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What does this week’s sharp drop in stock prices mean for online retailers?
The answer depends, of course, on whether the market keeps going down or reverses course. If it keeps dropping, consumers will feel less wealthy and more concerned about their jobs. That means they are likely to spend less, which would hurt all retailers, online and offline. A quick rebound in the market could make this just a worrisome blip on the way to a solid holiday season online.
This sharp decline brings to mind similar events in the fall of 2008. In both cases, the market drop was precipitated by developments in the financial world far removed from the lives of most consumers. But those developments in 2008 quickly led to an economic slowdown that cost millions of Americans their jobs. And that led to a slump that did not spare online retailing. By comScore’s reckoning there were four quarters of declining or flat online retail sales from late 2008 through the summer of 2009.
The good news for online retailers is that e-commerce bounced back more rapidly from the recession. Online retail’s growth rates have been at least three times the growth rate of bricks-and-mortar stores for the past year. The bad news for all retailers is that we’re starting from a higher level of unemployment this time: 9.2% today versus 6.2% in September 2008.
However, online retailers are better positioned to withstand any double-dip recession that might unfold, suggests Eric Best, CEO of Mercent, which helps retailers sell on online marketplaces like Amazon and eBay, Google Product Search and comparison shopping engines. “The more price-sensitive consumers become, the more they’ll rely on online research for any considered purchase,” Best says.
And online retailers have one big thing going for them today they didn’t have in 2008, Best adds. Today, tens of millions of consumers carry smartphones that enable them to access the web at any time, including when they’re standing in the aisles of a bricks-and-mortar store. That means a web retailer that makes itself visible and accessible to mobile shoppers—through mobile paid search ads and by maintaining a mobile-optimized commerce site among other marketing methods—can poach sales from physical stores more easily than was possible in 2008.
Another difference: gas prices are much higher today, which seems to be one reason more consumers are shopping from home rather than driving to the mall. The global economic crisis appears likely to lower gas prices, but they may well remain high enough to make web shopping attractive to cash-strapped shoppers.
Here’s something else to consider: During the 2008-2009 recession large online retailers gained market share from smaller ones, according to comScore’s estimates. That’s started to reverse in recent quarters. Why? ComScore vice president of industry analysis Andrew Lipsman says it’s because larger e-retailers were more likely to maintain their marketing spend during the downturn than smaller ones, and thus gained market share. In recent periods, as the economy has rebounded, smaller retailers have resumed marketing themselves online and regained some ground, Lipsman says.
The lesson for e-retailers seems to be not to pull back too sharply on marketing during any recession that may develop, as many consumers still will be shopping online, especially those who are most price-sensitive. And if you don’t have a mobile commerce site, you should seriously consider building one.