Weathering the Storm: E-Commerce in a Recession

Posted on November 27, 2018

It’s the big scary word on the tip of everyone’s tongues right now: recession. The economy has been stellar for e-commerce companies, and businesses as a whole for a while, so naturally, people are anticipating the next crash. Pundits are starting to see storm clouds, especially in the wake of the large stock sell-off in October. It seems as though the economy is projecting to be headed for a bear market, but it’s important to bear in mind that projections can be misleading.

As Nobel prize-winning economist Paul Samuelson once joked, “The stock market has predicted nine of the last five recessions.” There’s no telling if the downward trends will continue, or be a simple blip on the map as the market corrects itself. Now is not the time to panic. Rather, it’s time to be prepared, be vigilant, and be proactive.

If we assume that there’s going to be a recession (there may not be in 2019, but they’re a natural part of the economic process, so one will happen at some point), what does that mean for your e-commerce business?

One of the first things you should do, recession, or not, is to assess whether your business produces discretionary goods or staple goods. During periods of recession, discretionary products sell less, as they can be put off until later, better times. Staple products will resist trends in the market because they’re necessities. It’s common sense — you have to buy food, soap, and laundry detergent, but you can probably put off buying that Harley until things improve. So you need to determine if your store is selling must-buy products, or discretionary products. If you’re mostly selling discretionary products, you might want to diversify your products. This isn’t to say that people won’t buy your product. If you’ve built a strong relationship with your customer base, you’ll probably still sell well. You should be aware of what necessity your product meets.

In the wake of a recession, it’s incredibly important to go above and beyond your usual customer service experience. Customers will remember who was there during tough times, and who wasn’t. If you offer the kind of service that makes your brand exceptional, you’ll likely retain the customers you have, and gain a reputation as a brand new customers can trust, in good times or bad times. It’s also important to note that among the many closures that will happen during these times, it could be your competition. Customers will likely be wayward — be a guiding beacon.

There are advantages present in the e-commerce field that will be interesting to gauge whenever a recession does happen. The inexpensive nature of internet-based advertising will give your online store a leg-up on brick-and-mortar stores. Advertising and marketing budgets will likely be the first to go, and if those are spent wastefully on television commercials no one will see, those businesses will be under quickly. You can use cost-effective ad buying and free social media presence to maintain reach to your customers.

It will also be interesting to see the state of seed capital. Money will not be made in the stock market, so investors may pivot to invest in promising start-ups. If you’re asking the right people, and get them to bet on your brand, you could stand to gain a ton of funding if you prove yourself more profitable than a stagnant stock market. This is just conjecture, but there is a certain precedent for that kind of behavior.

Finally, it will be interesting to see if major e-commerce players suffer or succeed. Amazon has such a diverse product catalog, that it has likely established itself as a staple company. They will see a decline in discretionary purchases though, begging the question of whether or not their staple products can outsell their discretionary products.

With that said, we must be realistic. If you’re just starting up, it will likely be difficult to navigate a recession. You have to be prepared for some trying times. The advantage your online store has though is the little-to-no overhead cost. A website costs very little to host, and if you aren’t carrying inventory, that’s the only expense you’ll have outside of marketing. It may be a few months in which you must live well within your means, but e-commerce stores are exponentially better equipped to weather that storm.

A recession is bound to happen as a natural part of the global economic cycle, but that doesn’t mean your e-commerce journey has to end. According to “legendary” mutual fund manager Peter Lynch, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves.” Be prepared, but don’t overcompensate. Don’t kill your store in the process of preparing for it to be shaken. If you’ve built your brand on strong foundations, the stormy economic seas can still lead your ships to lands of profit. All your business needs is a strong, steadfast captain, and luckily, it has you.