Surviving a Recession in an Ecommerce Marketplace

Surviving a Recession in an Ecommerce Marketplace

Time Stamp: November 18, 2022 7:42 AM
Source Node: 1899229

The dreaded word “recession” is one that nobody wants to hear when discussing the economy. But it’s a word that has been coming up more and more frequently in recent months. As inflation rates have risen, the average American has struggled to keep up with increased prices.

In the face of this economic picture, many people are left wondering, “are we in a recession?” The answer to that question is not as straightforward as it might seem. A recession can be defined in a few different ways, and can involve many different factors.

The U.S. economy has not faced a declared recession since 2009. In the intervening decade, the business landscape has changed dramatically. Namely, the rise of ecommerce platforms has dramatically altered the way many businesses operate on a day-to-day basis. It has also profoundly changed the way consumers shop and interact with companies and their products or services.

Turning to the present economic situation and near future, there are three important questions to address: Are we in a recession? What can we do in a recession?

And how might a recession impact ecommerce?

Are We In a Recession?

To answer the question of whether or not we are in a recession, we need to first define what a recession is. In general terms, a recession is a sustained period of weakness or downturn in economic activity. A more concrete definition would be consecutive quarters of negative or weak GDP.

However, when it comes to determining whether or not the U.S. economy is officially in a recession, that is the responsibility of the NBER. The National Bureau of Economic Research is responsible for determining when a recession has begun, as well as when it has ended. So the official answer to, “Are we in a recession?”, as of December 2022, is “No”, according to the NBER.

While we may not currently be in an official recession, nearly all experts agree that a recession is inevitable. Economic downturn has begun and is expected to continue. However, some experts have expressed tentative optimism in the face of the oncoming recession. A Stanley Morgan report notes a strong labor market and booming automotive industry are encouraging signs, and could help to avoid a worst-case scenario.

What happens in a recession?

What typically happens in a recession is that economic output drops considerably. This is most evident in downturns in employment and consumer spending. Cost of living prices exceeds manageable levels for individuals, resulting in less disposable income for spending. Likewise, operation costs increase for businesses, forcing companies to make cuts to employment, which hampers their production.

The exact cause and circumstances of a recession are never the same. The 2008 recession was caused by a collapse in the housing market. The current economic downtown is largely a result of skyrocketing inflation rates. Right now, the Federal Reserve is focused on getting inflation rates under control as the biggest step toward healing the economy.

Consumer spending during a recession decreases but does not vanish entirely. Rather, households and individuals are forced to adjust the ways they handle their money. While the reality of a recession is never pleasant or desirable, it can often lead to positive change in the future. Businesses are forced to adapt to a new economic reality. Moreover, the changes they make often result in better practices in the long term.

Those looking ahead toward an impending recession might have one additional question to ask: How long does a recession last? And that, unfortunately, is the most difficult question to answer.

How long is a recession?

A recession can last any length of time. The last recession (The Great Recession) lasted from December 2007 to June 2009, roughly 18 months. This was a longer-than-average period for a recession to last. On average, modern recessions tend to last roughly 10 months. Though temporary, a recession can have a lasting impact, especially on those who are unprepared.

What To Do In a Recession

Nearly all businesses will need to make spending cuts during a recession. The key is to make intelligent, informed decisions about which areas to cut. Resources will be limited, so it is crucial to allocate them effectively. This often means understanding the needs of your market during a recession, and how you can meet them.

How to prepare for a recession

Preparing for a recession largely relies on responsible financial management and intelligent spending cuts. Handling your finances responsibly is a staple for any well-run business, of course. But this becomes even more crucial during a recession.

One common concern before a recession is what to do with stocks. If you have stocks in any company, you may be tempted to sell before the recession hits in order to have cash immediately available. But this is often an unwise, shortsighted decision. Selling your stocks before a recession often means selling low. It is often better to wait for the market to recover so that you can sell high on your assets.

When it comes to spending cuts for your business, the key is not to neglect the needs of your consumers. Many businesses make the mistake, for instance, of slashing their research and marketing budget during a recession. But this undermines the essential goal of remaining relevant to the needs and demands of your clients.

During a recession, consumer spending habits change dramatically. For businesses to remain afloat, they must understand the evolving needs of their consumers and meet their demands. This is easier for some businesses than others, of course. Some may have a (relatively) easy time and do well in a recession. While others, for instance, will struggle to re-strategize or re-engineer their business models.

What businesses do well in a recession?

The businesses that tend to do the best in a recession are those that sell essential products or services. Decreased consumer spending during a recession does not mean that spending reduces to zero. Instead, people are forced to change the way they spend their money.

Things like food, clothing, and personal items continue to do well. Everyone needs to eat, dress, and take care of themselves. Essential services, like automotive repair, plumbing, and heating also tend to do well. But these obvious essentials are not the only businesses that do well in recession times.

Small luxury items or services can also be in high demand during a recession. Consumers might be less likely to spend lavishly on big luxuries or extravagant vacations. But people still need to relax and do something in their free time. Camping and hiking gear, for instance, tends to remain popular during a recession. Books, video games, movies, and other forms of entertainment also remain strong.

How to recession proof your business

For businesses without an obviously-essential product, the question of how to recession proof your business can be tricky. However, it is doable.

As mentioned previously, marketing remains very important during a recession. This helps establish a connection between business and consumer. If consumers recognize that your business understands their situation, they are more likely to buy from you.

Understanding the needs of your clients also allows you to make more informed budgeting cuts. Your business should identify which products or services will remain viable during a recession, and which will not. This allows you to put more resources into those viable products while reducing resources elsewhere.

Is Ecommerce Recession Proof?

The question of how a recession will impact ecommerce remains a bit of a mystery. The ecommerce landscape as it is today has never been through a recession before. However, it is safe to say that ecommerce itself is not recession-proof. Ecommerce sellers are still subject to increased operating costs.

Competition with other ecommerce businesses is also an obstacle during a recession. Lower consumer spending means less spending to go around overall among all competitors in an area.

How to run an ecommerce business in a recession

Some of the general business tips mentioned above are applicable to ecommerce businesses as well. Creating value for your business, and focusing on the long-term lifetime value of your consumers can be crucial for any business. But for ecommerce businesses, in particular, there are a few unique solutions to help navigate a recession.

Namely, a more streamlined online shopping experience can increase sales and profits for businesses online. This can take shape in a few different ways. Optimized pricing and not setting identical prices for similar products can help customers decide on their purchases.

Running sales and special deals can also produce a lot of value. Buy One, Get One deals are a great way to move inventory that isn’t selling well in the recession. Ecommerce stores can also take advantage of their page display when running sales. Listing the original price and sale price side by side, differentiated by font size or color, visually emphasizes the savings for customers. Studies show that this visual contrast helps customers value the savings, making them more likely to complete their purchases.

For more tips about how to optimize your ecommerce store for more sales, read our article “Using the Psychology of Decision-Making in Sales Content Optimization.” And, when you’re ready, consider joining the Ecwid Ecommerce platform to help customize your online marketplace.

Do you want to learn more about building an ecommerce business?

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