As we head into 2023, more and more analysts predict the potential for a recession, which could create challenges for ecommerce brands and third-party logistics (3PL) providers alike.
Where you focus as business changes during different points in an economic cycle, which means brands and 3PLs need to prepare for a potential downturn.
With a possible downturn on the horizon, here are three predictions on where the most successful companies will focus to get the most impact for their business and thrive in this changing market: shift focus to maximizing cash flow, build out flexible fulfillment networks, and double down on customer loyalty and retention.
According to a study by US Bank, 82% of businesses fail because of cash flow, so especially in a downturn, maximizing cash flow and working capital becomes even more important. With the most recent interest rate hike pushing the cost of debt capital to its highest rate in 15 years, most businesses seeking loans will pay 10%+ interest, an amount very hard to support many businesses.
Compound cost of financing with higher salaries, increased inflation, and potentially less consumer spending, brands, and 3PLs could be in for a tough year if they don’t manage cash flow tightly and have the plan to maximize working capital as soon as possible. To ensure the continued operation and success of the company, carefully manage working capital during this time.
When starting an ecommerce business, experts recommend to budget 15 - 20% of net sales for shipping and logistics for your products. And with major residential carriers like UPS and FedEx increasing rates by 6.9% for 2023, that puts even more pressure on brands to consider their fulfillment strategy and the impact on both profitability and cash flow.
Getting as geographically close to the consumer as possible can provide lower shipping costs and a better experience. We predict that in 2023, top brands and 3PLs will focus on building the right fulfillment networks to optimize distance and time for shipping products to consumers.
Keeping customers is easier than attracting new ones. In a tough competitive environment, it becomes even more important to drive loyalty and repeat purchases from your existing customer base. While 3PLs often have the benefit of annual or even multi-year contracts, ecommerce brands must work for every order from their repeat and return customers. In 2023, customer loyalty will determine the winning brands and 3PLs.
In 2023, anything can happen, but we predict that 3PLs and brands that focus on maximizing working capital, building flexible fulfillment networks, and driving customer retention will emerge as the winners in their space.
To learn more about these strategies, contact Extensiv for a consultation.
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