Interviews, insight & analysis on Ecommerce

How retailers can control their operating costs

by Dirk Hoerig, Co-founder and CEO, commercetools

Today, there are significant indicators of challenges to come for the global retail economy.  Inflation is rising, there’s a high probability of a global recession, supply chain disruptions have continued, and consumer confidence and spending have started to dip. A recent study found that forty-four (44%) percent of consumers earning over $100K (USD) report that they are worse off compared to a year ago. On the business end, Walmart and Tesco––the largest retailers in their respective U.S. and U.K. markets––both slashed their H1 forecasts of their full-year profits which indicated a harbinger for retailers and the broader economy. 

In the U.K. and the U.S., consumer spending accounts for well over 60 percent of economic activity respectively which means that consumer spending is the backbone of these economies. With these kinds of related looming and current challenges, retailers must focus their operating costs and continuity strategies on two themes: engineering for flow and agility as consumer behaviour and preferences evolve with market influences.

Surviving or thriving?

With the onset of the COVID-19 pandemic, many retail brands learnt critical lessons on navigating the unprecedented the hard way. When almost everyone was forced to participate in eCommerce and the broader digital space––whether it was consumers buying household necessities or wholesalers and manufacturers purchasing goods from their distributors––there was a lag between what retailers were able to provide and how fast, and what consumers needed and preferred. This was despite the fact that online sales were already growing pre-pandemic and the value of omnichannel retail strategies boosted by digital commerce was already an established trend. 

It wasn’t long into the pandemic before savvy companies realised that digital models have higher resiliency compared to offline models and retaining customers in unstable markets meant being able to engineer processes, tech stacks, and innovation for flow. Meaning, most pre-pandemic work cultures, commerce tech stacks, and static revenue generation had friction built in that impeded their flow. Whether that was the inability to pivot to remote working or relying on legacy technologies (e.g. outdated and antiquated technologies that are household names), brands struggled with the concept of flexibility in all aspects of their business.

Particularly with consumer behaviours and preferences changing at the speed of a tweet, a brand’s best bet today is investing in commerce technologies that liberate them to seamlessly meet their customers where they’re at while also capitalising on other revenue-generating opportunities and reducing operational costs. Solving for today’s volatility with technology that was created for the market 20 years ago doesn’t make sense, but it’s what a lot of brands are doing for the sake of familiarity. 

Brands may get by today with ignoring the technological or consumer behavioural frictions that impede growth (i.e market share, revenue, scaling opportunities), but they certainly won’t last long, or even begin to thrive if they continue to leave money on the table.

Achieving business agility with microservices

In order to retain and win new customers while reducing operating costs, retailers must invest in modernising their ecommerce software platforms through leveraging microservices, Lego-like software components that can be easily paired to do end-to-end ecommerce functions and processes. This approach is far more cost-effective compared to holding onto inflexible tech systems and platforms and allows for a lot less friction in operations. Designed and built in the cloud, microservices are highly flexible and adaptable and allow you to scale operations up and down as needed, which is essential to success. 

When you consider the inflationary costs of doing business, adopting microservices notably doesn’t require the large teams of developers associated with previous generations of designing, building and maintaining commerce software operations. Modern commerce software requires smaller, nimble teams. Adoption of modern commerce software creates a buffer against the high staff costs linked to outdated eCommerce operations. In addition, it allows high-growth retailers to be much more responsive to change. New features and offers can be spun up much faster, which is critical when you need to chase customers at new touchpoints. 

For example, more strategies to up and cross-sell consumers in the payment process are available today than ever before. While older systems did offer a more standard payment function, they did so in a clunky, impersonal fashion, and customers had limited options. Meanwhile, newer ecommerce systems are better suited at personalising these offers in ways that serve customers much better, can include options like BNPL or cashback, and result in more sales at scale.

Lastly, businesses must leverage modern cloud architectures and infrastructures to reduce the total cost of ownership (TCO). On-premise legacy technology does not use computing resources effectively and requires higher maintenance and upgrade efforts. By optimising their business models for efficiency to reduce costs and increase value, brands and retailers can reduce these costs and increase speed to innovation. 

Break away from off-the-shelf packages

During the pandemic lockdowns, the resiliency of digital commerce was proven, and its economic fundamentals remain true for the growing cost of living crisis. Current and future challenges for ecommerce come down to whether the digital machinery for marketing and selling online is fit for purpose when the costs to do business or making a sale rise at a sharp rate. 

High-growth retailers can weather volatile markets and thrive by investing in ongoing value creation for the customer and the end-to-end customer experience. However, long-term growth cannot be achieved without innovation. Therefore, digital commerce is inevitable for those looking for longevity. 


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