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As June approaches, the first half of 2022 is coming to an end, and the "love-hate relationship" between cross-border sellers and Amazon is still going on. Cross-border sellers are also beginning to "recall their youth" in the fleeting time: Looking back at the first half of 2022, sellers have experienced all the ups and downs, including the tension caused by the outbreak of the supply chain crisis, the helplessness of Amazon raising FBA fees several times, the joy of the rebound of the US dollar exchange rate, and the sadness of the sharp decline in order volume. It is found that nowadays many sellers’ enthusiasm for cross-border business has declined and their mentality has also changed. Compared with their previous “lofty ambitions”, today’s sellers seem to be more “Buddhist”. According to foreign media predictions, Amazon Prime Day this year may be held in mid-July, which is only one month away. However, compared with the enthusiasm of sellers in previous years, the enthusiasm for Prime Day in the industry this year has dropped a lot, and many sellers have not even reported any promotions. As an annual traffic peak, why would sellers give up this shopping feast? In-depth exploration of the reasons revealed that this is the result of the combined effects of internal factors and external environment. After experiencing explosive growth in 2020 and a roller coaster-like decline in 2021, the growth rate of global e-commerce has declined significantly and ushered in its historic turning point. The turning point has arrived Global e-commerce market "cools down" It is understood that since the outbreak of the epidemic, the global e-commerce market has experienced a step-by-step growth. The e-commerce market peaked in the early days of the outbreak in 2020, with e-commerce penetration reaching the growth level of the previous decade in just a few weeks. However, since a certain point in time, the e-commerce market has not continued to grow from its peak as expected, and has now begun to "cool down," entering a new market inflection point. MarketplacePulse research shows that the current e-commerce market share is smaller than predicted at the beginning of the epidemic, and the decline in penetration rate is greater than predicted at the beginning of the epidemic. At the same time, various unfavorable factors such as the recurrence of the COVID-19 pandemic, the complex international situation, and the slowdown in economic growth have prompted new expectations to gradually form in the volatile market. Since the beginning of 2022, the stock prices of e-commerce giants have collectively fallen and they have lowered their performance expectations, which essentially reflects the change and reconstruction of market expectations. Against this background, current e-commerce companies are also experiencing turbulence. Many e-commerce companies have over-invested due to market misjudgment, resulting in an oversupply of resources such as manpower, goods, and warehouses, and have been forced into the center of a vortex of low growth. For example, Amazon recently announced that it would sublease warehouses due to excess capacity; retail giants such as Walmart and Target launched a clearance wave due to excess inventory. Since the end of 2021, e-commerce stocks have begun to fall, and the share prices of e-commerce stocks such as Amazon, Shopify, and Wayfair have all declined, and giants such as Amazon and Allegro have lowered their performance expectations. Similarweb data shows that compared with March this year, Amazon's total visits in April fell by 100 million. According to Amazon's financial report, its revenue in the first quarter of this year increased by 7% year-on-year, which is much lower than the same period last year and the slowest growth rate in 20 years. It’s not just Amazon that has experienced a sharp decline in traffic. Other e-commerce platforms have also been stuck in a deadlock with reduced orders. It is learned that with the advent of the post-epidemic era, the bonus period of online e-commerce has gradually faded, and the order volume of cross-border e-commerce platforms has begun to decline collectively after experiencing a "roller coaster". According to the Market Insights index, the average order volume for Shopify merchants is down 12% year-over-year so far this year, while other marketplaces, including eBay, Etsy, Google Shopping, Wayfair, Walmart, Yahoo and Zoho Inventory, are down an average of 27% so far this year, and UPS's shipments fell 8% in the first quarter. Extensiv said the decline in orders may be due to the recovery of offline shopping and consumers' response to recent market fluctuations and inflation, coupled with disruptions in the global supply chain, some goods are still out of stock, which has had an impact on large e-commerce platforms. To sum up, expensive and slow logistics, inventory forecasting errors, and rising advertising costs have gradually become pain points in the development of the e-commerce industry. These problems are also forcing domestic e-commerce companies to accelerate their growth. Supply chain management and multi-channel customer acquisition will become the decisive driving force for their breakthrough. It can be seen that the current e-commerce development environment is not optimistic both at home and abroad. E-commerce platforms and third-party sellers are facing many difficult problems. Against this background, many sellers have begun to fall into traffic anxiety and gradually lowered their expectations for Membership Day. Sellers have lowered their expectations for Prime Day According to the time announced by foreign media, Prime Day is only one month away. According to past practice, cross-border sellers are now immersed in busy preparations. In past years, Prime Day has typically been the best sales period with the most traffic for third-party sellers. During last year’s promotion, customers spent more than $1.9 billion on more than 70 million products from small businesses, according to Amazon. However, it is learned that unlike previous years, Prime Day sellers this year will face greater challenges, such as rising costs, intensified competition, poor traffic and other obstacles to explosive sales. These factors are all deepening Amazon sellers' anxiety about Prime Day sales, and many big sellers have also said that this year's Prime Day may not be as expected. Before the big sale, with the decline in both platform traffic and seller order volume, sellers' traffic anxiety became increasingly severe, and they were also worried about the upcoming Prime Day. Every seller had different worries. One seller told us that he had been preparing for Prime Day in February this year and stocking up in advance, but some suppliers still could not keep up with the production and the delivery speed was slow. In addition, due to the special circumstances this year, it is more difficult for sellers to accurately calculate the sales volume during the promotion period, so there are doubts about the stocking and ordering quantity. Whether it is too much or too little, it is not a good choice. Similarly, seller B is also troubled by the problem of stocking and shipping. On the one hand, Amazon has adjusted FBA fees several times this year, resulting in rising shipping costs. On the other hand, FBA warehouse overflow and storage capacity limitations have not been completely resolved, further hindering sellers' peak season shipping plans. How to coordinate inventory and cost profits has become a top priority. In addition, many sellers have lost confidence in the sales and profits of this year's Prime Day. Under the challenges of the severe external environment, can sellers achieve higher sales and maintain profits? The consumer price index rose 8.3% in April from a year earlier, according to the most recent report from the Bureau of Labor Statistics. In April, Amazon reported its first quarterly loss in seven years at $3.8 billion, in part due to slowing online shopping sales. A foreign seller said one of his biggest concerns is whether consumers will cut back on spending, especially on non-essential items, so this year's Prime Day sales may be lower than expected. The above situation is not an isolated case. We understand that many sellers are skeptical about the traffic dividends brought by this year's Prime Day, and predict that sales on Member Day "will only be slightly better than usual, and will not be as explosive as in previous years ." Coupled with the already high labor, product, and logistics costs, when all is offset, the profits will not be too optimistic. What's worse, a small number of sellers choose to directly give up participating in the Member Day event. "Even if we sign up, we will just be a runner-up throughout the whole process," complained a seller in the group. In addition to changes in the overall e-commerce environment, what other factors will directly affect sellers' sales? What factors affect sellers' sales?
1. The supply chain crisis spreads, seriously affecting global logistics Since the outbreak of the epidemic in 2020, the global supply chain crisis has gradually spread, and problems such as labor shortages, port congestion, warehouse overflows, and rising freight rates have occurred frequently, causing immeasurable impact on the cross-border e-commerce industry. The chaos and stagnation of cross-border logistics have also become a major obstacle to the development of cross-border sellers' business. As the global epidemic battle line lengthens and the international political environment becomes unstable, manufacturing plants around the world have shut down, shipping channels have stopped flowing, and the global supply chain has been severely disrupted. On June 6, CNBC released a heat map of supply chains in China, Europe and the United States, presenting the most realistic global supply chain situation. It is reported that the current global supply chain has the following main problems: - The number of export containers has decreased, and strikes by port workers have become more frequent;
- Many ports continue to be congested, and cross-border cargo is seriously backlogged;
- Ocean freight prices remain at historical highs, and fuel surcharges are adding to inflationary pressures.
All of the above factors have exacerbated the uncertainty of sellers' shipments. According to data released by Jungle Scout, approximately 90% of Amazon sellers were negatively affected by supply chain challenges in 2022. 2. Operating costs rise, and sellers’ profits are squeezed Since the beginning of this year, some European and American countries have experienced severe inflation and a sharp decline in consumption levels, which has had a negative impact on foreign cross-border e-commerce platforms. In order to cope with the pressure of inflation and economic downturn, some e-commerce platforms are taking measures to transfer the rising costs. For example, Amazon has announced several times this year that it will increase FBA fees and related surcharges for third-party sellers by a certain percentage. In addition, rising raw material prices, the appreciation of the RMB exchange rate, platform advertising fees, and several increases in sea and air freight rates have directly increased sellers' operating costs, further squeezing their profit margins. One seller wrote on the forum: “I have been doing business on Amazon for more than four years, and this is the first year that I feel the pressure. In recent months, the platform traffic has decreased, advertising costs have increased, conversion rates have decreased, and prices have decreased, which has further compressed profit margins or increased the amount of losses.” Kiri Masters, head of retail marketing at growth marketing firm Acadia, said some sellers may not offer big discounts during Prime Day because their profits have been squeezed to the extreme. "With the rising costs of various raw materials and labor prices, many brands have been experiencing a situation where revenue has increased but profits have not increased for some time. " 3. Market growth slowed down and foreign buyers’ consumption level declined It is learned that according to Salesforce's first quarter shopping index, global online sales in the first quarter of 2022 fell 3% year-on-year, the first decline in nine years. Salesforc expects that with the exponential growth of fuel prices, increasing scarcity of goods, and continued rise in inflation, consumer purchasing confidence and online spending will stabilize in the future. This consumption trend is particularly evident in cross-border e-commerce markets such as Europe and the United States. Let's look at a few sets of data: - Affected by continued inflation and weak labor market, the U.S. consumer confidence index fell slightly in May, from 108.6 in April to 106.4, the lowest level in nearly three months.
- UK retail sales fell 1.1% year-on-year in May, the biggest drop since 2021 and higher than the 0.3% drop in April.
- More than 80% of American consumers plan to reduce spending in the next three to six months. As of now, American consumers' purchases are significantly less than a year ago.
- In the first quarter of 2022, U.S. consumers' purchase frequency fell 5% and they planned to purchase lower-priced goods within 3 to 6 months.
It is understood that US inflation is at a 40-year high, inflation expectations in May are basically the same as the high level in April, and the Federal Reserve is raising interest rates at the fastest rate in more than 30 years. In summary, under the combined influence of internal and external factors, not only are e-commerce platforms experiencing a major cooling, but third-party sellers are also caught in a vortex of high costs and low traffic, resulting in lower expectations for this year's Prime Day among sellers, sending a signal that various membership days will not meet expectations. As one seller said frankly, "In my opinion, the peak season in the second half of the year may be less prosperous than in previous years. Problems such as low traffic, high advertising costs, low conversions, and low profits will continue." However, there is still a month to go before Prime Day, so sellers don’t have to be too discouraged. They should continue to make preparations. After the historic turning point has passed, the e-commerce market will also see a turnaround. For more information on preparing for Prime Day, please check out the previous article "2022 Amazon Prime Day is about to start! How to prepare for a successful start?"
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