The impact of softening economic conditions to online retailing and e-commerce.

The economy and looming recession have become the number one strategic issue for 2008 being discussed from the boardroom through every level of operations. This blog entry will explore the impact to online retailing and e-commerce and the best way to respond.

After a healthy 2007, which grew online revenues at 19%, the question is how will softening economic conditions impact 2008 online revenue? According to Piper Jaffray’s 1Q08 e-commerce survey, low levels of consumer confidence and sluggish retail sales have already impacted consumer spending: 36% of respondents indicated that they are worse off financially today vs. a year ago, 23% indicated they are better off, and 41% indicated their financial condition was the same. Looking forward, 21% of respondents indicated that they expect their financial condition to worsen over the next year, 38% expect their financial situation to improve, and 42% expect their financial condition to remain the same.

But will this impact online spending and what does that mean to us? In every type of economy there is opportunity. Early stats are indicating that online channels are the shining star in a challenging economic environment. In fact, many consumers are planning to shop more online.

According to Hitwise traffic to retail sites this year through the first week in March is up year over year growing from 16% to as high as 24%. Amazon, the No. 1 Internet Retailer and key indicator reported a Q1 net sales increase of 37% to $4.13 billion from $3.02 billion which CEO Jeff Bezos attributes to their low prices.

The online shopping channel offers several key advantages in a down economy such as convenience (time is money!), saving money on gas, finding lower prices on the web, and using the web for comparison shopping.

Strategies for increasing sales in this environment include:

• Understand your customers’ mindset and how economic news will impact them. Capitalize on their emotions and behaviors by emphasizing promotions such as free shipping or discounts to attract new customers.
• Utilize creative and targeted marketing tactics. A great example is the Sears Stretch Your Check campaign offering an additional 10% gift card when you apply your stimulus check to a Sears brands.
• Take advantage of the weak dollar to extend your international sales. The dollar is trading at an all time low representing a great opportunity to open up International shipping.
• Use the web as a catalyst for change to quickly modify your assortment in response to shifting buying patterns.
• Since the economic situation will impact each segment differently, now is the time to use even more targeted marketing and promotions to better reach your segments with the right products, offers, and messages.