Why Ecommerce Businesses Can't Afford to Stand Still During a Downturn (and What They Must Do Instead) Here's how ecommerce businesses can take advantage of the current downturn and race ahead of the competition.
By Adrien Nussenbaum Edited by Chelsea Brown
Opinions expressed by Entrepreneur contributors are their own.
Business owners around the world turned the page into 2023 facing a complicated set of challenges. A combination of macroeconomic forces are working together to make life difficult for small businesses and large corporations alike. These economic trends will have a diverse set of effects on employers, employees, job seekers and customers, leading some businesses to freeze in a state of paralysis.
In countries throughout the world, the ongoing challenge of inflation is making it more expensive for businesses to pay for the goods and services they need to survive. Whether it's a local restaurant buying ingredients and printing menus or a global corporation paying for software subscriptions, rising costs are having a domino effect that eventually reaches the end consumer. When inflation isn't controlled, it becomes a perpetual pain machine: Consumers with diminished purchasing power are left to choose between the goods and services they need, leaving businesses to deal with increased competition for wallet share.
In particular, ecommerce businesses are navigating the headaches of inflation while also dealing with the long-term impacts of global conflict and the ripple effect of the Covid-19 pandemic. Inventory challenges caused by supply chain disruptions make it more difficult for businesses to ship orders and meet customer expectations. Some organizations don't have the agility to keep up with increases in demand, while others are left with warehouses full of unsold inventory.
The era of easy money is over, and business leaders know they will have less margin for error in 2023 and beyond. Yet the basic instincts for how to survive a recession — cut spending, lay off employees and wait for the recovery — could prove fatal in the current downturn. Past recessions have shown that investing in innovation pays enormous dividends during tough economic times. While it may seem counterintuitive, now is the moment to bet big on digital transformation and race ahead of more careful competitors.
Related: How Ecommerce Companies Can Grow During a Recession
A pivotal moment for platform investments
When there's less money to go around, it doesn't pay to be careful — it pays to be nimble. Consumer-facing businesses need to be able to respond quickly to changes in demand or customer sentiment. If a product suddenly takes off, a retailer needs to be able to stock it. If a service provider starts to see declining subscriber numbers, it needs to adjust offerings quickly to stop the bleeding. Those that take a "wait and see" approach to their problems will eventually find that they've been overtaken by fast movers and it'll be too late to save themselves.
How can businesses use digital transformation to achieve more agility in 2023? The key is to take advantage of platform technologies. Platform approaches like enterprise marketplaces and dropship models make it possible for large and small organizations to minimize their risks and maximize the upside for a potential recovery. By investing in marketplace technology, B2B and B2C businesses can rely on a network of third-party sellers when they need to respond to a sudden surge in demand.
This seller network also provides a new layer of financial security — if demand suddenly declines, the burden of unsold inventory is spread out throughout the network instead of concentrated in a single warehouse. Marketplace and dropship models also make it possible for businesses to diversify their supply chain and quickly overcome some of the short-term snarls that have characterized the last two years.
Most importantly, platform investments ensure that an organization will be in pole position when the economy begins to recover. Overly careful organizations will cut costs and reduce inventory during the downturn, putting them behind the curve when they inevitably need to scale back up. Agile businesses can rely on their platform technologies to scale without roadblocks during an upswing, relying on partner inventories to ensure that a hot product never truly goes out of stock. While economic downturns often separate successful businesses from their doomed competitors, it's the recovery that truly reveals which organizations will become market leaders.
Related: Why Retailers Should Transition to a Marketplace Model
The only way is forward
In the aftermath of the Great Recession, retailers struggled for years to overcome economic headwinds and regain business momentum. The onset of the Covid-19 pandemic, however, only led to a brief period of uncertainty before businesses adjusted to the new field of play. No one can predict the extent of the current downturn and how long it will take for inflation to come back to Earth — nor can they predict what will come next.
Businesses in every industry, but ecommerce businesses in particular, can't afford to wait indefinitely for the economic tides to turn. We've seen upswings and downturns grow more frequent and more volatile in the last decade, and the only way to stay afloat during the changes is to move forward and focus on agility. By committing to digital transformation — investing in platform technologies while others stand still — ecommerce businesses can take advantage of the current slowdown and race ahead of the competition for a long-term recovery.
Related: 9 Smart Ways to Recession-Proof Your Business (Fast)
