The pandemic brought about unprecedented changes in consumer lifestyles and buying habits, forcing businesses to adapt at lightning speed. As we finally saw a glimpse of stability, the recent Russian invasion of Ukraine has caused more turmoil, dashing the hopes for a peaceful “new normal” that will – after a while – be at least as predictable as the old normal was. The whole last year many companies, both large and small, were left grappling with the consequences of rising energy costs and high inflation rates.
Impact on consumer sentiment
The rapidly rising prices had a very negative impact on consumer sentiment. According to one of eTail presenters – Katharina Huke, the CCO of Idealo Internet GmbH – 6 months ago the consumer sentiment was so low that:
- 87% of the surveyed planned to limit their spending in the months to come
- 79% saw price as the most important factor behind their purchasing decisions
- 75% expected the situation to get even worse in the future
- Consumers did buy significantly less last year.
- They were also much more price sensitive.
As a result, the e-commerce sector in Europe experienced a serious blow and has all the rights to expect another bumpy year ahead.
What comes next
Having said that, there are some positive signs on the horizon already. While consumer climate is still low, it is recovering. In a workshop on Consumer Trends 2023, Natalia Lechmanova, Senior Economist from the Mastercard Economics Institute, pointed out several reasons for cautious optimism.
First of all, inflation rates have fallen across Europe and this trend is expected to continue. While this still means that prices are going to keep rising in 2023, the first shock of drastic increases is over and consumers have developed some adjusting strategies, like buying less groceries but more often to avoid waste. Trading down to cheaper brands and stores is also the most visible in the grocery sector, while discretionary retail is not as severely affected.
Low unemployment rates
Despite layoffs in some sectors, there is a sense of relative job security among employees. In fact, the end of 2022 saw record low unemployment rates in the European Union and euro area, which has had a positive impact on consumer sentiment.
Supply chain stabilization
The global supply chain pressure, created by pandemic-induced demand and lockdowns, has now eased significantly. This is good news for the global economy, as the supply chain problems had led to shortages and delayed shipments, and were another factor contributing to higher costs for businesses.
Experience economy fuels sales into the fashion sector
Both the pandemic and recent political developments have led buyers to prioritize experiences over consumption. There is a strong desire to go out, travel, and socialize. And since social outings, events, and holidays all demand presentable outfits, the trend has a positive impact on the fashion sector’s performance.
Less positive outlooks for the home sector
On the downside, the surge in interest rates – from record low to the highest in decades – will have a negative impact on the disposable income of households. The extent of this effect will vary across countries. In countries like Germany and France, where most homeowners are in long-term fixed-rate mortgages (10-20 years), which means fixed payments over the whole life of the loan, the impact may be minimal. But many other European economies have either variable rate or short-term fixed (2-5 years) mortgages. In some Nordic and Eastern European countries, most mortgages are at variable rates, which means that their increase translates into a more significant squeeze in homeowners’ disposable income.
One negative effect of higher mortgage costs that is likely to be observed in all markets is a general decrease in the residential investments, including purchasing products from the home-related categories. If fewer flats and houses are bought, fewer people move and need to furnish and decorate their new homes.
Expert tips to navigate e-commerce uncertainty in 2023
While the situation seems to be improving, the current year can still be challenging for e-commerce businesses. In order to help you navigate safely in those still uncertain times, we’ve collected for you a handful of expert tips:
Take good care of your existing customers
Invest in customer service, CRM, and personalization. Helping buyers navigate among your products through valuable personal recommendations can significantly increase your conversion rates.
Offer various payment methods, including buy now pay later options
Don’t compete with low prices only
In the closing speech of the eTail conference, Lars Luck, the Managing Director at WMF, emphasized the limitations of this approach and pointed out other options: getting more out of fewer customers by improving their experience and exposing them to more expensive products, or exploring dynamic pricing options.
Be present and visible
We can’t emphasize it strongly enough. There are no better times than really bad times to invest in your products’ visibility. According to Statista’s long-term analysis, sustaining advertising expenditures during a downturn pays off in the long term. At the same time, Mastercard’s analysis conducted in 12 markets suggests that having an omnichannel presence – that is engaging customers through multiple digital and physical touchpoints (both online and offline) – provided a 6-percentage point lift in retail sector sales through 2022.
Therefore, we’re encouraging you to explore many different channels, including product comparison websites like Ladenzeile and Shopalike. Short-term, this may help you win more customers from among those who are now exchanging brand and shop loyalty for better value for money. Long-term, it may help you attract more indulgent customers, ready to open their wallets for non-essentials that hold personal significance to them. Because our mission is to help those new, more selective buyers that are emerging from the recent turbulences find exactly what they are looking for – their new favorites!
Statista: Advertising in times of crisis (DOA: 20.03.2023)
Mastercard Economic Institute: Economic Outlook 2023 (DOA: 20.03.2023)