Ecommerce Trends That Shaped 2021

We all know COVID changed ecommerce forever; the industry grew by a record 28% in 2020, and volume shot through the roof as we were forced to buy everything from groceries to bed sheets online. Many retailers launched online stores and were forced to start selling and marketing digitally for the first time.

The past 11 months have seen continued expansion for some, but also very painful contraction for others. Merchants are facing a confluence of complex challenges: People are spending less time online, some shopping habits are reverting to offline channels, supply chains are crippled, and privacy changes are upending lead targeting. Two notable examples of contraction include D2C companies like Boxed and Grove Collaboration. Numbers from their SPAC announcements saw Boxed increased advertising 600% in order to grow 14% this year, and Grove saw growth drop from 56% in ‘20 to 6% in ‘21 despite expensive increases in marketing spend.

For everyone selling online, competition and complexity are at all-time highs. Ecommerce enablement startups are building solutions at a rapid pace to help support merchants, however creating breakout successes requires building something so fundamental, so mission critical, that customers stop being able to function without them.

We at Primary have been active investors across the commerce stack with bets in marketplaces (Coupang), Shopify brand aggregators (Pattern Brands), companies reinventing supply chain & packaging (Olive), analytics platforms (Black Crow), affiliate platforms (Cortina), email/SMS marketing tools (Wunderkind), and other businesses still in stealth. We have a robust CMO advisory counsel, a go-to-market counsel that advises our portfolio company boards, and hundreds of brands in our network. As we come to the end of this year and gear up for what is sure to be a wild ride in 2022, we took a step back and launched a survey with over 150 respondents, from smaller Shopify merchants all the way to Fortune 500 retailers.

We asked merchants what their biggest strategic initiatives were this year and what they see as emerging opportunities for growing their brand. Brands naturally saw many opportunities for growth, but it comes in two main forms such as:

Expansion

• Live Commerce: Experimenting with live/video shopping
• Product Expansion: Launching higher AOV products
• Strategic Partnerships: Partnering with wholesalers
• Globalization: Growing international audience and SKU expansion
• Reviews: Improving review quality and quantity
• Retail Expansion: Launching physical stores or pop-ups

Efficiency

• Post-Purchase: Increasing repeat & cross-selling
• Unit Economics: Reducing unit costs
• Diversification: Utilizing new distribution channels
• Loyalty: Implementing or optimizing loyalty programs
• Influencers: Launching products partnered with more targeted influencers
• Infrastructure: Backend optimization and ecommerce platform rehaul
• Improved tech stack: More data-driven and targeted marketing

We highlighted in detail the three most recurring initiatives and some additional thoughts from investors and operators in the space:

Improving Data Fragmentation

By far the most common response we saw from merchants was still optimizing existing marketing channels (predominantly email) either through enriching CRM data or improved automation. As leads or customer data flow in from a variety of different sources including email, SMS, loyalty, affiliates, physical retail, and others, it’s been more important than ever for brands to have a central repository and more effectively understand who their customers are in order to efficiently market to them.

“As the ecommerce SaaS ecosystem has matured, there are a lot more apps to choose from and a lot of fragmentation as a result. Brands have to think about how to get some of their core systems to talk to each other, when they really should be focused on other aspects of building their business.” - Sara Du (Alloy Automation)

“Consumers today want to shop from any channel, on any device, at any time. Yet infrastructure to support this is still playing catch-up and remains highly manual. Ecommerce stacks are fragmented. Distribution channels have sprawled. Core systems don’t easily talk to one another. Companies that serve as the connective tissue to automate operations, centralize workflows and provide real-time visibility are tackling some of the biggest pain points in ecommerce today.” - Jane Lee (Sapphire Ventures)

Leverage Existing Customers as an Acquisition Channel

Merchants have also now recognized that traditional media channels have tapped out and there is a real need to start using existing consumers as a channel for awareness or figuring out a way to successfully utilize affiliates. The core investment philosophy for ecommerce has always revolved around customer acquisition compared to a customer’s lifetime value, however there’s been a significant shift throughout this year and great articles have written about why CAC doesn’t matter.  Brands will always be price takers when it comes to digital media and cost of acquisition, however it's up to their control to grow the LTV of a customer. In 2021, we are starting to see the early innings of brands focusing on innovative ways to strategically grow customer value and turn the best customers into marketers for their brand.

“The most powerful driver of a brand’s growth has always been word-of-mouth coming from its community of customers. As traditional paid digital channels have become unsustainably expensive for many brands, we’re seeing marketers invent creative ways to drive this word of mouth online by mobilizing their best consumers as creators. We’ll see more and more brands considering ways to activate their customer community as they would think about investing in a performance media channel.”  - Scott Norton (Cofounder of Sir Kensington, Investor at N+1)

"Customer acquisition costs have nearly doubled over the last 6 years. The trend towards user privacy coming from the main digital ad platforms will only increase costs and decrease accuracy of targeting. Brands need to think about new ways to diversify acquisition spend and use their existing customer base to get product in the hands of new customers" - Matt Osman (Treat)

“At their core, all merchants—whether they be D2C brands, physical retailers, media platforms, or celebrities and influencers—all want to serve their consumers in a holistic and curated fashion. They want to provide products consumers desire anytime and anywhere. For that reason, we see merchants increasingly open to the idea of selling adjacent brand products on their own websites if it results in increased revenue and customer engagement. The added benefit is also around not having to handle shipping and logistics while the adjacent brand or supplier gets a new channel for consumers to discover their product.” - Sugam Sarin (Point72 Ventures)

On-site Personalization and Optimization

Lastly, we found merchants prioritizing website updates or ecommerce platform relaunches as a main initiative for this year. Customers spend most of their time engaging with their brand on the site itself, either mobile or web, so it’s crucial to have a fluid and seamless user experience. It’s also never been easier for websites to be built or changed as no-code website builders like Universe and Bubble both raised large rounds following years of being bootstrapped. For larger brands looking for more customization and flexibility as they scale, headless commerce platforms continued to grow in popularity in 2021 given their ability to allow merchants to build truly fluid and personalized storefronts for their customers.

“While there is much jargon & confusion around headless commerce and its implications, the macro trend is clear—as merchants grow larger, they command the flexibility to design (and embed) their own performant ecommerce experiences, thinking beyond the rails of the platforms they grew up on. While headless comes at a cost—tightly coupled architecture is simple and convenient for smaller merchants—the benefits in performance and flexibility of building custom commerce experiences can oftentimes outweigh this cost. Companies like Builder.io on the front-end and Swell.is on the back end will be key players” - Mike Duboe (Greylock)

“2021 was the year that we realized just how hard differentiating in ecommerce really is, as a panoply of challenges from supply chain to marketing converged and combined with ever-increasing competition. We saw the beginning of the big switch to first-party (proprietary) data, as iOS 14 killed second party data (and tried-and-true Facebook marketing techniques with it), leaving many companies scrambling to find and understand their own customers. It was also a year that we began to ask ourselves what exactly "Headless Commerce" is, with most of the answers still barely scratching the surface of what headless really can do for merchants, as it relates to personalization and brand-forward commerce.” - Henry Davis (Chord)

We expect to see these three top-of-mind trends—personalization, diversification, and data optimization—continue into 2022. We’re also excited to publish a post around our additional predictions for the space next year. Stay tuned for more!