fully negotiate with them.

Brands also need to use their agency relationships and knowledge to understand negotiation benchmarks. Sometimes, based on past experience alone, it may be difficult to realize other business-friendly negotiations.

3. Physical business recovery
Skyfii is a leading provider of Wi-Fi and analysis services for shopping malls across the United States, measuring customer traffic and other indicators. According to its data, from January to March 2021, shopping mall traffic increased by 45.3%, which means that the number of shoppers in physical retail stores has increased by millions.

However, overall retail sales during the same period did not increase accordingly. This shows that e-commerce consumption is declining, and people are beginning to go out of their homes to shop in physical stores. With the popularity of vaccination, this trend may accelerate rapidly.

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4. Economic uncertainty

The latest round of $1,400 stimulus funds began to be decentralized at the end of March and will reach the account before the end of May. In the weeks before the check arrives, retail sales are declining, or consumers converge before the shopping spree.

Although February’s retail sales fell 3% from January, under the influence of stimulus funds, March’s retail sales jumped 9.8%, led by food and beverages, automobiles and parts, sports goods, and clothing. The retail industry's best month since May 2020, the 18.3% increase in May 2020 came after the first round of stimulus funds.

These drastic monthly fluctuations have greatly affected consumers and their consumption patterns, while also complicating brand forecasts.

5. Logistics pressure

Ships are stationed on the coastline around the United States, regardless of time or import costs, all aspects of logistics are facing tremendous pressure. Many brands can barely stock up on their own.

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6. Amazon traffic fluctuations
According to Google Trends, the number of consumers searching for "Amazon" has dropped by about 7% in the first three months of this year.

The total number of Amazon pageviews in February and March dropped by about 10% compared to January. Since the end of March, page views have been on the rise, which may also be the result of the stimulus policy.

During the period from January to March, Amazon’s total sales increased by 35% year-on-year, page views increased by 32%, but revenue only increased by 24%, indicating that the average selling price of brands on the platform was low.

If you refine it to categories, the data will be more obvious. For example, the number of views of pet products has increased by 43% compared with the same period last year, but sales revenue has only increased by 15%. Page views of cosmetics increased by 11% year-on-year, but revenue fell by 5%. On the other hand, computer and laptop page views fell by 4%, and revenue fell by 5%.

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How should brand owners respond?
Brands must ensure that their content, creativity, retail business and advertising are optimized, and maintain their own market expressiveness, and not be timid against competitors who are grabbing market share.

Although all indicators show that e-commerce will grow as a whole this year, the actual profit margin may be much lower than the level of 2020; in addition, a rebound in physical store sales is inevitable. Therefore, brands need to revise their annual goals for each channel.

Due to the unpredictable impact of economic fluctuations, unemployment and stimulus measures, consumers' consumption patterns may change, and they tend to choose more quality and cheaper products, so brands need to pay close attention to product-level demand.

At the same time, it focuses on demand forecasting to ensure supply chain optimization. Inventory shortages will not only curb short-term income, but may also have a negative impact on rankings, and recovery from it will be time-consuming and painful.

Finally, brands need to continue to explore new products, new markets and new market spaces to drive sales growth
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