Jeff Bezos was quoted recently as saying, “It’s time to batten down the hatches.” The outlook on Q4 Amazon is bleak as consumer spending gets more and more conservative, especially in Europe, where the economic recession heralds a harsh winter ahead. Incidentally, Amazon isn’t alone; Big Tech reports dismal earnings, showing they feel the impact of inflation and rising interest rates.
The Forecast on a Global Scale
Eroding consumer buying power could be the reason that Amazon shares dropped more than 15% in October. People are spending less.
Rising prices will affect the bottom line
Krista Morgan of Stage confirms that brands will face pressure on their supply chain due to rising inflation. That will eat into a brand’s net profit, meaning it’ll get very difficult to retain competitive pricing. Also, food prices have started to soar, meaning the disposable income that consumers fall back on for non-essential goods will diminish. Across many categories, consumers are getting more conservative. Because of price increases, consumers are starting to lean more towards generic brands, according to Morgan.
The questions that face an Amazon seller are, how to retain competitive pricing given rising costs? How do you fashion your product as an essential good?
More face to face shopping
Waze reports a growth in navigations to retail this year at 19% year on year, and 5% when compared to the prior period. Consumers prefer an omnichannel shopping experience; in person shopping is taking up popularity again. In fact, the same report by RetailDive shows that consumers are more likely to purchase expensive items in person, where it’s easier to convince a consumer to buy something on the spot. The more deliberate nature of online shopping is starting to shift. The article suggests that consumers are looking for that human connection and personal experience.
How can Amazon sellers amplify their customer experience to prove to their consumers that online shopping is still convenient – and warm? This Black Friday, 33% of respondents choose to shop both online and in-store. Gen Z respondents cited immediate gratification as a big reason for shopping in person – as opposed to having to wait for a package to arrive, no matter how fast delivery times can be. Perhaps Amazon sellers should bank on the people who prefer to shop online due to weather conditions, long lines, online deals, and health and safety concerns.
Rising fuel costs
The International Energy Agency (IEA) published its annual World Energy Outlook last October 27, where it delved into the energy crisis that has the globe in a vice grip. Fuel costs are so high, many sellers are searching around for alternative sourcing destinations as shipping from China to the US is proving to be very expensive.
The rising fuel costs hit the EU more than the US – this is impacting consumer spend, says Brian Olsavsky, Amazon’s chief financial officer.
Europe is Suffering
It’s a cold winter ahead. Unilever chief financial officer Graeme Pitkethly warns of rising inflation and depleting household savings: “Consumer sentiment in Europe is at an all-time low.” In fact, Britons are spending even less now than they did pre-pandemic. This is alarming; amazon.de and amazon.co.uk are the biggest markets after amazon.com.
Europeans are saving their money for heating and other necessities, shares Melanie Debono, senior European economist at Pantheon Macroeconomics. Major purchases are on hold, and at the lowest level in the last two decades, saving perhaps for the first two months of the pandemic. Europeans are getting less for their money – and they’re quite literally left out in the cold for it.
McKinsey’s outlook is pessimistic. Europeans are dipping into their savings to make ends meet. Economic confidence has dipped. People are concerned about rising prices; 43% of surveyed Europeans are pessimistic about a successful economic recovery.
What does this mean for the Amazon seller?
These facts are all crucial. They showcase where the European consumers lie in terms of spending power and confidence. Understanding the customer is the first part of successful entrepreneurship. Now that we understand how pessimistic Europeans are, we can pivot our sales and marketing strategies accordingly.
Also, consider the needs of your customers. Is there any way to position your product as an essential (or even semi-essential) good? Remember, during the pandemic, the sports industry did incredibly well; people opted for athleisure as comfortable work-from-home attire, and with the closure of gyms, fitness centers, and dance studios, many people bought sports equipment to stay healthy even while sheltering at home. Could your product benefit from a similar paradigm shift?
Furthermore, it’s a good idea not to put all your eggs in one basket. Expand your Amazon business to other markets. Don’t forget that Germany and the UK are the 2nd and 3rd largest marketplaces worldwide. In spite of the lower consumer confidence, it’s still a good idea to spread your interests in several markets rather than hoping for the best in a single one. Proper localization will communicate your value to customers, while staying sensitive to the current events that drive their pessimism. Careful and thoughtful copywriting, using targeted keywords, will position your product in the best possible light. Show your European customers that you are sincere about providing value, especially during these challenging times. A good localizer can express this message in the language your customers need to hear.