Forrester Predicts Challenges for pure play ecommerce brands

Is Ecommerce Due for a Correction in 2023? One Analyst Thinks So.

December 21st, 2022 Insights

It’s a cynical way to look at things, but always look for ulterior motives. Especially in today’s world of misinformation, journalistic malfeasance, and questionable behaviors, there’s a good reason to handle everything you read with a healthy dose of skepticism.

So… if you don’t know who we are, we’ll get it out of the way early. We make fixtures. We’re built on creating unforgettable retail experiences. We have a horse in the race, so to say.

Forrester Predicts Challenges for Pure-Play Ecommerce Players

But even we were surprised to stumble across a recent report from esteemed analyst firm Forrester, who predicted an “e-pocalypse” for pure-play ecommerce sellers as buying returns to pre-pandemic behaviors.

As reported by Chain Store Age, brands without a physical strategy could be due for a day of reckoning in 2023.

“As consumers revert to pre-pandemic behaviors, the year-over-year change in online retail penetration in 2023 will settle back at 1.5% (down from 3.5% in 2020), meaning that 76% of total US retail sales will still occur offline.”

This feels surprising. And even if this is welcome news for those in the physical retail world, it just feels like an anomaly. After all, staffing challenges persist. Supply chains are strained. It’d be easy to think that consumers might just want to keep working with what worked over the past two years.

Not Dying—Returning to Normal

And it’s not like ecommerce is dying—it’s simply returning to normal. After all, the pandemic accelerated ecommerce by five-plus years. As noted by Shopify CEO Tobi Luke,

“What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful five-year leap ahead.”

And it’s not like online sales are dying. Omnicommerce is still going to be a big thing. Ecommerce is still growing and will continue to grow for the foreseeable future. Digital influence is still important—especially for product discovery.

How Brands Can Prepare for the Coming Challenges

So if pure-play ecommerce brands face challenges, what’s the path forward? Diversification. Whether it comes through wholesaling, opening stores, or forming partnerships, Forrester predicts success for brands that can free themselves from life as a one-trick pony.

“In 2023, midmarket to enterprise-level pure-play retailers will need to choose one of three options: open physical stores (in the vein of Casper and Warby Parker), develop shop-in-shop locations (e.g., Macy’s/Toys “R” Us) or wholesale partnerships (e.g., Allbirds with Nordstrom and Zalando) — or close their (virtual) doors.”

And there are good reasons this is an idea. A physical store will put a brand in front of more customers who may not be in your target ad groups. Customer acquisition cost online is still high. A physical space gives you more control over your brand and the buying experience.

Plus, there’s still something special about physically interacting with a product. Physical retail offers experiences, community, and upselling. In fact, we discussed just this in our article on why DTC brands open retail spaces. So here, according to Forrester, are three main options for pure-play ecommerce brands to diversify in 2023.

Open Stores

DTC brands have embraced physical retail. We know this all too well. From the seemingly constant expansion of Warby Parker to the consistent growth of our friends at Brooklinen, brands synonymous with transforming ecommerce have settled into stores.

According to Retail Dive, DTC brands are seeking out a variety of locations. Though many seek out retail destinations like New York and Los Angeles, cities like Chicago, San Francisco, and Boston are becoming hot markets at lower costs.

In fact, author Cara Salpini posited in 2019 that Boston’s Seaport district had a chance to become retail’s new SoHo, driven in part by DTC darlings like our friends at Away.

Whether looking at a single store or rolling out a handful, a physical retail location gives brands the most control and connection with shoppers. And as we’ve discussed, there are few better ways to build excitement, establish a community, and create a tangible experience than a flagship.

Plus, you can’t forget about the sales bump. According to Lion’esque Group, consumers are 2.5x more likely to complete a purchase after visiting a flagship—and 75% said they were likely or very likely to purchase from a brand if they have a positive experience at one of these stores.

Looking to learn more about opening stores? Check out some of our resources below:

Expand Wholesale Partnerships

Though it leaves a bit less control, cuts into margins, and takes some relationship building, wholesaling is usually a logical step. Say that a person walks into a Target for razors. They may have heard of Harry’s but didn’t want to jump on the subscription model. And right next to their go-to shaving gear, they see a Harry’s display. And boom, there’s a sale.

There are a whole lot of benefits to wholesaling. Even if it has a handful of challenges. You’re going to get big, cash flow boosting orders—if you can scale to deliver. You’re going to have new access to customers—if you can get a meeting. Products will move fast—even if the margins aren’t the same.

For established brands who might not have a massive selection of products to justify a store, wholesaling can make sense.

Embrace the Shop-in-Shop

The final recommendation by Forrester is what we consider the middle ground between the flagship and wholesale. It’s the shop-in-shop, and it’s becoming more and more popular for retailers and brands.

Big box stores like Walmart are making shop-in-shops a significant part of new store designs. Target has been doing this for a while; what started with Starbucks and CVS expanded to include brands like Disney, Casper, and more.

There are good reasons the shop-in-shop is popular. Mostly, because the model works. As we’ve discussed,

“The shop-in-shop provides dedicated space without requiring the commitments of a flagship or the ramped-up capacity requirements of a traditional distribution model. Instead of figuring out how to furnish 10,000 square feet of retail space or ramping up production to supply 3,000 stores, you get to showcase your wares in a limited, high-traffic space.”

From co-branding to broader reach, shop-in-shops blend cost and control for brands while giving retailers an opportunity to become a destination for said brand’s avid fans. Learn more about the history of shop-in-shops and the benefits of opening one here.

Conclusion

Business models change. It’s harder than ever to connect with customers. Just as physical retailers unable to keep up with ecommerce faltered, pure-play ecommerce players will face challenges in coming years. Forrester notes,

“To succeed, retailers must focus on becoming “future fit” as they position their business model, marketing, stores, and operations to weather and grow through economic issues — not least of which is global inflation — and into the post-pandemic world.”

The right blend of tactics matters. Especially in an era where everything needs to connect, the goal is to be everywhere a customer wants you to be—when they want you there. From short-term pop-ups to bold and experiential flagships, you need a partner who’s capable of turning your vision into a reality.

And that’s where we come in.

As a custom manufacturer of fixtures and furniture, Morgan Li is ready to combine skill and scale to deliver on time, on budget, and just like the rendering. That’s why you’ll find our work at some of biggest names in the DTC world—Brooklinen, Away, The Sill, and many more.

If you want a partner with the background, capabilities, and craftsmanship to get the job done right, let’s get in touch.