Economic Headwinds, Digital Transformation and the Acceleration of Shopify Plus

An often-overlooked consequence of the Great Recession of 2007-2009 is the impact that it had on accelerating digital transformation initiatives worldwide.

Lego and Domino’s Pizza are perhaps two of the best-known case studies from this period. Each saw highly successful digital transformation projects help to reverse the fortunes of the entire company.

Whilst it’s comforting, and perhaps counterintuitive, to hope that economic headwinds might create better opportunities for digital innovation, there is a growing body of evidence which suggests this is exactly what innovative companies should be prioritising at such times.

In the US, for example, research now shows a direct correlation between the depth of recession experienced during the Great Recession and the peak in demand for highly skilled employees, particularly in the IT sector.¹

With the benefit of hindsight, we understand that economic headwinds present companies with a perfect opportunity to double down on digital transformation projects. It’s clear that recession impacts everybody differently (and indeed in some cases can even present as tailwinds), but that in broad terms there is a winning playbook to follow.

“After the 2008/9 recession, the most successful businesses we helped didn’t wait until 2013 and try to implement massive technology change; rather they iterated, adapted, experimented and were ready to take advantage of the uplift which would surely come.”

– Alan Cooper, Founder, Freestyle Agency

In this article, we’ll be considering the reasons for this trend, as well as the things that brands should be prioritising as macroeconomic conditions become more challenging.

We’ll consider some of the practical ways in which technology adoption is helping to differentiate leading digital commerce operators, with help from our partners at Shopify, Yotpo, Linnworks, Patchworks, Entropy and Freestyle.

And finally, we’ll share some anecdotal market insights from Swanky, including our analysis of how and why Shopify Plus is becoming an increasingly prevalent solution in ecommerce digital transformation projects.

Why is a recession the perfect time to prioritise ecommerce digital transformation?

It is now well-established wisdom that brands must keep advertising during economic downturns. This is helpfully illustrated by a McGraw-Hill research study into 600 US companies during the 1981-1982 recession, which found that those who increased ad spend during that period saw sales rise 256% by 1985 over those who decided to cut back.²

We saw this again in an accelerated way in March 2020, as many companies quickly turned off the marketing tap overnight, only to rapidly reverse their decision once it became clear that the Covid pandemic would in fact create enormous opportunities for online brand growth.

Less prevalent, perhaps, is the broader conversation about how and when companies maximise their use of technology. Growing economic headwinds should be cause for careful evaluation at an organisational level of how technologies are deployed, the immediate advantages and efficiencies that this can present in challenging trading conditions, and the foundation that digital transformation can lay for explosive, sustained growth as those headwinds start to subside and recovery begins.

“With ever increasing digital marketing / customer acquisition costs – in addition to well documented and concerning general macroeconomic factors – optimising conversion rates and customer value becomes progressively more important to maintaining and growing sales and profitability for all ecommerce operators.” 

– Jim Clear, Digital Commerce Proposition Director, Entropy

Some of the motivations for beginning or accelerating ecommerce digital transformation initiatives that we are witnessing are:

• Optimising existing digital and IT structures and systems, particularly where functionality or data is not fully understood or optimally deployed;

• Gaining competitive advantage by improving customer experience through digital experience and application of experimentation, data and insights (including prioritising automation and AI wherever possible); 

• Reducing costs by identifying expensive or underutilised tools, sometimes by migrating to more efficient or ROI-positive platforms, or through identifying technology solutions that consolidate multiple legacy products;

• In some circumstances, lower opportunity cost for brands at a time when the business is likely to be less revenue generative / profitable and can therefore justify reallocation of resource/capital into growth initiatives;

• Mitigating risk and reducing medium-term costs by prioritising cloud, SaaS and lower-code solutions which are less reliant upon large in-house or third-party development teams; and

• Analysing, understanding and optimising digital expenditure, with allocation of greatest budget to highest opportunity areas.

At a time of peak economic uncertainty, high-value digital transformation initiatives can bring clarity, resilience, efficiency, risk mitigation, and ultimately increase revenue and reduce cost.

A side-note here is that the way in which digital transformation is carried out typically complements and accelerates recovery or change initiatives. Digital transformation teams tend to prioritise speed and agile delivery in their processes and execution. Both are crucial traits when macroeconomic conditions leave little margin for error and where expensive mistakes could be fatal to a business or division.

“Digital transformation has been happening for two decades, but in the last 3-4 years the term has been used to imply seismic ‘big bang’ change in a business.

“The best transformation is a series of iterative changes, using flexible, interoperable technologies to replace technical debt, making step-by-step improvements to business performance and the customer experience through data-driven strategies. It’s particularly relevant to managing economic challenges and emerging from them.”

– Alan Cooper, Founder, Freestyle Agency

Key features of ecommerce digital transformation projects during economic headwinds

Whilst every digital transformation project is different – indeed, this is one of the strategic advantages that distinguishes such an approach – there are a number of key features that we and our partners have seen in ecommerce digital transformation projects in recent months.

These can be broadly grouped into three categories:

1. Lower opportunity costs → Greater return-on-investment

As economic headwinds start to pick up, some brands will start to see ‘business as usual’ trade slowing. This reduces the opportunity cost of other potential projects and increases the potential for a speedy return-on-investment from pursuing digital transformation.

At the same time, the digital transformation mandate grows in clarity: ROI becomes an absolute priority, and shapes how the initiative is delivered.

At a time when supply chains are becoming increasingly stretched, and the impact of inventory and logistics on the bottom line is perhaps greater than at any other time in the ecommerce era, our partner Linnworks offers the following advice to businesses:

“To stay ahead of today’s economic uncertainty, software designed for the effortless economy can ensure that your business is prepared for any challenges. 

“Modern retailers need to have full visibility and control of their inventory, orders and multichannel listings from one single platform, with easy access to real-time data and insights across all sales channels for better decision making.”

– Callum Campbell, CEO, Linnworks

We are also seeing a huge refocus from enterprise and mid-market clients pivoting away from legacy tech platforms towards Shopify Plus, with price and speed of ROI being a huge pull factor. We go into the evolution of Shopify’s offering in more detail below, but as Jamie Clohesy, UK Managing Director at Yotpo, explains:

“While SMB businesses have always relied on Shopify, we are seeing more mid-market and enterprise brands making the move to the Shopify ecosystem.

“Platform solutions like Shopify let brands tackle the new realities of customer acquisition and retention by providing unified data and seamlessly connected tech. The impact is that their customers benefit from tailored engagements and connected experiences.”

Ian Jamieson, Swanky’s UK Head of Technology, sees huge opportunity for ambitious brands to accelerate their growth in the current market:

“In today’s hyper-connected world, customers have high expectations from brands and anything short of a seamless experience quickly becomes a point of frustration. Businesses that provide the most cohesive, integrated and streamlined shopping experiences can expect to win over their competitors.” 

2. Upgrading legacy tech and consolidating costs through self-funding projects

Many of the digital transformation projects that we are currently seeing involve the pursuit of value and functionality throughout a brand’s tech stack. This sometimes means updating or right-sizing solutions, consolidating multiple solutions through appropriate cross-functional tooling, and ultimately understanding (and optimising) ROI from each element of the stack.

In this respect, the look and feel of ecommerce digital transformation projects has changed dramatically over the last decade:

“For us, in 2012 we rebuilt the ecommerce and m-commerce journey for Arriva Buses on a monolithic platform. In 2022 it means using lighter frameworks and more agile technology to add personalisation and improving CRO to travel brands’ customer experiences.”

– Alan Cooper, Founder, Freestyle Agency

Today, ecommerce brands need to see value realised throughout their tech stack. In times of economic headwinds, self-funding technology change can be a huge attraction, with automation, reducing reliance upon server costs and minimising ongoing development costs all key priorities.

“For merchants coming out of the legacy, hosted (non SaaS) space, not having to deal with regular outages and painful upgrades is a quality of life decision, as well as a revenue decision. Shopify’s reliability is definitely a key factor. Put simply, it goes up and stays up.”

– David Wiltshire, CEO, Patchworks

Solutions like Yotpo, which provides ever-increasing breadth of functionality within the Shopify ecosystem, help brands maximise value through reconciling tech stacks and bundling previously detached services.

“At a time when well known brands are trying to do more with fewer resources, the right platform and partner can simplify their tech stack and accelerate their ROI.” 

– Jamie Clohesy, UK Managing Director, Yotpo

We’re also seeing a key place for omnichannel retailing in current ecommerce digital transformation strategies. Omnichannel allows merchants to go beyond traditional channels and reach customers where they are most engaged and spending the most time — browsing on mobile phones, social media and online marketplaces, as well as through retargeting and reengagement marketing campaigns.

Swanky’s Ian Jamieson explains further:

“Omnichannel involves a fully-integrated approach to commerce, providing customers a unified brand engagement and checkout experience across all touch points, allowing them to buy whenever and wherever they want, whether it’s in-store, on their Instagram or within your helpdesk chat app.”

3. There’s no silver bullet, but data comes pretty close

As Katy George of McKinsey puts it in an interview with the Harvard Business Review, technology can make a business “more transparent, more flexible and more efficient”. Data sits at the heart of this principle. Brands who correctly gather, interpret and apply data and analytics are positioned to truly understand their business (and the impact that economic headwinds are having on it) and identify where operational improvements can be made.

At Swanky, the decision to build a dedicated data and analytics team over the last 18 months has unlocked a huge amount of insight and value for our clients. In particular, our ecommerce data dashboard and customer data platform have accelerated and given confidence to our clients’ internal decision making.

This is particularly true for larger and more sophisticated ecommerce retailers.

“The ability to be nimble in the face of change can make or break a business. This is especially true for large-scale, high-volume retail businesses that have needed to radically transform their operations, at the same rapid pace of global evolution, to best serve their customers. 

“To remain resilient and prepare for the future of commerce, leaders of growing businesses need real-time insights from connected data to adapt faster, work smarter, and perform better. Regardless of their size, maturity or complexity, merchants need adaptability to thrive and grow with confidence.”

Deann Evans, Director of EMEA Expansion & Partnerships, Shopify

The rising prominence of Shopify Plus in mid-market and enterprise digital transformation projects

A key trend that we have been observing over the last couple of years has been the emergence of Shopify Plus as a genuine enterprise ecommerce platform of note. Many of the reasons behind this trend have been explored in this article, including speed of deployment, rapid return-on-investment, and the reliability and scalability of the platform and its ecosystem.

“For any digital transformation/replatforming project, we are seeing Shopify Plus becoming an ever more popular mid-market choice, with key new business user features (e.g. Shopify Flow) and flexibility helping to build on the established core Shopify integration ecosystem and site speed/reliability.”

Jim Clear, Digital Commerce Proposition Director, Entropy

David Wiltshire, CEO of Patchworks, has been integrating ERPs, logistics, finance, EPOS and marketplace systems for over 15 years, and has unique insight into this evolution.

“Shopify is a key option for any mid-market business looking to transform its tech to a modern stack. It’s secure, fast to integrate and fast for the merchant to operate and develop on.

“From a Patchworks integration standpoint, Shopify has a rich and ‘obedient’ (meaning reliable and behaves as expected) API that can handle volume gracefully. We definitely see more merchants on, or moving to Shopify in the mid-market space than any other ecommerce platform. 

“In any battle, speed and reliability are a powerful combination; that’s what makes Shopify relevant for merchants of any size.

“Crucially, from a product standpoint, the Shopify Plus enterprise proposition continues to develop at a staggering pace.” 

Shopify’s Deann Evans makes the same point, reiterating the rapid evolution of the Shopify product proposition:

“Through recent updates like the Shopify Global ERP Program, which allows select Enterprise Resource Planning (ERP) partners to build direct integrations into the Shopify App Store, the rollout of Shopify Markets, which enables effective international selling through a localised, seamless customer experience, and the launch of Hydrogen and Oxygen, Shopify’s stack for headless commerce that gives the flexibility for transformation – to name a few – we’re equipping businesses during all stages of their journeys, from first sale to full scale.”

For full details on Shopify’s stack for headless commerce, read our CTO’s Guide to Composable Commerce and Headless Technologies on Shopify.

Following on from his comments earlier in this article about the rise of omnichannel retail, Swanky’s Ian Jamieson adds:

“Conceptually, omnichannel is nothing new, but platforms like Shopify Plus, Shopify Flow and Shop Pay reduce the technical complexity and development overhead required for multiple platform integrations, providing merchants with added exposure and opportunities to experiment with different channels and personalised buying experiences — all for relatively lower investment cost and with rapid turnaround times.

“Bringing these disparate channels together under one platform also provides merchants with opportunities to deeply integrate and automate their marketing and back office operations, as well as to derive a consolidated picture of customer engagement data and ROAS, all within a single dashboard.”

Swanky’s viewpoint: a pervasiveness of digital transformation initiatives across our Shopify Plus clients

We have observed a sea-change in the approach of our clients over the last few years, with a breadth, depth and speed of transformation which is clearly accelerating.

It’s always hard to categorise clients, but we’ve seen two distinct categories of clientele emerge:

1. Brands who are digitally native and direct-to-consumer by default, who typically are either pushing the boundaries of Shopify Plus as their requirements change, or who have scaled on a legacy or bespoke platform and are now looking to replatform; and 

2. Traditional brands, some of whom are market leaders in their own right but are newer to digital commerce and either making wholesale changes to engage directly with consumers, or are dipping a toe in the water with an MVP product (for which Shopify Plus creates an excellent, fast environment to experiment in). In particular, we’re working with an increasing number of brand groups who are seeing the potential of replatforming entire portfolios of brands. 

In each case, digital transformation is a key precursor and underlying foundation to the ecommerce build. Needless to say, though, the nature and depth of the transformation initiative, and the speed at which a direct to consumer proposition can be fully integrated into the existing business, vary dramatically.

At Swanky, we have seen the value in working with digital transformation experts to ensure that our services fully align with the business-wide objectives of our mutual client, and see this becoming an increasingly prevalent operating style.

As the Shopify Plus proposition continues to evolve, and the enterprise ecommerce market continues to recognise this, there is a clear opportunity for brands to accelerate their growth despite economic headwinds by embracing this powerful combination of digital transformation and digital commerce.

Or, as Katy George of McKinsey predicted in 2019:

“The next recession might be different from past ones – companies that have already made an investment in digital technology, analytics and agile business practices may be better able to understand the threat they face and respond more quickly… 

“Recessions can create wide and long-standing performance gaps between companies. Companies that have neglected digital transformation may find that the next recession makes those gaps insurmountable”.

 

For reference

[1] https://www.nber.org/papers/w22762

[2] https://knowledge.wharton.upenn.edu/article/when-the-going-gets-tough-the-tough-dont-skimp-on-their-ad-budgets/