Summary
In this episode of The Ecommerce Finance Podcast, Stephen Brown and Kelley Birrell discuss the key ecommerce trends for 2025, focusing on market growth, digital marketing challenges, the impact of interest rates and tariffs, the potential of TikTok Shop, the role of AI, supply chain issues, and the implications of the de minimis rule. They emphasize the importance of adapting to these trends for financial planning and forecasting in the ecommerce landscape.
Takeaways
- The ecommerce market is showing positive growth heading into 2025.
- Digital marketing efficiency is a critical area for brands to focus on.
- Interest rates are projected to decrease, but inflation remains a concern.
- New presidential administration should be good for business, except for…
- Tariffs could significantly affect profit margins for ecommerce businesses.
- TikTok Shop presents new opportunities for sales but could be banned.
- AI tools are transforming marketing and content creation for ecommerce.
- Supply chain disruptions are expected, particularly with potential strikes at ports.
- The de minimis rule may change, impacting international drop shipping.
- New marketing avenues are emerging.
What We Cover:
- 00:00 Introduction to Ecommerce Trends
- 00:44 Positive E-commerce Market Outlook
- 04:19 Challenges in Digital Marketing Efficiency
- 08:12 Mixed Trends: Interest Rates and Inflation
- 13:17 Business-Friendly Policies and Regulations
- 15:32 Tariffs and Their Impact on Ecommerce
- 17:25 Navigating Tariffs and Cost Management
- 20:24 The TikTok Shop Dilemma
- 25:16 AI’s Impact on Ecommerce
- 29:05 Supply Chain Complexities
- 33:09 Understanding the De Minimis Rule
- 36:30 New Avenues for Sales and Marketing
Work with LedgerGurus
If you need help with your ecommerce accounting, reach out to us at LedgerGurus. We are an ecommerce-specialized accounting firm, and we can handle all your numbers so you can focus on growing your business.
Transcript
Stephen Brown (00:00)
Welcome to the eCommerce Finance Podcast. I’m your host, Stephen Brown, COO at LedgerGurus. In this inaugural episode, I have Kelley Birrell, who does marketing at LedgerGurus with me, and we’re going to discuss 10 eCommerce trends for 2025 and their financial implications.
Today’s episode is brought to you by LedgerGurus, your go-to team for ecommerce accounting. They handle everything from keeping your books in order, tackling sales tax, managing inventory accounting, and even acting as your fractional CFO. Basically, if it’s about accounting, they’ve got it covered so you can focus on growing your business. Head over to ledgergurus.com and see how their team can help you level up your business today. That’s L-E-D-G-E-R-G-U-R-U-S.com. Alright, Kelley.
First episode. Wanna talk about some trends?
Kelley Birrell (00:47)
Absolutely. Let’s get started.
Stephen Brown (00:49)
Okay, I’ve got 10 trends, four that I would say are positive, three that I would say are negative, and three that are mixed. So what I want to do is I want to go through the trends, positive, negative, mixed in that order. So should we get going?
Kelley Birrell (01:02)
Yeah, sounds good. I’m excited.
Stephen Brown (01:04)
Alright, trend number one.
Let’s say the ecommerce market. The ecommerce market is looking good going into 2025, especially compared to how it was going into 2024 and going into 2023. Now there is a graph I want to show you real quick. So let me show you this. This is something, shout out to the Operators Podcast. That’s where I learned about this first.
So there’s this graph here, see this, the ecommerce retail sales as a of total sales. This is done by the Federal Reserve. So they’re the economists. So you can see that there’s been this steady growth since 2000, and then there was the COVID peak. And we peaked up to, let me see if I get this right, 16.4 % in Q2 2020.
And then there was a slump, right? We bought all sorts of crap and then we decided to go back to the movies and go on vacations. And there was actually kind of an ecommerce recession, if you could argue. And then it’s been growing back. So Q3 is almost back to where we were in Q2 2020. We’ll see how Q4 is, but you can see this progress. The funny thing is if you took out this little peak and valley the line almost lines up. So continued to grow. So.
Kelley Birrell (02:15)
you’re right.
Stephen Brown (02:16)
The thing that I like here is we’re seeing that the ecommerce sales are continuing to expand as a percentage of all of retail. One could argue that just growing the economy is going to grow ecommerce sales, but when you also grow the amount of ecommerce on top of sales, that’s a double whammy. So that’s a positive thing. Some of the early feedback we’ve seen from Q4 holiday sales,
MasterCard came out with a report that said from November 1st to December 24th, online sales were up 6.7 % year over year. So sales are looking pretty strong at the end of 2024 going into 2025. I think that bodes well. How much ecommerce can we actually have? I’ve heard some crazy statistics, like it could be as much as 80 % of sales over time. We’ll see. But what Yeah. I mean, well…
Kelley Birrell (02:58)
Wow.
Really?
Stephen Brown (03:15)
At that point, it’s probably going to get very blurry. If you think about it, ecommerce is already getting blurry. You’re seeing order online, pick up in store, go to, you know, look at store, order online. But the future still is very positive for online sales. There’s just so many positives to buying online that, you know, I think that’s a positive thing. I mean, I’m assuming you bought a lot of presents online this year for your holidays? Yeah, it’s just, I went to the stores the last few days. They were packed.
Kelley Birrell (03:38)
almost all of them, actually.
Stephen Brown (03:45)
which is like another good sign for retail, but it reminded me how much I hate going to the store. So.
Kelley Birrell (03:50)
Yes, exactly.
Stephen Brown (03:51)
So that’s trend number one is there’s market wins. Now, how do I apply that financially? Well, I feel like you can be somewhat bullish with your sales forecast going into 2025. Now the reality is these macro numbers are just that they’re macro. You need to look at what you’re actually selling and that category of sales if you’re projecting your forecast, but the overall market has
Good tailwinds. All right.
Kelley Birrell (04:15)
Well, that is
very, good to hear because, it’s been so miserable lately.
Stephen Brown (04:19)
Yeah, the last couple of years, as that graph showed, were not so great for ecommerce. All right, let’s go to the next trend. And I’m going to call this the bad trend. My bad trend is a continuation of the last few years. And I’m going to put this at number one because I think it has such a huge impact for ecommerce. And that is digital marketing efficiency.
iOS 14.5 was officially released on April 26th, 2021. So that’s, we’re almost going on four years since that was out. And that’s where all those privacy things came in and hey, do you want to allow this app to track your behavior? And that sounds really scary. So everybody says no. And that killed the efficiency of digital marketing, along with a lot of other changes that came around privacy.
And the result has been the cost of advertising is much higher. This is one of the biggest issues I see when I work with brands. I’ll go in. Rarely is advertising efficient. And even though this is a continuation of a multi-year trend, I’d say it’s the number one trend that brands need to be thinking about. They need to continue to work on their marketing efficiency because it can just eat up all of your profits.
Kelley Birrell (05:22)
Yes. Can you tell us more about that? How is that specifically impacting small ecommerce businesses?
Stephen Brown (05:30)
So I’ve done a lot of research and the research I’m finding is you should be able to do your marketing at about 20 to 35, 33 % of revenue. So every dollar you make, you can spend 20 to 33 % of that on marketing. I don’t see that as very often. I mean, a couple of years ago, you’d see that all the time. So I see a lot of brands that are having to spend a lot more. Now, sometimes you’re deliberately spending more, but usually
Even if you’re trying to spend more on marketing to push your market share, there’s an efficiency thing. Now, marketing efficiency is not the same as return on ad spend – ROAS. You don’t manage your ad campaigns by marketing efficiency, but your ROAS will translate into marketing efficiency. And I would challenge brands to really focus on this area if any area of their business is continuing to work on their marketing efficiency because it’s sinking your profits.
And what I’ve… Yeah, got it.
Kelley Birrell (06:20)
So you give some
examples of what you mean by the marketing efficiency stuff? there ratios that people can be watching to see what’s going to be, what’s effective and what’s not?
Stephen Brown (06:25)
Well…
So this marketing efficiency ratio, which is a percentage of sales is a ratio you can look at. And I’d say 20 to 33 % of sales is what you should be shooting for. Now in a tactical sense, that translates down to ROAS return on ad spend. If you’re spending less than, if your ROAS is less than one, you are paying for your customers, right? So you, and typically you break up ROAS into a new customer ROAS and an existing customer ROAS and a
blended ROAS and there’s ROAS by channel and all that. Your new customer ROAS tends to be more expensive because you’re acquiring for the first time. Existing customer ROAS tends to be less expensive because you can use email and other methods to get them to repurchase. So typically what I would say is you need to pump up that ROAS number. You need to be paying attention to the ads and the campaigns and the channels that are lower ROAS and that will
translate into a better marketing efficiency. What I’ve seen far too much over the last year to year and a half is especially amongst smaller brands is they are deferring that decision and that responsibility to the marketing agency. And what I would say is you can’t afford to do that. You need to understand what’s going on with your agencies. You need to understand how they’re executing your ad budget and know how to hold them accountable. In some cases, you probably need to be owning
your ad campaigns. It’s not like this stuff is a mystery. It’s complicated, but you can learn it. There’s, mean, YouTube is a cornucopia of information. And so this is my number one negative trend that I think brands need to continue to tackle, which is improving their marketing efficiency.
Kelley Birrell (08:08)
Okay, so what is your first mixed trend?
Stephen Brown (08:12)
My first mixed trend is I originally had this as two trends and one was good and one was bad. And I decided these into one mixed trend and that is interest rates and inflation. Now, I originally was going to say interest rates was a positive trend. They’ve gone down. We saw three rate cuts in 2024 and there was projections of four rate cuts in 2025. Now,
What’s happened is the last rate cut, was just this end of December, the Federal Reserve revised that they’re only going to do two rate cuts. And the other thing that we’ve learned recently is
inflation in November was 2.7%, up from 2.6 % in October. And that’s a year over year measurement. The target inflation rate in the United States is 2%.
Now this sounds mostly bad. Let me talk about where these things are good, where they’re bad, and what companies should be doing in this regard. Where it’s good is interest rates are going down. Now the interesting thing about interest rates is that interest rate that you hear about the Federal Reserve is a short-term interest rate. It’s the rate that gets set that is used for bank lending. There’s some interest rates that are derived from that Federal Reserve interest rates.
And there’s other interest rates that are derived from the 10-year treasury note. So the prime rate, which is usually what establishes a lot of business lending, oftentimes derived heavily from the Federal Reserve’s interest rate. But there’s another component that drives interest rates, and that’s the 10-year treasury bond. So when you go and buy a bond, you know, you can buy them in four-week intervals, month,
three months, a year, and then up to 10 years. The 10 year is really a measure of how confident the market is in the long-term economy. The 10 year treasury note has been going up because there’s less confidence, right? Inflation is sticky. They’re not going to have as many interest rate cuts. And so the Federal Reserve is having to, to charge more interest to get people to buy their bonds. And that’s going to drive things like mortgages. And so
You’ve got a mixed market, right? So how does this apply to a brand? Well, if you have lending, there’s a decent chance that your cost of loans will go down, but other areas may go up. So you may have, if you’re trying to get a business mortgage, it may continue to be expensive. The other key thing that I talk about here, this is a really important action item around inflation. For the longest time,
almost a decade and even before that, from 2000 to 2021 when inflation kicked off, we had a little spike of rates around the great recession. But for the most part, we had almost 0 % to 2 % interest rates, really low cost of money. And so what you saw is prices of things didn’t change very much. And that’s changed.
Brands, even though we’re only at only, you know, a couple years ago, only 2.7%. Oh, that’s a lot. But compared to what we were a few years ago, it’s still enough that brands need to be thinking about pricing at least once a year. Because otherwise, your costs are probably going to go up. And your if your prices aren’t your your profits are going to be eroded. So my action item here is
What is your price plan for the year? How are you going to test and change those prices? Because there’s a good chance that your prices are going to go up from your manufacturers, from your labor. and so that’s the mixed bag, right? There’s, some positives, there’s some negatives. So plan on, yeah.
Kelley Birrell (12:08)
So I have a question about the
looking at the pricing. Is there a formula that you can think of that companies could follow to think, okay, we need to adjust here, we need to adjust here. How do you come up with an overall price change?
Stephen Brown (12:26)
There’s a concept there’s a in, kind of your economics 101, if you’ve taken econ class where they teach you elasticity and there’s actually a formula where you measure volumes at one price point versus another, and you can come up with your ideal price point. And there’s a lot of tools out there that will help you streamline price testing and identify the best ideal price.
If you don’t want to pay for tools and you want to be hardcore, you could go do it the old school way, like I did in MBA school and my econ class and come up with that ideal price. But that’s how I would approach pricing is doing tests to identify volumes. And then you use some formulas to understand what the ideal price should be.
Kelley Birrell (13:09)
That makes a lot of sense. Okay, so what is, jumping back up to your good trends, what is your second good trend?
Stephen Brown (13:17)
All right. So we had an election, we have a new administration and it is expected to be much more business friendly than the previous administration. Now I will put an asterisk there and that’ll come to my next trend. But the things that we should probably expect is better as more tax friendly policy for businesses, more deregulation. I’ll give you an example of a regulation that I love to go away that I hope we won’t see as much of in the next four years.
is this business ownership information reporting BOI, which is a part of the corporate transparency act where you have to register the ownership of your business. It’s supposed to be used to eliminate terrorists and
criminal funding, but it’s really dumb because those guys aren’t going to go and they’re going to register. It’s going to be the good people. And this is just one more thing that businesses have to do. this originally due on December 31st for businesses that were registered before 2024. There’s been some legal cases. Now that date is January 13th. But this example is one of a stupid law that’s just getting in the way of businesses doing business.
Kelley Birrell (14:06)
wow.
Stephen Brown (14:27)
you add up all the stupid laws and it just creates friction for business. My hope is a lot of that friction goes away. There’s also the Department of Government Efficiency, DOGE, which is freaking people out. But I think those of us that are pragmatic might say, hey, if we could cut some government spending, especially like, hey, let’s cut some of this unnecessary regulation, which should…
Eliminate some of the unnecessary business spending which should lower the amount of debt that the US is is generating which increases the position of the dollar. So there’s a lot of optimism, especially when you compare to the previous administration, which was really business unfriendly I think that’s a positive trend now. How do I apply that to financial? This one’s hard to apply because there’s a lot of unknowns. There’s a lot of talk and until
laws get passed and executive orders get made. We don’t know, but assume, you can just assume the business is going to be better in general with one caveat and that gets us to our next trend.
Kelley Birrell (15:31)
Yeah, let’s hear about that.
Stephen Brown (15:32)
tariffs. Now, if we actually had tariffs in place, that probably would have been number one. Right now what we have is a lot of talk, and it’s freaking a lot of people out in ecommerce, and for good reason. Let’s talk about what’s being discussed, and this changes regularly. Trump was originally targeting China. He was saying he was gonna go as high as a 60 % tariff. Now he’s saying 10 %
He’s been saying he wants 25 % on Mexico and Canada, mostly because he wants them to do more on the border for illegal immigration, as well as fentanyl. There’s a huge epidemic of fentanyl. And it’s interesting that he put Canada on that list, that you don’t hear a lot about illegal immigration or fentanyl coming through Canada, but maybe there is, I’m not aware of. There’s also discussion of general tariffs of 10 to 20 % globally.
Now, this, it’s hard because these are unknowns. But let’s just talk, walk through some scenarios. Let’s just say 10%, which is a number that’s being tossed around. And that’s easy math. If your cost of goods sold, now let’s take of your cost of goods sold, that would include your product costs and your import and tariffs and all that. So let’s just take it apart. Let’s say you have a 25 % cost of goods sold and 5 % of that is,
stuff related to shipping and fees and stuff. So the actual product costs that are going to be tariffed is 20 % of your sale. And if you have an additional 10 % tariff, that’s going to go up from 20 to 22%. So 2 % additional costs, and let’s say you’re making a profit of 10%, automatically if you did nothing, you’re to go from 10 % profit to 8 % profit.
So you have a decision to make. You can pass that tariff cost on to the consumer. You can try and absorb it. You can try and cut costs in other areas of your business. Now, 20 % is a fairly low, optimal cost of goods sold or product cost. That’s not the total cost of goods sold, but just the product cost. If you see sometimes brands, especially in more commodity things, that can be much higher, you know.
go up to 40 % even higher. So then if you add a tariff onto that, Let’s say your product costs are 40 % on which you’re going to get the tariff. Now that’s 4 % increase if it was a 10 % tariff. So what brands need to think about is the probability that you’re going to have a tariff on your products, an additional tariff this year, I would say is reasonably high. How much we’ll see.
So you need to start thinking about how much costs you can pass on to the customer. Again, we go back to that price testing. Price testing is going to be really important in this situation. How much of that you could absorb in the form of maybe cost cutting in other ways. There’s a conversation, hey, can we just bring manufacturing to the United States? Well, easier said than done, right?
Kelley Birrell (18:38)
That
sounds really expensive and time consuming and like we’re not ready for that right now.
Stephen Brown (18:42)
Yeah. mean, number one, part of the reason that manufacturing is heavily offshore in China is you have a lower cost of labor. The second reason is they have developed an expertise around manufacturing. So you are seeing, I think, the beginnings of a manufacturing Renaissance in the United States with high automation, which will allow for our higher labor costs not be as big of an issue. But building factories is not something you just do, right?
So in changing factories, changing your supply chain is not just something you can do. Should you be considering it? I would say, yes, you should be looking at alternatives for your supply chain. But we don’t know what we don’t know, right? We don’t know how bad it’s going to be until all this talk becomes legislation. So you need to be prepared to make changes, but until it happens, we don’t know how bad it’s going to be.
Kelley Birrell (19:32)
Edwin.
Do we have any idea when these things are gonna start happening? Or are likely to start happening?
Stephen Brown (19:44)
Well, Trump was talking about tariffs a lot. He said it was his favorite word in the English language. So I would expect it to be, I won’t be surprised if you see discussions on tariffs almost immediately. I mean, he’s using it as a lever for border control. And that’s a challenge. You’ve seen a lot of American businesses use near shore manufacturing in Mexico. So that could be really bad for consumers, but
I think we’ll see something in the first six months of 2025. It’s just a matter of what and how bad is it going to be.
Kelley Birrell (20:19)
Yeah, that makes sense. Okay. Well, let’s, what is your next mixed one?
Stephen Brown (20:24)
So this one is also interesting. TikTok and TikTok Shop. Now it’s mixed because TikTok Shop has been very promising and I want to talk about the positives. But first let me talk about the negatives. As most people know, there is a ban on TikTok Shop. Let me go through a quick timeline.
So ByteDance, a Chinese company acquired Musically, that app that you kids used to use to do little dancing videos in 2017. They merged it with TikTok in 2018. In April of 2024, President Biden signed a law that required ByteDance to sell TikTok’s US operations by January 19th, 2025, or face a ban. The law passed with strong support in Congress.
overwhelming support. Now, the argument for this was the Chinese government was using the information in TikTok or has access to that information in a negative way. What we don’t know is how that’s being used. So the general population has no idea. Doesn’t matter for this situation. The law is passed. Let’s talk about what you can do. So there’s been some lawsuits and a
In December, an appeals court upheld the law, but the Supreme Court has agreed to hear arguments on the law on January 10, 2025. So that’s a big date. There’s a debate between free speech and national security. We’ll see. Now here’s the interesting thing. Trump has said he’s a supporter of TikTok now, he was kind of negative for a while, now he’s a supporter.
The ban goes into effect on January 19th. The inauguration is not till January 20th. And even if he was in office, there are many that said, hey, you’d have to get Congress on board to overturn this law. So here’s the negative, right? TikTok Shop has been very promising. I want to talk about the promise, but now you’ve got this pending ban. Many are saying it’s going to go, it won’t happen, but you just, you don’t know, right?
If you’re on TikTok shop, this could be really negative. And if you’re not on TikTok shop, whatever you haven’t wasted any time. We’ll see in the next couple of weeks. Now, let me talk about the positives of TikTok shop. For all of the negatives that are out there, national security and otherwise, I think TikTok has done a brilliant job with their ecommerce. In fact, I read an article this morning that said TikTok shop is basically they’ve combined QVC plus Netflix.
Plus Amazon. so you think about it, they’ve brought, so not only do they, let me talk specifically about the shop, what I like from a financial standpoint, they have really improved, influence the way influencer sell the old model that you saw on Instagram, on YouTube is an influencer. They’d have like a million followers and they’d say, pay me a boatload of money so I can talk about your product. But there was no correlation to successful sells.
and tick talk has basically created a platform that allows attribution. So it’s almost like affiliate marketing. can attribute the sales back to the influencer. And so they get paid for success. So for the brands, they’re not going to pay about load of money and not have success. They’re going to pay when things are selling. So I think this is a really good change for ecommerce and my hope, whether TikTok banned or not.
I would love to see Meta with Facebook and Instagram and YouTube introduce some of these concepts where influencers get paid for success. And I think if TikTok does survive, they’re going to have to do that. So my hope for the industry is that TikTok survives just so this concept will continue forward. The other thing that TikTok is doing is social commerce is a really big thing. This is the QVC component of that analogy.
Where somebody, Hey, look at this thing. Look at this widget. love it. It’s great. You should buy it. That’s really big in Asia, which is where Bytedance is from. That concept may take off in the U S it hasn’t yet. We’ve, we’ve seen it on the TV format. So, but there’s thoughts that this is going to become more of a thing here in the U S.
If TikTok doesn’t get banned, I think this is net positive for sellers. It gives them another avenue for sale and it gives them a new, really interesting model to sell on. Obviously, if you’re on TikTok shop, hold your breath. We’ll see what happens. And if you’re not on TikTok shop, the negative is the pressure for the other social platforms to improve isn’t there as strongly. If TikTok
continues, I think you’re going to have to see Meta and Google adapt. And I think that’s only positive for the industry.
Kelley Birrell (25:13)
sense. Okay, let’s jump back up to the good.
Stephen Brown (25:16)
Okay. This is one I think you can voice in on. I’m going to say AI is a positive trend, especially for ecommerce. Now there’s this concept that I learned about in my enterprise software career from Gartner. Gartner is, um, it’s an industry analyst group and they come out with these analyses of technologies, but they have this thing they call the hype cycle and they usually apply technologies to it. And basically the hype cycle is
Something new comes out and gets really hyped up and it peaks. And then people are like, it didn’t do what it promised. And everybody’s expectations crater. And then it kind of comes out of the crater and kind of arrives to a reality. I think AI was super hyped. Maybe some people have been disappointed by it. And so they’re, they’re, they’re not paying as much attention, but I think if you’re doing marketing, you have to be using AI.
you know, Kelley, you at LedgerGurus. What is AI? What has it done for you in content creation?
Kelley Birrell (26:13)
Yes, yes.
It has changed everything. It has made it so much easier, so much quicker. I don’t do, I don’t just say, hey, write me a blog or an article on this topic and then go ahead and publish that. But what it does is it gives me a starting point. And then I can edit and I can change and I can shift and I can keep refining and making it better and better and better. like that, the hardest part is starting.
And AI makes it so that the start is as easy as writing a prompt. And it has literally made my life so much easier and it’s made my job so much quicker as well and more effective.
Stephen Brown (26:56)
Yeah, I do some, blogging. my blogs tend to be longer and I would say my blog time to blog has shrunk in half with AI because the ability to, to ideate. If I need to explain a concept that’s fairly standardly known, can have AI explain it for me and then adapt it. And so how does this apply financially? Listen, there’s, there’s a couple of ways you look at it for ecommerce. When you’re coming out with ad.
You’re often times iterating on ad copy. That’s something that AI does really, really well. and so you have two financial outcomes, right? You can increase the amount of tries or you can decrease the time it takes to create the same amount of tries. And it’s only going to get better as the tools get integrated into the AI capabilities integrated into more tools. It’s only going to get better. So I think this can be a cost savings.
Kelley Birrell (27:27)
Very well.
Stephen Brown (27:50)
It can also increase the ability to find success. so increase the ability to have that best ad campaign or that best, you know, copy for whatever. and then you get into imaging. You’ve seen some AI imaging that’s really amazing. It’s just going to make output a lot faster. And I think that’s only going to be net positive for the industry and have a net positive effect.
Kelley Birrell (28:14)
Well, and I think it makes it,
I think it also makes it more accessible for people that aren’t necessarily trained in if I was writing ads and all of that, I would feel like I had to have some kind of training to do that. But AI just makes it more accessible and easy to get into. And then you can jump in and.
test it and make mistakes and see what’s working. It’s easier to get in with it.
Stephen Brown (28:41)
I like that point. That’s a plus one for smaller brands who don’t have big budgets, right? Their ability to execute is greater with AI, especially the cost of AI is so cheap. and yeah. All right. Next, let’s go to our next, our last bad trend. And that is supply chain complexities. There’s a couple of things I want to talk about here, but there’s one in particular that’s happening.
Kelley Birrell (28:51)
Yeah, totally. So good.
Stephen Brown (29:05)
January. January is an exciting month for ecommerce. Usually it’s a catch your breath, get caught up, get ready for the next year. But there is there was a strike on the East and Gulf Coast ports. So that’s basically all from Maine down to Texas. And they they struck for a few days and then they put it on hold. What people don’t realize they didn’t resolve the strike they just pushed it back, right?
Probably got some political pressure, hey, don’t mess up the election. Hey, don’t mess up Christmas. But the deadline for that is January 15th. So, and, the, lot of the conversation is, I think the strike’s going to happen again. So if you are importing into the East or Gulf coasts, your shipments might run into some big problems. there’s a lot of interesting nuances with this.
They are arguing for less automation, obviously better pay. So the likely outcome of this will be more expensive to import through those ports, through those regions. Trump has weighed in with the workers, which is really an interesting twist. they haven’t resolved it. So we’ll see.
Kelley Birrell (30:17)
Yeah, that is interesting.
Stephen Brown (30:22)
So there’s a short term and a long term thing to consider. Short term is if you import through the East coast or the Gulf coasts, you need to be really thoughtful in the next month because there’s a decent chance that you’re not going to be able to get your goods through there. And even if you’re not, a lot of product is going to be rerouted to the West coasts. So I would expect West coast ports to be more congested, especially if this strike goes on for a longer period of time.
And then the likely outcome is that importing through those ports is going to be more expensive than it was. So expect your fees to go up in 2025.
Kelley Birrell (30:56)
Well,
and I would imagine that if it’s being rerouted to the West Coast, the costs are going to go up anyway because they have to get all the way around to the West Coast.
Stephen Brown (31:05)
Yes.
Yep. Yep. So you’re to pay more to get your product in the country regardless. Now there’s some other things that are still going on, right? We have attacks on ships in the Red Sea by the Houthi rebels of Yemen. That has created a lot of problems for anybody that’s importing through the Red Sea. That’s not as big of an issue for Americans. That’s more of an issue for Europeans that are bringing product from Asia into Europe.
They have to go around the, the Horn of Africa, which is increasing costs. But there are some conversations like, if it impacts one thing, it’s going to impact all things because now you have ships that are on longer durations, less capacity. Um, air freight has been really expensive. Um, there, and there are some thoughts that it’s going to go down, but it has been kind of problematic in 2024. I’ll talk about why it might be going down in 2025.
but for now it’s been high. So supply chain complexities continue to be a problem. Be aware of those, be aware of some potential cost increases accordingly.
Kelley Birrell (32:13)
sounds very interesting. I’m excited to see what ends up happening.
Stephen Brown (32:15)
So this is a good bridge over to my next mixed trend, the de minimis rule. Do you know what the de minimis rule is, Kelley?
Kelley Birrell (32:23)
Okay, so you have told me about it, but go ahead and explain it again so that all of our listeners can understand it as well.
Stephen Brown (32:30)
So the de minimis rule is actually, I’m getting real technical here, section 321 of the Tariff Act of 1930 said that imports valued at less, at $800 or less may be exempt from duties and taxes. Now there’s some things if there’s a regulated product, whatnot, but for the most part, it allowed lower cost products to come into the United States without duties or taxes. And some companies,
have really figured this out and two in particular have probably exploited this more than any – Temu and Shein. Have you bought anything on any of those platforms, Kelley?
Kelley Birrell (33:09)
I
haven’t, but my kids do.
Stephen Brown (33:12)
My sister who is a high earner loves Temu and this has increased, coming back to my last trend, has increased air freight out of China. Like there is some, some analysis that say a significant amount of air freight is coming from one of those two companies. Plus you have all of the other sellers where you get those weird Facebook ads probably. And they are basically able to come in at really low cost of goods sold and no additional costs from duties and taxes and undercut everybody else.
Now, let me tell you about why this is a mixed trend. First, let me talk about what’s happening. Legislators have realized that this rule is being exploited, there’s a lot of look at revisiting this rule and probably changing it to a point that it goes away altogether as we currently know it. What that will mean is the imports will no longer be viable
under that de minimis rule. So they’ll probably have to pay duties and taxes. There’s some conversations around, more complexities around those employee ports. My Wife Quit Her Job podcast has a really good short episode on this, that goes into some of those complexities. And the thinking is that international drop shipping could go away altogether. It just won’t be viable anymore. Now that’s bad if you have been drop shipping internationally.
But if you’ve been competing against international drop shippers or low cost providers, that’s good because the competition is going to get level set a little bit and it’ll probably take some pressure off of air freight. So you won’t see as much air freight because that rule has really enabled these sellers to come in. So that’s why I put it in my mixed bag.
Kelley Birrell (34:55)
Okay, and so I think we were talking about this earlier, but the difference between the imports that are coming through the ports and the stuff that’s coming through, like from Shein and Temu, is that they’re coming by postage instead of coming through the ports, right?
Stephen Brown (35:12)
Yeah, and they’re coming
as a single unit oftentimes, right? You can get a lot of product under $800, even some higher end product you could get. So usually when you’re importing through a port, you’re importing a pallet of product, right? And you have to go through the customs and process with there. When you’re bringing in a single package, different equation.
And so they’ve used that, you know, it’s a little bit slower, but with air freight it’s not that much slower and you’re getting such a deep discount on price that it’s, it’s, you’ve just seen a flood of low cost products direct from manufacturers or from these more sophisticated sellers like Temu and Shein who have really industrialized this with, with factory connections. So I think it’s going to be net positive for American companies.
unless your model has been dropshipping internationally. Now dropshipping is still going to be very valid for domestic dropshipping. So if you have product in country, doesn’t get affected. But if you’re dropshipping product internationally, it’s a negative. And if you’re not, it’s a positive because you’re not going to get undercut like you’ve been.
Kelley Birrell (36:25)
Awesome. Okay. So let’s finish up with the, with your last good thing.
Stephen Brown (36:30)
My last trend, a positive trend, I would say the trend is there are some really interesting new avenues for sales and marketing. In the last few months of 2024, I’ve been hearing a ton about AppLovin, which is a platform to put advertisements onto mobile games. And there’s been a lot of really positive feedback. There’s concerns about how far that could scale, but it’s a new avenue.
Obviously we have TikTok shop, which may or may not be around. You have Faire for wholesaling. We’re seeing a lot more ads on streaming TV. So there’s a lot more avenues for acquiring customers. And what I think about these is not just, Hey, I have new ways to acquire customers, but you may be reaching new customers altogether because
we tend to be segmented, right? Some people are into TikTok, others are not. Some people are doing mobile games, others are not. And so we’re seeing this spark of opportunity, which presents a new avenue to acquire customers. And I think that’s a really positive trend. So how do I apply that financially? Well,
If you’re not looking at one of these things and there’s others I’m probably not even thinking about, you probably should consider that in your mix. And the positive outcome is more efficient sales, maybe reaching new customers. The other thing that I’ve seen and I’ve read and I’ve been talking more to people about TikTok shop is a lot of times when you increase sales in one channel, there’s a halo effect in others. So I’ve heard about
TikTok shop, even though it’s not been a big percentage of sales, it’s raised sales and other channels for sellers. So sellers are seeing increased Amazon sales when they go into TikTok shop. That’s kind of weird, but there’s this marketing theory that you have to touch a consumer a number of times before they buy. So even if you’re not getting the sale on those platforms, you’re influencing to buy the sale on other platforms. So I think we’re seeing
an interesting momentum of new categories of sales or new ways to reach customers that we haven’t seen for a few years. And I can see that’s only net positive for those that tap into these opportunities.
Kelley Birrell (38:51)
Wow. Well, I’m really, really glad that you have told us all of this because there were some very, very interesting things that we’ve talked about.
Stephen Brown (38:59)
Yeah, let me wrap this up. The way that I think about this is these are mostly macro trends. And what you have to do as a brand is not every trend is going to apply to you or apply to you equally. So as you’re looking at these trends and how to incorporate them into your financial planning and your forecasting, you really need to go and say, how does this apply to my business? The other thing I would say is there’s going to be micro trends that don’t, they’re not even on this list.
I’ll give you one example. I also am a co-owner of an Italian organic skincare company in Sole Toscana. There is a Jubilee year for the Catholic Church, which is expected to increase the amount of people going to Italy. One of the things we’ve seen in that brand is there’s a correlation with people who travel to Italy and
purchasing our brand, even though we sell them to America only. And so you gotta find your micro trends as well and kind of go through as you’re planning and apply those trends accordingly to your plans. And hopefully overall, I mean, there’s a lot, there’s some things to be concerned. There’s some things to be positive. There’s some things to be mixed about. I feel like I’m cautiously optimistic about 2025 and hopefully I’ll be proven wrong and it’ll be a wildly successful year for sellers.
Kelley Birrell (40:21)
That would be awesome.
Stephen Brown (40:22)
So that’s a wrap on episode one of the Ecommerce Finance Podcast. Stay tuned for future episodes where we’ll talk more about the financial aspect of Ecommerce.