Holiday spending is expected to increase this year, but not by much. Adobe’s much-anticipated 2022 Holiday Shopping Forecast estimates sales will grow by 2.5%. This is much lower than the 8.6% growth rate in 2021. However, Amazon sellers should not be discouraged. A recent report by Deloitte projects ecommerce sales will grow by up to 14.3%.
As the most powerful marketplace in the U.S., Amazon will attract the lion’s share of online shoppers over the next two months. How your brand performs will depend largely on your preparation. With this in mind, here are the top four challenges sellers will face this holiday season, along with preemptive strategies to overcome them.
Challenge #1: Inflation
You don’t need an economics degree to notice the rising cost of everyday goods. Rarely a day passes without another news story reminding us that inflation rates are the highest they’ve been in 40 years. According to a recent survey by Bankrate, nearly half of respondents said inflation will change how they shop during this holiday season. Four out of five will use new tactics to save money, including the following:
- seeking out coupons, sales, and discounts (41%)
- buying fewer items (40%)
- starting shopping earlier (27%)
- buying cheaper brands (21%)
- using credit card rewards to offset costs (17%)
- shopping at stores where they have loyalty accounts or store-specific cards (17%)
- making gifts or crafts (14%)
- obtaining used or secondhand items (11%)
The Solution:
Solving inflation is beyond the scope of any brand, but the worst thing you can do is pull back on your holiday marketing. Despite the economic downturn, customers will spend money over the next two months. Adobe estimates total holiday sales in the U.S. will reach $209.7 billion dollars, which is more than last year. Unfortunately, many brands will miss out on their full share of this revenue by decreasing holiday marketing due to fears of inflation. Don’t be one of them.
Challenge #2: Rising CPC Costs
Advertising always seems to get more expensive. This year is a little different. Apple’s iOS privacy change strains platforms like Facebook, driving prices down. It had the opposite effect on Amazon, which relies on its own data to track customer shopping habits. This helped Amazon’s ad revenue reach $8.76 billion in Q2 of 2022, an 18% YoY increase. Consequently, advertisers are paying more to stand out in Amazon’s increasingly crowded marketplace. The more advertisers there are to bid on the same keywords, the higher the cost-per-click. With the holidays being the busiest shopping season of the year, you can expect the cost of Amazon Ads to reach new highs in the coming months.
The Solution:
First and foremost, review your holiday advertising budget carefully so you understand exactly what you have to spend. Then decide where you want to allocate these dollars. In many cases, it will make sense to promote a more strategic selection of your catalog. Higher CPC costs will affect the profitability of your ASINS. You will likely find that it doesn’t make sense to run Amazon Ads on certain products – especially those with competitive search terms. You might also consider switching from dynamic to manual bid campaigns to maintain control over your budget. In short, be more selective with your advertising at the beginning of the holiday season. Then adjust as you see fit to better maximize ROI while CPC prices are high (they will go down eventually).
Challenge #3: Logistics Costs/Delays
Companies depend on a vast network of ports, container vessels, and trucking companies to move goods around the world. The growth of ecommerce bottlenecked this industry for the 2021 holiday shopping season – and it still hasn’t recovered. In fact, the rising cost of oil has made it worse. According to Supply Chain Management Review, 59% of small business merchants report that their margins have shrunk due to supply chain conditions. Nearly half say this is due to elevated freight costs. It will also cost more to ship items via the post office this holiday season. The USPS is increasing rates by $0.25 to $6.50 for commercial products and $0.30 to $6.45 for retail products, depending on the size and shipping method. This increase in shipping costs across the board presents yet another obstacle for businesses and shoppers this holiday season.
The Solution:
There isn’t much you can do to lower shipping costs, but you can prepare for FBA shipping delays and bottlenecks. Channel Key recommends that brands consider a Fulfilled by Merchant (FBM) backup strategy to ensure you don’t lose sales due to FBA inventory issues. This will enable you to continue selling ASINs that are unavailable in FBA by fulfilling these orders yourselves. High-volume retailers with their own warehouse and logistics network can rely on themselves, but smaller companies or those that depend solely on FBA might need to consider partnering with a 3rd party logistics (3PL) provider.
Challenge #4: Competitive Discounts
Adobe expects retailers to offer record-breaking discounts to incentivize consumer spending this holiday season. Some of the strongest discounts will fall in the categories of electronics, sporting goods, toys, and appliances. It’s no secret that price matters on Amazon. It often means the difference between a sale and a pass. This is especially true during high-volume events like the holidays. According to Adobe, the biggest discounts across categories will activate during the weekend before Thanksgiving. They’ll reach their deepest levels on days like Black Friday, Cyber Monday, and the days between Cyber Week and Christmas.
The Solution:
Amazon provides various marketing levers to help you promote products, but not all drive the same traffic. Certain promotions like Coupons and Prime Exclusive Discounts display prominent badges that help distinguish your offer from surrounding listings. To attract shoppers, run competitive discounts that are equal to or greater than similar product offers. You should also consider using Amazon Ads to maximize traffic to these listings. Choosing high-margin, top-selling products will help offset the cost of advertising and maintain profitability on these ASINs.
Channel Key Takeaway
When it comes to the current status of the American economy, inflation dominates the headlines. This constant focus on rising costs makes it easy to overlook the good news. For example, Adobe’s holiday forecast estimates Cyber Week 2022 will generate $34.8 billion (16.3% of the entire season’s revenue). The report also predicts Cyber Monday will set a new record and top $11 billion for the first time. These are the figures that should motivate and guide your holiday marketing strategy. Regardless of inflation, customers will shop more over the next two months than at any other time of the year. By avoiding the temptation to be discouraged and preparing for the challenges outlined above, your brand will have a definitive advantage over your competition this holiday season.
