The Bear Case For E-Commerce In 2025 transcript

everything is about to collapse in e-commerce and I'm going to give you the reasons why I believe that's true on this episode of my podcast I'm going to tell you at least seven reasons why I think things could go really wrong in 2025 for e-commerce and tell you what you should do to make sure it doesn't happen to your business let's jump into it all right I'm going to tell you UPF front that this is a difficult exercise for me to do I recently recorded an episode called The Bull case for e-commerce uh I was challenged on X to uh doing a follow-up episode where I did the bease for e-commerce the truth is if you go look at that bull Case episode um the bull case for eCommerce in 2025 um you will see in that episode that I am optimistic about where e-commerce is going so I'm going to tell you up front that I'm doing that but I also think it is the job when I used to be a CEO of an aggregator 4x400 I was I remember one of the things I was talking to some smart folks in our space about was that one of the jobs of a CEO is to look around the corner and see what could be coming and to be a little bit pessimistic um that's hard in inct for me I tend to be a pretty optimistic guy but I do think it's a good Instinct I think it's a good practice to think like what could really go wrong in this space and so with some help from a couple others and with some thinking of my own I've come to think of like what I think could create real problems in the e-commerce space in 2025 um but maybe even beyond that in 2025 some of these will have a little bit of a longer timeline than that so um so I'm going to give you my answers to that question how e-commerce can go wrong in 2025 and I'm going to start with number one I've got seven of them right now let start with number one which is um the most obvious uh one which is tariffs offshoring and US isolationism in general um president Trump since he was been since he's been elected has already threatened um actually kind of promised I'm not sure um a 25% tariff on all uh on all Canadian and Mexican Goods coming into the US um and whether or not that actually happens is a fair question right now on po Market as I record this which I think is actually a really good way to get your head around this poly Market says there's a 37% chance or there's a yes 37% yes reading uh on uh the idea that there would be a tariff uh from Mexico to Mexico and Canada uh he threatened similar things during his first presidency so who knows if that happens uh a major tariff to China of course is an even bigger deal for a lot of people and generally shaky relationships with China um and all that considering how much manufacturing still happens there and how much man facturing has been a target of the administration as the at least of they as they've voiced it are all concerns and listen you don't need to get exactly into whether or not there are going to be tariffs that are going to make it harder to do business in the US with International folks to recognize that this is a real possibility in some way like whatever the precise number is it is definitely in my view the most obvious way that margins get squeezed in the immediate future for us-based e-commerce businesses this is this is a number one okay um that tariffs um and us is isolationism in general create difficulties for doing this and and you could actually take this another level to the offshoring issue um offshoring of talent where you could imagine some kind of setup in some way that makes this harder to do for us-based companies I have a sponsor called more Staffing that I absolutely love I've mentioned them I mentioned them all the time they staff teams in the Philippines for US based e-commerce businesses I've got multiple um sort of sub brand sub companies within that that do supply chain work and Design and video editing work I work with them across every part of my business that I touch I I really love them um it would be a real problem for me and my business if there was somehow some way um a difficulty in hiring overseas talent in the US because of some kind of Regulation that was trying to keep more jobs in the US now forget anything you think ethically about any of those things for just a second right let's just talk in terms of purely capitalistic economics um about that and I think that's the the number one way this could be a real problem and so uh Chinese manufacturing is the most obvious Target of this but again Mexico and Canada also could be hit in various ways people doing business in those places and that could really create problems I mean if you already are a brand that is lower margin getting squeezed additionally from those manufacturers by with tariffs would create a real problem for some businesses and make it really really hard to grow there could also be some Ripple effects here um economically and this this is going to get into something I'm going to bring up later which is the macroeconomic outcomes of some of these policies but you could sort of also Imagine like I mean I'm actually working on a new brand right now and this and there was a possibility I was going to work with a Canadian manufacturer it's still a possibility actually and I immediately went to my unit economic sheet as I was prepping for that brand and I thought what happens if my manufacturing costs of my my product costs go up by 25% and you know what I did immediately when that happened I immediately went and changed my aov up I basically I I told myself here's what I'm going to do I'm just going to raise the price um now this is of course the fundamental economics argument against tariffs is that all it does is pass costs along to Consumers I am not a good enough Economist to know how much that is true in the short and long term and what the downstream and second order and third order consequences are of all these things but I just I just know that was my immediate Instinct was like I'll just pass the cost on to the customer and then I thought about how that would probably constrict my growth because it would make it so my product was a little less accessible and some of those things I think that could also be a thing here where suddenly everything gets a little more expensive and it gets a little more competitive and it just restricts growth all the way across the board to me that that's sort of again the most obvious way that things get a lot harder really fast for brands that already run a lot of times in e-commerce Brands you know a 10% net profit is pretty good especially for a growing business and so you could really imagine a couple points of profit being eaten away pretty pretty quick and maybe more than that again depending on how large of a party of total cost cogs are uh to where that to me is something that's really challenging so what do you do about that I think probably what I would do right now is um is watch carefully I would get out in front of tariff regulations as much as I could understand the space as well as I possibly could if I was starting that business just thinking through like what is this going to be I would start modeling out costs modeling out Solutions immediately do I just eat it on this is my are my cogs low enough to where this is not really a huge problem for me do I um you know do I think about raising the price if I if I do that do you know kind of begin to get your head around what those possibilities are I think it's not obvious what the solution is I um and if it's a cost increase it's just is a cost increase the other thing I would think about right away is is starting to look around honestly at um additional suppliers like if you don't need to be Manufacturing in China maybe you can look around at other places I'm going to give you another reason why I think Manufacturing in China could be a problem yeah it's it's always a good idea and a good practice to be shopping your supply chain I mentioned move supply chain a minute ago a sister company of more Staffing this is what they do like and I just I really do believe that even regardless of whether or not tariffs happen most brands in our space have under optimized Supply chains and that you ought to go and think about um investing in work talking to more manufacturers thinking about how to get your costs down really shopping that aggressively and getting on top of that part of your business um so many brands are started by product people and marketing people who want to grow businesses they're not really supply chain people who understand the details of these Supply chains and it's where I think it could really really help to get some help from somebody like move um who can do a project basis where they can actually help introduce you to additional suppliers um and and think about how to shop those things get better rates Etc start doing it aggressively now so that you create a little more margin room more favorable terms all those things that can make it a little bit easier and better to run your business so that's number one tariffs onshoring or offshoring and US isolation is okay number two this is a little bit of a bigger swing a little bit of a wider one but uh population decline uh particularly in China population decline is a story all over the world um and is a real issue it's a real issue and I'm I'm really curious to see how this reshapes the world in a lot of ways um the last I had seen is that um is that uh Chinese population decline um you know we're we're way down from the one child policy here of course right but um but uh in China in particular people are manufacturing a lot um China the population is already declining um it has dropped by two million people in the uh in 2023 um and uh it will continue to speed up the trend over more time the jected um population would theoretically get as low in the year 2100 it's a little ways out as 800 million people down from 1.4 billion now um so is that a problem right now no and I'm not talking about building your business for the year 2100 but what I am saying is that it's possible that there are more older people in China in particular and this is China's one snapshot this is a this is an issue all over the world um that could make it more difficult in a lot of ways uh to staff manufacturing jobs across the world um because the fertility rates are very low in the world right now people are having just way less children than they used to um you know the extreme example of this is in South Korea where I believe the total fertility rate is like uh less than one uh child per two people that it means that your population is declining extremely quickly um and that's South Korea I don't think there's a lot of manufacturing happening there these days um but there's a similar thing happening in China and who knows how this trend will all go but I could imagine manufacturing jobs becoming more expensive in various parts of the world that's what I'm saying when I switched my landing pages to firmat for one of the brands that I was working on uh we saw an immediate 50% spend increase for our uh for our meta ad spend that is a huge increase it is why I first got clued into format why I took them as a sponsor on this show because I was so impressed with the service as it came as I've said Ware formont is essentially the Ferrari of landing page software it's actually more than even software there's an agency service that comes with it everything about using formont is Guided by agency level help account managers who walk you through it um who really serve as co- strategists with you on utilizing everything there is with format and it really is an incredible piece of software um it is the best landing page software I've ever seen at the level of landing page itself extremely fast loading uh like ridiculously fast loading software but the the magic goes beyond just the landing page it's actually much more than that um beyond the landing page it's enhanced pdps customed to every funnel you want to build um it's you can even build custom uh cart flows off the back of those really really easily um build custom bundles test everything in their system without using third-party testing software um with uh clear indications of stat Sig whenever you're running your tests um split traffic down at the ad level at the um C you know category level anything you want to do to make it easy for you to Output huge volume of testing at the level of landing pages you can do with format if you serious about using post click marketing optimization landing pages pdps bundles um anything like that cart upsells to increase the value of the ads that you are running you should be giving forat a serious look it is by far by far and I mean this the best most robust software for that sort of thing that I have ever seen go to formont commerce.com to check it out formont commerce.com to check it out you will love it it will be great it will help you sell more stuff over some time period because it becomes harder to replace labor now at the same time I could imagine automation coming up and creating a sort of counter move to that to where Automation in factories means that you don't need as much human labor to do these kinds of things but um but in the meantime it's sort of a broader time scope thing that I'm wondering how over the next 10 to 20 years really that's going to reshape things so I won't belabor that point um I don't know how that will all play out um it's there is also popul clent in the US by the way um not not as drastic but um but we'll see kind of how some of those Trends change over over more time so um something to watch out for the solution to that is the same uh as it was in the first one which just to continue to think about um just hammering away at optimizing supply chain it's a best practice all the way around you should consider it so this is not um this is this is something you should be you should be thinking about all the time in your business is is how to get um negotiate better manufacturing U Better supply chain Etc okay number three um the continue let's move to the marketing side okay the continuing problem of single Channel advertising I'm G talk about meta specifically in a second but it just seems like one of the sort of constant existential threats to D Toc is that we are so dependent on meta um and and this some notion of single Channel advertising in general that um if something goes wrong there it becomes a single point of failure in the whole industry I'm going to talk more specifically about meta like I said in just a second about what I think that Dynamic could be there if it happens um but the single point of failure problem more broadly is another issue I I have for a long time been a person who has advocated that you should not for a long time in your business um diversify your marketing channel mix because while there is risk involved with single Channel it seems to me that there is more risk in spending money in places that um you don't get a very good return of the money it's extremely costly to open up new advertising channels and if you're sub 30 million in Revenue um you know that's sort of a rough number number depends on the business and how you get there but something like that uh in general like you know being single channel is fine I think for most businesses and so maybe this is really more of a mid-market concern but even for those mid-market Brands they're still spending the bulk of their revenue on uh meta and uh and so it is still single Channel focus and the ability to open up additional channels of marketing could make a really big difference and this is where I would say you know larger Legacy businesses with retail distribution as well are going to have uh much easier time because there are just many more ad channels that are effective for these larger brand plays larger awareness plays Etc but when you're performance oriented and when you're performance oriented with a real single Channel investment the answer here or the the problem here is really clear which is that if something breaks with meta everything in your business can break and I've experienced this with Brands before um and by something breaks quote unquote I mean you get worse at it or something happens on the meta side or whatever it is right like uh it may not be even meta's fault it could be your own fault or something um I've even heard and saw you know Cody pler tweeting recently something to the effect of Jones Road you know the best thing they did in 2024 was opened up some new advertising channels but the worst thing they did was they lost focus on meta as they did that and that actually made their performance decline there and they opening up those new channels therefore created some additional cost so um so it was a painful process is what I think Cody was basically implying as he opened up those new channels uh and so that is a real existential Threat all the time to this business now um for the brands that are Tik Tok shops or something you know where that's your single Channel this becomes an even more existential threat uh in the sense that Tik Tok perhaps could get shut down um I personally don't think that will happen I haven't checked poly Market on that but um but it's it's an interesting idea I I think it seems pretty unlikely to me that uh that Tik Tok will go away but just generally speaking many less people are sort of uh so leveraged on Tik Tok uh specifically uh right now poly Market has that at a 33% chance Tik Tok banned in the US before May 2025 so that's not nothing that's a that's a pretty meaningful uh that's a pretty meaningful possibility and it's it's actually going up all the time so who knows so we could we could see a challenge there if that's a larger part of of your Revenue as well um what do you do about that um I actually wouldn't change what I would do here in general um I think on the whole I would keep investing in meta I think this is a uh up until like I said 30 million or something in Revenue I would keep going there I would think about if there are simple ways to do this to curb a little bit of some possibilities there's a couple things that are compelling to me I mentioned them in my bull Case episode um as possible um ways that are lowcost ways to open up additional channels and certainly if any of those are real you should you should get on them just to diversify to have it um I think if if it's a low enough cost it's it maybe is worth doing I think YouTube shorts is a little interesting to me right now something I haven't talked much about app Len is interesting to me right now um seems like the the front runner right now to me as a as a as a meaningful Channel expansion um I think Amazon is sort of its own vers version of this where the Amazon ad and and of course sales Channel ecosystem creates some hedge here although I think that's also really Downstream from meta in its own way so um but yeah I actually still think that despite this being a risk that if you're certainly for sub 10 million I would just accept this risk at this point I would just say yep that's unfortunately one of the risks in the business and I would keep trying to hammer meta unless again it is a very low barrier to entry for these other channels if they are go for it get on them um but if they're not I think it would it's it's just not worth pursuing number four let's talk about meta specifically meta competition specifically this is if meta breaks if meta becomes a less viable channel for everybody here's how it will happen the cpms will just get too high now I want to say UPF front Rising cpms is something I hear people say every year I have heard it every year for 10 years in e-commerce I have constantly heard people talk about the problem of rising cpms and meta there are a lot of reasons for that um one of them for example that nobody talks about is inflation like Rising cpms is a reality because things get more expensive over time we have a word for that inflation uh that said I also do think there's a reality where uh as more and more money floods to the platform as the barrier to entry lowers for e-commerce you could imagine the cost of the ads outpacing the ads ability to deliver value at those costs now the reason I have not worried about this is because every time this has looked like a problem meta has solved it right so for example in the early days meta opened up Instagram on top of Facebook okay back then they were just called Facebook and they they added Instagram and there was a new channel okay on top of Instagram eventually they became Instagram stories once snap stories became Snapchat stories became uh a Channel Once um Tik Tok became a thing Instagram had reals and they will continue to find ways I believe to open up additional inventory they've tried to do threads I don't think any I don't know if anybody's using threads but um that was like an attempted uh plan like there's just all of these different things like that that they have continued to to do as Trends have changed as social media has changed to do this and in fact if Tik Tok gets banned I expect a whole bunch more value and a whole bunch more traffic to happen on meta because Instagram reels will be the very obvious place where people will go if that happens so um so there's a possibility that this actually goes the other way cpms go down and there becomes a way for there becomes a viable way for this to grow and this is again where I would say like I I'm happy to do this bease episode and to think through this and to look around the corner and see what the problem could be I also think it could be wrong um that most of the IND that it's very likely um that there are things that go poorly and that there are things that go well and uh both of those possibilities are there in the future so um So Meta competition um via cpms in particular is a real problem uh where people or it could be a real problem I actually don't think it's been a real problem right now some people are suggesting that meta has slowed down in value this year I haven't seen a lot of data to suggest that's necessarily true though though I know um some I've seen some anecdotal stuff about that uh so so so who knows okay number five let's talk more specifically about meta and and actually again a broader thing that would apply well beyond meta um and I think this is actually a more likely existential threat to me to the business than anything else and it is the commoditization of advertising via AI the commoditization of advertising via AI what what what could happen here I'm starting to see more and more Whispers of people who whose entire ad output doesn't involve a human it is just AI reading ads and making more like it with basically no humans getting involved and if you can create endless ads at scale that eventually just um with bulk output essentially bully the The Meta ad system into spending until you have winners I could imagine a world where it becomes so cheap to generate so many ads that you're sort of your uh and you could do the same thing with landing pages and so on that that essentially you everybody gets so good at spending their money especially when you layer on manual bids so that the manual bids allow you to do this basically for free on the distribution side as well and cap take as much space as you can that actually it massively speeds up this CPM competition problem because ads get so effective so fast that it um that it basically floods money to the platform because of the efficiency and sort of counterintuitively takes efficiency out of the platform for basically everybody else um because there's just too much money going there now there's still some limitations to how much value you can even drive on meite at some point uh you have to manufacture the product and and you have to plan cash for it or what whatever but um there's sort of you could imagine a way in which the game becomes so efficient there's like a game theory problem here that it becomes so efficient for some people that it actually makes it worse for the whole um and maybe even those people themselves in some way get beat by the same thing because everybody starts doing sort of an AI arms race with ads and it just sort of Chang es the whole game for everyone all the time now if that happens I'll say again there's a way in which this could be good it you know if you are a winner on this or even if there's a partial version of this it could just drive your cost per ad down so low that all it does for you is open up more margin you could also imagine that this is precisely how other channels get opened up right and so um I think my answer to what do you do about the this and the metac competition issue that I mentioned earlier is that you keep investing in great creative processes including using AI where you can to drive cost down and drive um and drive value up for yourself and that's the answer um and if you can get really good at that if you can get really good at that kind of um focused approach if you can do that through manual bids like I talk about all the time uh if you can do all those things together then you also can develop muscles that you could then use for other channels and suddenly maybe YouTube becomes much much more viable for you because you just get so good at creating so much testing uh for so cheap that you sort of again bully the system into eventually um spending for you until until it happens you just create enough total output that you you uh attack it with bulk okay um that that could um that would be the way I would think about this is lean right into it as opposed to away from it so I'm thinking all the time about how to integrate AI better into our processes um I'm not great at it I'm not I just I have a hard time thinking down that way I don't particularly like it that's another challenge um uh and so it's the kind of problem solving involved using AI for Creative is just not my favorite kind of problem solving to do so I have to push through that um but that is um that is I think the only way to think about it is that you have to get good at it embrace the tool as much as you can and try to figure out how that fits into your process um so yeah okay number six um Downstream from the AI issue I could also Imagine something happening here that creates a crisis of trust this is a a much bigger wider swing okay um but uh but but essentially what I'm saying is as AI gets better and better I could sort of Imagine a mass reaction to that from people that decide together to essentially Hate Everything AI or to go like I don't to to the humanity would get removed from Brands and from people's interactions in ways where you could sort of Imagine a a mass reaction that is negative towards this kind of output that would actually kind of turn around and make the whole game harder again and where you were previously getting margin additions from AI it could actually hurt you in some other ways you could even imagine AI detection tools being used that people have on mobile apps or browsers or whatever where they just sort of reject all ads that are AI or they um you know they sort of pre-screen content for AI in some way or another uh you know there's something like that you can imagine I don't know exactly what it would be but it's it's not too hard for me to imagine people who go like I don't really want that to be the world I live in I want to embrace the tool but I don't want an AI Avatar talking to me I don't want endless ai ai copy talking to me I want um somewhere to be a real human and for some people to go we're going to just make this so that it's not as much of a part of that problem again I don't think this is likely but I could imagine something like that happen social movements are hard to predict I can imagine something like that happen happening uh in a way that could create a problem so how do you head that off um I actually think there's a simple way you do this which is that you remain authentic in your business as best as possible you use Ai and smart ways to make your processes better but you don't try to go the full route of complete AI Embrace that would be one way to head this off for me personally um I ALS again just want to run a business more this way and if that is what puts me in the e-commerce grave then so be it um there there's some limit there's some element of this here where I want to maintain some of my own creative approach to these things because I enjoy it because I find Value in the work etc and you could also imagine some ways in which a brand could make some claims around their use of AI that appealed if that situation happened um so there's that okay I think that's a little more speculative that's a little bit like the population decline one where it's a little harder to say but that's what I think okay number seven um this is my biggest swing that is the hardest one it's actually in my view probably the most likely problem if if tariffs and off showing and isolationism uh or tariffs and on shwing and isolationism are the most obvious specific Challenge on the manufacturing supply chain side if um to where you could see a clear cost increase that creates clear problems based on a very clear mechanism okay and if metac competition and and sort of single Channel Reliance is the biggest problem on the marketing side there's a a a problem bigger than all of those that goes against directly what I think is the biggest is the biggest reason that I'm a bull for e-commerce overall right and it is macroeconomics so I said in my bull Case episode that the number one reason I I believe in the future of e-commerce is that the total share of us retail is um going more and more towards e-commerce every year and 10 years ago it was about 7% of total us retail was ecomerce um last year this year it's goingon to end around 16 or 17 percent so it's a huge growth that that curve is up to the right it has shown no signs of slowing down so far more and more Commerce is happening more and more retails happening online every single year okay and on top of that the economy's grown and so because the economy is grown It's a larger slice of a larger pie okay so that just means you get more pie all right now that also is all outside of my control and so here's the counterargument to that the counterargument that I see is that there's some macroeconomic decline that happens right that suddenly maybe at some point there's just some upper limit of how much people want to shop online versus versus in stores and so that slows down or maybe it's even something more Stark perhaps to go back to the Tariff and offshoring thing you could imagine that tariffs do have a bunch of knock-on effects that massively slow down the economy this is certainly the prediction of some economists who are very concerned about um isolationist uh policies relative to Global possibilities that it actually creates a real problem because you know uh tariffs slow down the economy and people have less money and and and it is a is a big Financial for people right and they have less money and it hurts jobs and like all those kinds of things that becomes all of these Downstream macroeconomic effects that are real problems and um that's not very hard to imagine that scenario like I said some economists actually predict almost exactly that I I don't know how wide they think that problem would widely that problem would affect the economy but um certainly some anti-ar economists are uh suggesting that is a problem and so that could really happen and of course there's also the same thing said in the bull Case episode on the macroeconomic level which is unknown unknowns uh there could be just some Shock to the system that creates a real problem for the US economy uh that we can't see coming we don't even know what it is but that's always a possibility and this is where I think um there's always some wisdom in thinking about how to make your business a little bit more future proofed in some way the most obvious version of this is to keep some cash around as so far as it's possible um this is probably one of the best arguments I can think of for taking Taylor Hol holiday's advice and running your business growing your business a little slower at a little higher margin and taking more money on first purchase and relying Less on LTV it just makes it so that your business has a little bit more wiggle room in it um so that if something goes wrong you can absorb it and you can be okay um and you've got some savings for a rainy day for something goes wrong I think that's a good practice in general for me again I'm not trying to sort of hyperscale anything uh and so I've done that even with my agency like I've got some money aside where my my business is not very cash intensive but I just don't know what's going to happen and so I've just got in a high yield savings account and it's just a possibility all the time that um that something could go wrong and that I'm gon to need that money and so I don't know what that is but just trying to be aware of that to me this is always the most obvious bare case is that something happens that's a shock to the system that none of us can see coming uh you know you think of the housing crisis in 2008 it was very hard to predict right there's a few people who they made a movie about and a book about who got it right but pretty much everybody else got it wrong um and that and that is the way I would think about the same thing who knows what's going on now and what could create that same kind of outcome so so run back through them again really fast number one tariffs uh and US isolationism in general number two population decline a little bit of a bigger swing there number three single Channel advertising conceptually as a as a basic problem number four specifically meta competition cpms Rising that kind of thing number five that problem being sped up and commod and with the commoditization of advertising via AI um number six a crisis of trust in some way Downstream from AI Downstream from some of those things that creates a change in the way consumers perceive Brands number seven macroeconomics both with particular policies of President Trump and of the um New Republican leadership um again I'm not speculating on any of those specifically it just could happen I think um and then unknown unknowns in the macroeconomic world as well that's my case having said all that like I said it's not what I think is most likely I I'm bullish I really am bullish on the on the uh on the total possibilities for D Toc but I do think it's a good practice to think about these things and go what do I need to do to just make sure I cover the downside case hey thanks for watching for listening if you like this episode I hope you will subscribe wherever you're watching or listening and not miss out I got a couple great interviews coming up including folks from baseball lifestyle I'm going to interview them soon really big soon to be a nine figure brand who are doing Monster things I've also got Aaron or coming back soon who's always a good time to talk to so a bunch more stuff like that I'm also going to do some 2025 prep so if you're thinking about like what what to do looking into 2025 like how should you be prepping your business got an episode on that coming soon as well uh maybe Downstream from this bull and bease kind of conversation uh if you would like to respond to this I'd love to hear it if you have more things that could go wrong in DDC I'd love to hear what you think those are please email me at podcast ajg.com or reach out to me on X andrewj Ferris I would love you do it publicly there uh so that other people can weigh in on the same thing and of course you can see everything I'm doing at AJF growth.com I'd love for you to sign up for my email list there uh I'll send you some e-commerce resources that'll be really helpful to you um to run your business as well as you possibly can thanks to my sponsors as always go support them they are very helpful great people whose products and services I really do use and that's why I say it every time and I'm so glad to support them thanks for watching for listening talk to you next time [Music]