VTEX Industry Research: Top 3 Investments for Digital Commerce 2023

The past three years have been some of the most tumultuous in the history of retail, and there’s no end in sight. The onset of COVID-19 completely reshaped the rules of commerce, ushering in a new era of ecommerce that emphasizes profitability over growth at all costs.

Yet, a recent survey by Publicis Sapient revealed that 37% of retail decision-makers say their ecommerce businesses are not meeting profitability targets. Many ecommerce leaders are scratching their heads as they figure out where to invest to solve this profitability challenge.

Jordan Jewell, is currently the Director of Merchant Growth Strategy & Analyst in Residence at VTEX. Adding weight to his already hefty credentials, he was also a former industry analyst at International Data Corporation (IDC). To help retailers and consumer brands strategize based on facts, expert advice and insight, as well as data, Amazon Web Services (AWS) and Jordan have delivered a new joint ecommerce whitepaper: Three Investments to Drive Ecommerce Growth.

This whitepaper is based on interviews with numerous VTEX retail and consumer brands customers, industry analysts, and ecommerce leaders to help them unlock sustainable growth and weather future market cycles.

The whitepaper answers the question: What three strategic investments should brands make to ensure long-term ecommerce growth?

The evolving landscape of ecommerce

Built on the foundation of research interviews, the whitepaper identifies three underprioritized, yet essential, investment areas that all retailers and brands should prioritize to drive profitability in uncertain economic times.

This discrepancy between profitability expectations and outcomes is deeply rooted in the complex challenges ecommerce leaders face today. They must overcome constantly changing consumer demands, shifting digital ecosystems, and economic volatility. While consumers have high expectations from shopping on worldwide marketplaces, very few retail and consumer brands manage to meet these standards. The industry is facing rising standards as fulfillment times decrease, algorithms evolve, competition intensifies, and website user experiences improve.

Businesses are well-versed in retail functions like product assortment, merchandising, promotions, customer service, and sales. However, many retail and consumer brands are venturing into unfamiliar digital territory and now need a completely new skillset to increase website traffic, enhance SEO, optimize product pages, consolidate inventory, minimize returns, and retain customers.

And they must do it all profitably.

Top challenges of modern commerce

Although retailers and consumer brands have come a long way since ecommerce emerged more than two decades ago, the interviewed industry experts believe that the current ecommerce profitability dilemma is intensified by three challenges:

1. 38% decrease in digital ad effectiveness following the iOS 14.5 update
   There was a time when online merchants could acquire customers affordably and bypass costly physical store expenses. Unfortunately, that time has long passed. The online retail environment is more competitive than ever, and retailers and consumer brands are finding it increasingly difficult to affordably drive traffic to their digital stores. One significant reason is the steep increase in cost-per-click (CPC) from Facebook, and Google ad prices, in relation to sales. To make matters worse, Apple’s 2021 privacy changes made ad targeting less effective, and Google plans to phase out third-party cookies on Google Chrome by the end of 2024.
2. 22.5% increase in retailer inventory levels in 2022, despite declining demand
   Since the onset of the pandemic, brands and retailers have faced inventory chaos. Manufacturing and supply chain disruptions, coupled with unprecedented consumer demand, resulted in alarmingly low inventory levels in 2021. Although supply chain issues were largely resolved by the end of 2022 (and so far in 2023) retailers and brands are experiencing slowing—and changing—demand. As discussed in our new whitepaper, retailers and consumer brands we interviewed consistently mentioned inventory chaos as a persistent challenge with no clear resolution.
3. 69.8% of all ecommerce shopping carts are abandoned
   The inconvenient truth about ecommerce is that conversion rates are abysmal. Being able to persuade a shopper to click on your ad, browse your website, and add a product to their shopping cart is already a significant accomplishment. However, chances are high that they still won’t complete the purchase. 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.

Amid economic instability and constrained budgets, retailers and consumer brands must focus their investments on areas that are most likely to drive profitability. To stand out from other ecommerce brands, they need to adopt new ways of thinking and implement strategic approaches.

Top three investments for digital commerce in 2023 in a nutshell

So, where should retailers and consumer brands concentrate their efforts? Here are three essential areas to invest in to maximize profitability. Read the full whitepaper Three Investments to Drive Ecommerce Growth to learn more about each in-depth.

1. Double down on existing customers and reward loyalty
Instead of vying for ad space in a saturated retail market (and during times when shoppers are more hesitant to purchase), consider prioritizing your existing customer base.

While acquiring new customers remains crucial, it’s costly in the short term. A smarter approach involves focusing on enhancing customer loyalty:

• Exclusive promotions
• Seamless customer experiences across channels
• Personalized messaging and product recommendations

These enhancements contribute significantly to improving customer loyalty and creating brand advocates. By offering these benefits, you can incentivize current customers that know and trust your brand to share valuable first-party data, enabling you to further optimize their experiences with your brand.

2. Discover innovative customer engagement methods
Have you ever visited a new brand’s website and experienced retail déjà vu? In a world filled with indistinguishable brand websites, it’s essential to be creative and experimental—to stand out and create ecommerce experiences that impress and excite shoppers.

Innovative engagement methods can include:

• Conversational commerce
• Live shopping
• Conditional content, where you ask customers questions to help customize their shopping experiences
• Profiles
• Preferences

Virtual store walkthroughs, personal shoppers, and informative video content provide additional opportunities to captivate and re-engage consumers.

In general, offering more personalized experiences encourages customers to click “purchase” and return for more. Remember to continuously test and measure the success of your new engagement methods so you can refine and enhance them.

3. Emphasize inventory management and order fulfillment
We’ve all experienced the disappointment of finding a product out of stock at checkout or the confusion of not knowing when the product will arrive. At best, it’s a disheartening experience. In the worst-case scenario, such mishaps can drive customers to competitors.

Clearly, inventory and order fulfillment excellence are vital components of the customer experience. In today’s retail landscape, you need to know:

• Where your inventory is at all times
• How much product you have left, to avoid disappointing shoppers with stock-outs

To improve long-term profitability, invest in tools that increase visibility into your real-time inventory and streamline demand planning. Finally, to set your brand apart, consolidate inventory across all platforms and prioritize fulfillment.

The retail industry’s future may seem uncertain, but the right investments ensure preparedness and adaptability. By prioritizing existing customers, engaging in innovative ways, and enhancing inventory and fulfillment standards, you can build lasting customer loyalty, drive profits, and navigate challenging times with greater confidence.

AWS Partner Spotlight

VTEX (NYSE: VTEX) is the enterprise digital commerce platform where global brands and retailers run their world of commerce. VTEX puts its customers’ businesses on a fast path to growth with a complete Commerce, Marketplace, and OMS solution. VTEX helps global companies build, manage and deliver native and advanced B2B, B2C, and Marketplace commerce experiences with unprecedented time to market and without complexity. As a leader in digital commerce platforms, VTEX is trusted by more than 2,400 customers, such as AB InBev, Carrefour, Colgate, Motorola, and Whirlpool, having over 3,200 active online stores across 38 countries (as of FY ended on December 3, 2021). For more information, visit www.vtex.com.