2022 Outlook: 5 Key eCommerce Trends to Follow

The world of e-commerce moves quickly. Each year brings its own trends, risks and opportunities, and the pandemic has thrown up unique challenges and openings in every sector over the course of the last two years.

The economic backdrop has been broadly supportive for growing e-commerce businesses, but 2021 taught the world that there are always twists in the tale. From the Ever Given to the Omicron variant, irregular events became so seemingly common that the only predictable feature of the year was its unpredictability. Such uncertainty persists into 2022, with global market volatility driven by inflation fears, tension between Russia and Ukraine, and the ongoing energy crisis. As Morgan Stanley’s Chief Global Economist Seth Carpenter has put it:

“Things are normalizing, but they are not normal.”

Yet, while the crystal ball might be cloudy, the continuing broader economic recovery offers a wide opportunity set for ambitious founders. Improving public health outcomes, innovative tech, new markets, and evolving consumer habits all provide room for businesses to consolidate the position of strength they’ve been able to build over the pandemic, and accelerate their growth plans in 2022. We’ve highlighted key trends that founders should follow in the year ahead, hopefully providing a compass for the road to come.

Let's explore the key takeaways that you need to be aware of going forward.

Brand Equity

The prominent growth of eCommerce over the last decade means more and more players are entering the game. As competition increases, so does the significance of brand equity.

The knock-on effect of growing competition is skyrocketing digital marketing costs and falling returns on ad spend. Equally, with a broad range of eCommerce business reaching higher levels of maturity, there is a corresponding level of saturation on some channels, especially Facebook. Any brand advertising at scale for three years has likely exhausted its audience on one channel, with a curve of diminishing returns in terms of capital allocation. At which point, the question becomes how to build a sustainable, scalable customer acquisition strategy in the face of downward pressure on the efficiency of marketing spend.

Diversification through an omnichannel approach is the short-term play, with a number of digital and traditional discovery channels in the mix: Google, Snapchat, Pinterest, TikTok, Bing, YouTube, print, OOH, and TV.

The most secure long-term customer acquisition, however, is brand-building. Significantly, a cohesive brand strategy is essential to expanding into those aforementioned omnichannel opportunities. In addition, focusing on brand means leveraging the uniquely direct eCommerce businesses have with their consumers and carving out a set of core customers. Prioritising lifetime value is a commercial imperative: keeping a customer costs up to five times less than acquiring a new one. There are a variety of ways of driving recurring long-term relationships: subscription models and incentives, brand storytelling, membership and loyalty programmes, and establishing brand communities to connect with customers on a social and emotional level. Defining brand identity, making customers feel connected, and driving loyalty will solidify growth this year; amid rising costs, the only enduring moat is brand equity.

Tech Stack

A successful eCommerce business requires the right resources and technology in place to operate at scale. Making such changes can come at a cost, but the rewards will be substantial.

As the space matures, so does the supporting tech infrastructure which businesses can plug into to deliver first-class service and meaningful retail experiences: mobile commerce, fulfilment, returns, loyalty, conversion, AI-powered live chat, inventory management software, augmented reality, audience targeting and segmenting, voice commerce, hyper-personalisation, headless platforms, virtual shopping. The future has arrived: the IKEA app lets customers see what almost any piece of furniture they sell will look like in their homes, Allbirds’ mobile app lets customers try shoes on virtually with AR, and one Outfund portco has released an NFT collection to reward its most loyal and dedicated customers.

The key move for founders is to articulate a robust Customer Experience (CX) vision, and then build it out via the remarkable suite of tech products and services the market has to offer. CX spans a range of touchpoints across the value chain, from mobile and web experience design, multichannel presence, flexible pick-up and delivery options, supply chain transparency, and personalisation via predictive models. Essentially, a consistent end-to-end CX boils down to mapping out and optimising the customer journey in such a way that maximum value is delivered to the customer, all enabled via a set of integrated tools. This involves full visibility into the entire retail journey – from order creation and delivery, through to shipment lifecycle management and returns optimization.

By embedding your brand wherever your audience might be, quantifying existing consumer pain points and then solving them with best-fit tech, the customers’ bond with the brand is hugely strengthened.

Social Commerce

Social media has been a key marketing channel for more than a decade, but this year, social media will grow in significance as a sales channel. With social platforms the daily one-stop shop for news, entertainment and communication, the chance to buy and sell products or services directly from a social media platform is a logical next step, particularly given the rise of influencer marketing. The best customer journey is simple and seamless: why make a shopper leave Instagram if they can just click on a post’s embedded product tag and buy something in thirty seconds?

This opens up a range of opportunities, from Instagram and Tiktok’s live-streaming functionality, a renewed emphasis on influencer marketing, and a generally shorter purchase path from discovery to checkout. A new study by Accenture on the social shopping revolution revealed that the social commerce industry is expected to grow three times as fast as traditional eCommerce to $1.2 trillion by 2025, with the majority of growth driven by Gen Z and Millennial social media users, accounting for 62% of global social commerce spend by 2025. It’s good news for growing businesses too: more than half of social buyers indicated that they are more likely to support small and medium-sized businesses through social commerce than when shopping through eCommerce websites. Early stage founders should look to maximise the potential of this dynamic ecosystem of platforms, marketplaces, social media and influencers in 2022.

Sustainability

After Cop26, the green revolution has become both an ethical and strategic business priority. The market has reached a tipping point; the modern, conscious customer aligns with eCommerce brands because of a shared value set, and is happy to engage and buy from these brands virtually. According to an IBM study, 57 percent of shoppers are now willing to change their purchasing habits to help reduce negative environmental impact. Outfund is proud to have a number of Certified B Corporations in its portfolio, all of which have been seeing strong growth over the last year.

This is mirrored in the macro trend: UK annual consumer spending on ethical products and services surged past the £100bn mark for the first time in 2021, per the Co-op's Ethical Consumerism Report. Trust, transparency and traceability are now key factors in buying decisions. Consumers want to buy from purpose-driven brands, who not only prove how they offset carbon emissions and reduce single-use packaging, but are helping to build a sustainable, circular economy for future generations. This involves supply chain transparency and detailed information which consumers may not have previously looked for, such as how products are manufactured, the quality of ingredients or raw materials, if they were ethically sourced, and under what conditions they were made.

Companies like Tony’s Chocolonely are making waves in this space: the confectionary brand boasts traceability from ‘bean-to-bar’, and has promoted tech and industry initiatives to tackle long-standing issues in the chocolate industry. The fashion brand, TOAST, publishes a social conscience report, while Patagonia has a range of impressive sustainability-focused initiatives, from a self-imposed Earth tax (1% of annual sales donated to environmental nonprofits) to its ‘Worn Wear program’, an eCommerce shop where you can buy second-hand Patagonia products.

A Changing Funding Landscape

The UK startup scene received more than $100bn of venture capital in 2021, three times the level of 2020. Market sentiment is hard to predict in 2022; famously, forecasts often tell us more about the forecaster than the future. But there is a sense that, as an overheated market begins to calm, the growth-at-all costs mindset is transitioning to a pursuit of calculated scalability. This is not to say that the party is over in the private markets, but more that the mood music is changing.

Where does this leave early stage founders? Though some may still be targeting sky high valuations and endless funding rounds, there are now more routes than ever to long-term sustainable growth, whether it be via non-dilutive finance, crowdfunding, or angel investors. Relatedly, a fundamental need to build resilience will create new opportunities, with global trends such as climate change, sustainability, hybrid working, and decentralisation opening the door for businesses with disruptive ideas and products.

Equally, for founders with one eye on an exit, there’s never been a better time to have an online business with some traction, thanks to aggregators like Heroes, Thrasio, Olsam and SellerX. These holding companies now have immense firepower, and look to derive synergies from multiple related brands while leveraging cost, branding, and supply chain economies of scale. As a result, founders who have built a brand with some brand equity in their target segment, millions in ARR, and a strong cash position are an incredibly attractive proposition for a roll up play. Ultimately, when it comes to securing any kind of finance, there is no substitute for solid fundamentals.