Holiday 2021: Slow Motion Ecommerce Disaster

Two somewhat negative or critical ecommerce posts? I'm calling it like I see it. I love ecommerce and believe it is the shopping. But we're at an interesting junction point.

The back half of 2021 is looking more and more like a disaster movie for ecommerce. And these are (mostly) not due to the success of ecommerce, but to the state of the world today. Here are the digital issues I see hammering most ecommerce companies this holiday season:

Hard to Find Inventory

In the last year, container costs soared but that’s likely to be the least of our problems in holiday 2021. Most ecommerce retailers I talk with are still tight on inventory and having trouble loading up in time. China is struggling to keep ports open and we’re in September. I think this is going to be the year everyone runs out of inventory. As a consumer, buy early and don’t expect great deals for Christmas 2021. Large retailers are saying they have their inventory situation down, but many smaller sellers are struggling to get inventory back up ahead of the holidays.

Oh, and input costs (commodities) are also increasing in price as the dollar drops in value. That translates to higher costs for our manufactured goods no matter where they come from. Inflation is alive in well in the world and this will be the season that everyone realizes it.

CAC Costs Continue to Skyrocket

Covid drove everyone online, which was great for sales, but terrible for CAC. Across the board, acquisition costs are on the rise. Recent IPO’s show acquisition costs out of control (Warby divided their acquisition costs by their entire customer base to make it look reasonable). I think this is also due to the drop in TV viewership and the web becoming the last great place to find a mass market. (Side note: direct mail will come back). If we don’t see a break in the Delta variant, this holiday we’ll see record CAC costs again. At least there’s not much inventory, so no discounting on top of the crazy marketing spend.

Labor Costs Rising Fast

Not only are containers super expensive (if you can find them). Labor costs are rising fast. $15/hour is now the base for warehouse worker and I’m hearing a lot of folks struggling to hire anywhere near that. Call center costs are jumping and digital employees are seeing massive increases in salary. Part of the Great Resignation is the fact that we’re offering a lot more money to new employees than we have in the past. It’s hard to resist a 20% salary increase. We didn’t have enough digital talent pre-covid and we certainly don’t have enough now. I don’t see any area in ecom where salaries are flat.

Shipping Costs Increasing

So freight container costs up. Inventory costs are rising. Employee costs are rising. Oh, and the USPS just discovered surcharges. Can’t we catch a break anywhere? If there’s any growth in ecommerce this year, it should be worse than Shipmageddon was last year. I’m hearing more about shipping limitations for sellers, which means you can’t negotiate one great rate from any shipper. You need to be using them all and paying whatever they charge. My prediction is that Amazon shipping might eventually break this trend, but who knows when it will really launch.

YOY Comparisons are Tough

Finally, the YOY comparisons are going to be tough. Holiday 2020 was killer for ecommerce companies. If we see stores opening up and people more comfortable shopping, then ecom might actually see a YOY dip in sales (imagine that). My base expectation is that ecom grows but at a much smaller rate than we have become accustomed to. Like 6% instead of 22%. I do believe that we have a lot more ecommerce shoppers post-covid, however I also believe that people enjoy shopping in stores and have missed it. If they are comfortable, the mall may see a little bit of a resurgence in Holiday 2021. Which means ecommerce won’t pop like it has in the past.

In Summary

No sales, limited inventory, inflation raging, and increased costs across the board. What’s not to love about Holiday 2021? Almost everything. I expect a lot of commentary around cost inflation and inventory issues as we move into November this year. My prediction for 2022 is a lot more automation, manufacturing in Mexico and figuring out how do more with less ecommerce talent. Lots more to come on this topic.

Jay Allen
Digital believer. Started an ecommerce website in 1997 and been focusing on digital marketing ever since. B2C, DTC, B2B, I've done it all from building campaigns and up.
Atlanta, GA