From Boom to a Balancing Act: As E-commerce Sales Level Off, Retailers Look to Investments as a Growth Strategy
Shopping online is no longer a trend – it’s simply a part of our everyday life. The popularity of eCommerce increased at a predictable rate until the pandemic hit. Almost overnight, it truly became the only option consumers had for shopping safely. Retailers who were prepared and/or able to pivot during the pandemic – along with eCommerce startups whose strong technology foundation enabled them to fill consumer needs without contact – enjoyed over two years of strong growth. However, by the end of the 2021 holiday season, it became apparent that all the predictions about consumers never returning to brick-and-mortar stores were incorrect. Instead, the discussion turned to how retailers should handle the end of the eCommerce boom.
The fact is, according to the US Department of Commerce Retail Indicator Division, eCommerce sales doubled during the pandemic, with a 14.2 percent increase from 2020 to 2021. So, basically, there’s no evidence that eCommerce is a bust, growth is just returning to a more historically expected trajectory.
Innovative retailers that continually evolve their business and their digital experiences to meet the needs of their customers are still able to drive eCommerce sales and create long-term, market-proof balance. While many factors contribute to continued growth, one approach many big retail names are choosing is to invest in smaller businesses and startups. The strategy is that by funding startups with capabilities that can improve customer service, enhance brand value, or expand audience reach, a retailer can create a competitive advantage that keeps eCommerce sales churning.
Recently, brands such as Victoria’s Secret and Target have selected investments based on causes they support, such as elevating and promoting women-owned and Black-owned businesses. Others are choosing to put their money behind technology-driven startups. Case in point, Walmart invested in a drone company as well as a self-driving electric vehicle company in 2021. So far this year, they’ve backed an indoor vertical farming startup and two fintech companies. American Eagle purchased two fledgling logistics companies last year — and now that they’ve gained control over their own inventory and shipping issues, they’re looking to turn the investment into a new stream of revenue by offering services to other retailers.
While funding a startup isn’t going to deliver immediate results to your bottom line — retailers who make the right investment choices will be able to create value on multiple levels while at the same time fostering a spirit of innovation within their own company. Another plus for the retailer is that by putting a stake in the game, they get a vote in how the product is developed, along with access to new features ahead of everyone else. If they’re a majority shareholder, they can also have control over choosing customers, restricting access to competitors. Of course, the startup benefits too, not only financially, but by being able to tie themselves to an established brand name as well as tap into the extensive resources and knowledge they can offer.
As history has recently shown, even major brands like Walgreens and Safeway can make big mistakes in choosing investments. Both brands invested millions in Theranos, the much-hyped health technology company that ultimately turned out to be nothing but a pipe dream. The best way for a retailer to ensure they are making a good investment decision is through due diligence, making sure to collect data from multiple sources — everything from looking at LinkedIn profiles, to talking to company employees, to getting referrals from their partners and any clients — before handing over any cash.
Retailers learned long ago how to keep customers coming back to their stores, they just have to create new strategies to do the same with eCommerce. Online shopping isn’t going anywhere – it's still growing. Technology advances continue to open up new commerce channels, creating more opportunities to connect with customers, deliver the experiences they want, and drive sales. As consumer acceptance of emerging trends like shoppable TV, the metaverse, and cryptocurrency payments increase, the growth potential of eCommerce also increases.
For retailers, innovation and collaboration will be key to the future — and with agility and speed that comes standard within the culture of startups — more and more large brands should explore opportunities to partner with them. As eCommerce continues to evolve, it’s these types of strategic investments that will give retailers the capabilities they need to retain their competitive edge.
— Kelly Goetsch, chief strategy officer, commercetools
