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Inflation Eats into eCommerce

Inflation Eats into eCommerce

It doesn’t happen often… but it’s been happening lately. Inflation has reached ecommerce.

Prices in ecommerce goods have increased by 3.1% year-on-year in August. And among all categories, it was apparel prices that rose the most – with increases of 15% year-on-year.

Inflation Eats into eCommerceAugust has marked 15 consecutive months of increases in ecommerce prices, and comes in stark contrast to the preceding years. In fact, from the period between 2015 and 2019, online prices continually decreased by a yearly average of 3.9%.

Across all 18 categories that were analyzed, 12 of them saw increases in prices. Here is a breakdown of each category:

  1. (15.5%) Apparel
  2. (4.6%) Nonprescription Drugs
  3. (3.5%) Sporting goods

(3.1%) Total average

  1. (3.2%) Medical equipments and supplies
  2. (2.6%) Furniture and bedding
  3. (2.5%) Tools and home improvement
  4. (2%) Appliances
  5. (1.9%) Pet products
  6. (1.6%) Groceries
  7. (1.5%) Flowers and related gifts
  8. (1.1%) Personal care products
  9. (0.8%) Jewelry

There were also six categories that stemmed the inflation tide and saw off increases to their ecommerce prices. The following categories saw falls in their online product prices.

  1. (-0.1%) Home and garden
  2. (-1.5%) Office supplies
  3. (-1.6%) Books
  4. (-1.8%) Electronics
  5. (-4.9%) Toys
  6. (-6.2%) Computers

The average increase in ecommerce sales across all categories was 3.1%. But apparel was the outlier, which saw the highest increases with 15.5%. In comparison, there were six categories that saw decreases in online prices. The biggest fall in ecommerce sales came in the computer category.

In terms of apparel, this is generally the time of year when retailers chop away at their prices due to the back-to-school season, in addition to prices driven down on summer products.

“In addition to notable categories such as apparel and home furnishings,” said Vivek Pandya, lead analyst at Adobe Digital Insights, “consumers continue to see prices rise online for everyday goods such as groceries, pet products, and personal care.”

Inflation Eats into eCommerceCompared to last month, ecommerce prices for August rose by 0.1% from July.

So what’s behind the stubborn increase to ecommerce prices?

According to Adobe, the ecommerce inflation that we have been experiencing can be attributed to the well-publicized supply chain disruptions across all industries. And it has combined with an increase in ecommerce shopping.

Bottleneck issues in the supply chain have resulted in a lot of disruption to manufactured goods, increases in raw materials as well as transport costs.

As a result, a number of brands and retailers have resorted to increase their prices in order to maintain their margins on goods. Or they have resorted to simply not discount products they typically would have.

Take, for example, Pool Supplies Canada, which has said that they have increased their prices on average 10% due to rising costs associated with materials used by its suppliers – such as chlorine, vinyl, and resin.

Or take as another example American Eagle, which saw an increase in its gross margin from 30% to 42.1% during Q2, resulting from less discounting and high consumer demand.

Between January and August of 2021, we as consumers have spent $541 billion on ecommerce goods. This is an increase of 9% when compared to the same period in 2020, and is 58% higher than in 2019.

“Considering that many were unable to leave their homes in 2020,” said Adobe, “the year-over-year growth highlights the staying power of habits formed during the pandemic.”

This is clearly shown when you track the growth of ecommerce over the last 10 economic quarters:

11.4% – Q1 2019

13.2% – Q2 2019

16.8% – Q3 2019

15.3% – Q4 2019

13.8% – Q1 2020

43.7% – Q2 2020

36.3% – Q3 2020

31.9% – Q4 2020

39.1% – Q1 2021

9.3% – Q2 2021

However, due to the increases in online goods, many consumers may decide to cut back on their shopping habits, and ultimately reduce demand. According to a recent survey, 90% of consumers plan to change their shopping habits due to inflation. 

A new survey of 1,000 consumers from market research firm Suzy Inc. finds that 45% of consumers are changing their buying habits due to inflation and 50% of consumers think inflation will impact their holiday spending.

PS: ArganoStudios is one of the world’s leading digital products & experiences development & strategy teams. Contact us to see how we can work together.

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