3 Profitability Strategies for E-commerce Retailers in 2023

E-commerce is dealing with a bad hangover.

We just left a two-year period where practically every category of retail saw unprecedented growth and the bar was raised for everyday e-commerce experiences. Now, merchants across industries are struggling to adjust to a harsher reality. Increased marketplace competition, tightening margins, and fears of a looming recession each contributed to e-commerce growth slowing in 2022 — and 37% of retailers say e-commerce isn’t meeting their profitability targets. 

In response, many brands are tightening their belts in preparation for difficult times ahead. But while e-commerce leaders are facing new challenges, customer expectations haven’t wavered. B2C and B2B buyers still expect the same seamless, omnichannel experiences that they have grown accustomed to with leading online stores. 

So, digital commerce sits at a crossroads in 2023 — and most retailers need a straightforward path ahead.

Best Practices in Challenging E-commerce Environments

With less room for error and more competitors than ever, e-commerce leaders must find ways to meet customer preferences while remaining profitable. This balancing act requires deprioritizing flashy commerce technologies and instead investing in data-driven, forward-thinking initiatives that add value.

With that in mind, here are the top three strategies to help maximize your profitability in 2023:

1. Prioritize existing customers over new customer acquisition. The cost of digital advertising skyrocketed in recent years, driven by an influx of marketing dollars. Many D2C e-commerce startups like Warby Parker found early success through highly targeted digital ad campaigns, but this model has become less feasible as the cost of entry has risen and the effectiveness of digital ads has diminished. 

Instead of competing with countless other retailers to win over new customers, savvy brands and retailers are doubling down on retaining their existing customers. While new customers are valuable for their potential to become repeat customers, existing customers are where profits come from today. 

Focus your marketing efforts on cultivating loyalty and community with existing customers through quality customer service, collecting first-party data, and offering a seamless user experience across all commerce channels. Turning just one customer into a brand champion can deliver greater ROI than banking on the potential of prospective customers. 

2. Make inventory and fulfillment competitive advantages. Inventory management isn’t the flashiest part of your retail operations, but it’s undoubtedly one of the most important. Sleek websites and creative branding are critical, but your customers won’t care about these offerings if they don’t know which items are in stock and don’t receive their orders on time (or at all). 

Instead of regarding inventory and fulfillment as afterthoughts, treat these steps as actual product offerings. Evaluate your current fulfillment capabilities by gauging customer satisfaction and identifying the causes behind why 69% of online shopping carts are abandoned. Regardless of your business type, your goal is comprehensive visibility into your inventory and clear communication about customers’ orders.

3. Implement underutilized engagement features. E-commerce leadership often talks about differentiating its brand from competitors. But in reality, many brand websites look similar. While there are some exceptions, customer experiences on e-commerce websites are largely homogenous — a missed opportunity to create lasting customer engagement.

Consider these unique features to make your website distinct from your competitors:

• Conditional content: Quickly learn users’ unique preferences through periodic prompts or surveys — ideally, ones that don’t elicit the same dread as a pop-up ad. For example, if your brand sells bicycles, prompt shoppers with questions about how long they’ve ridden a bike or what terrain they hope to ride, then tailor the website catalog you show them to reflect those insights. 
• Offer more human-to-human interactions: Make a more immediate connection with your customers by offering both chat and video-based assistance options. Seventy seven percent of consumers say they want to use conversational commerce when shopping online, and live personal shopping assistants can offer customers unparalleled real-time guidance. 
• Dynamic video content: Informative, entertaining videos should serve as the foundation for your website. Consumers who play videos on an online store are twice as likely to make purchases compared to other shoppers. Include videos highlighting product breakdowns, addressing common customer pain points and guiding shoppers throughout the sales process. 

Bet on Proven Profitability Strategies

With profit margins tightening and the future of retail uncertain, it’s easy for e-commerce leaders to feel overwhelmed. To maintain profitability, bet on data-driven profitability strategies. Instead of fighting tooth-and-nail for new customers, build loyalty with current customers. Rather than keeping customers in the dark about their orders, optimize your inventory management and fulfillment processes around transparency. Then, put your best (digital) foot forward with unique engagement models. These strategies ensure your organization can optimize profitability, even in a rapidly shifting e-commerce playing field like the one we’re experiencing today.

— Jordan Jewell, Analyst in Residence, VTEX