The biggest startups in the world lay off workers. The yield curve has inverted, inflation is at 8.6% and economic pessimism is at its highest since 2009.
For e-commerce brands, the wave of bad economic news is a shot ahead that heralds a major shift in consumer spending. Dark times are coming. But I think there’s room for optimism for the brands that make it.
Why am I qualified to make such a statement? I spent more than four years as a consumer investment partner at Andreessen Horowitz, where I met hundreds of consumer companies and worked closely with dozens – from hyper-growth unicorns to companies winding down.
But I’m not an investor writing from a Sand Hill tower. I co-founded Canal to enable brands to sell more. Since our launch in 2021, we have worked with hundreds of e-commerce brands to expand their product catalogs and increase distribution. Most importantly, we’ve been keeping a close eye on what works for consumer brands and what doesn’t.
The more complementary and additive a product is to your catalog, the larger your shopping cart and the more likely a customer is to return.
While it is certain that the next 18 months will be difficult for many ecommerce operators, this time also resilient brands will tighten. Here’s what we think every brand leader needs to know to survive the recession:
Margins are everything
To corrupt a famous expression: your costs eat up your world. In order to survive, you must examine the costs that fall to your margins. By understanding what you’re wasting spending on, you can eliminate unprofitable and risky initiatives.
Let me break down the two main cost centers for ecommerce brands that you can do something about:
The DTC playbook was written at a time when customer acquisition was relatively cheap thanks to digital advertising spend on Facebook. But that sugary-sweet diet of cheaply acquired customers left brands with an unsustainable over-reliance on growth.