How inflation is affecting eCommerce sales

Many facets of the global world, the ongoing war in Ukraine, the remnants of the COVID-19 pandemic, growing online inflation, and the disturbing supply chain infrastructure are all impacting eCommerce trade globally. 

A recent report by Adobe revealed that online prices are shooting up by 3.1% every passing year (as of August 2021) with no sign of slowing down these higher prices. Today, the world is experiencing the highest inflation rise since the 1980s, which is undoubtedly a concern for consumers and retailers as prices are skyrocketing. 

Read the article to know how the rate of inflation adversely impacts the consumer buying habits and the eCommerce brands selling online and find solutions for coping with such effects.

What Is eCommerce Inflation?

Inflation is simply the rate of increase in the prices of goods over a period of time. eCommerce inflation results from a significant imbalance between supply and demand. Sellers on Amazon and Walmart are struggling to meet increased customer demands due to the general rise in the price and production cost of goods. 

As per the Adobe Digital Economy Index, (Adobe digital price index) which tracks the average prices of over 100 million SKUs across 18 different categories, eCommerce inflation is a reality today.  It is said to have begun in 2020 during the early months of the pandemic and has continued for 21 consecutive months.

The Adobe digital economy report highlights that the major disruptions in the supply chain industry will in the long run make it much more difficult to stay competitive, and much less profitable in the online businesses. Because of COVID isolations and social distancing protocols shoppers switched to online marketplaces to shop from the safety of their homes. Restrictions made it difficult for factories and warehouses to operate at maximum capacity resulting in online goods shopping demand soaring, and putting considerable tension on supply.   

Causes of eCommerce Inflation

1.Distressed supply chain infrastructure

Economic factors affecting eCommerce trade include the various natural phenomena that lead to troubles in supply chain infrastructure.

2.Impact of COVID 19 pandemic that caused an Imbalance in Supply and Demand

The COVID pandemic imposed lockdown restrictions across the globe and people were forced to stay at home and consumers spent more on online marketplaces to shop for consumables, home items, medical items, and many more. This increased spike in demand put a lot of strain on the supply side.

3.Chinese Suppliers Struggling to make it

Supply cycles became significantly longer and more expensive during the pandemic and to date. Adobe believes that this problem on the supply side, particularly with Chinese suppliers struggling to keep up with energy prices, will result in fewer discounts and promotions than usual.

4.Increased Sea Freight Costs 

The staggering increase in the cost of sea freight is a confluence of many factors like the supply-demand imbalance caused by the pandemic making shipping containers scarce.

 Impact of eCommerce Inflation on Consumers

eCommerce inflation is impacting online consumer behaviour in these main ways: 

·      Stable income issues that have hampered the average cost of living

·      Reduce spending on nonessential goods and services and redirect their budgets to essential household and familial products into the categories such as food and electronics

·      Buying larger quantities

·      Reverting to in-store shopping as online price increases. 

·      Stock issues and the growing rate of out-of-stock products.

 Impact of eCommerce Inflation on Sellers

·      Influx of Chinese sellers taking advantage of the price war by offering their products at much lower prices than US competitors. 

·      Rising operational costs 

·      Low prices from Chinese competitors making it almost impossible to compete in a marketplace as huge as Amazon.

·      Potential shift in consumer behaviour after pandemic restrictions are lifted and many consumers go back to physical stores instead of shopping online for more expensive products.

Ways to deal with eCommerce Inflation?

To cope with the effects inflation has on eCommerce businesses, sellers can focus on brand building, raise prices, monitor commerce sales data, maintain a healthy stock, and adopt best eCommerce practices. 

1.Increase Productivity

Increasing productivity by use of automation, marketing optimisation, recruiting personnel, or choosing a third-party fulfilment service to find you the best ways to navigate annual inflation and meet demands.

2.Maintain a Safety Stock

With very limited manufacturers, maintaining a healthy inventory stock is important to set you ahead of competitors who cannot fulfil orders. If the price is right, place bulk purchases with suppliers and boost your pricing power if your product is one of its kind in stock.

Leveraging a healthy inventory can help you hedge inflation better by increasing your competitor’s odds of going out of stock and increasing your odds of fulfilling their clients’ needs.

3.Switch Suppliers, find a Closer and Cheaper Supplier

Locate a supplier that can make and send in your products locally to save you thousands spent on sea freight costs and handling.

Shifting to a domestic supplier allows you to reduce supply chain complications, provide homemade products to customers, and avoid the high ever-increasing sea freight costs.

4.Brand Building 

In inflation times, focus on brand building and long-term success. Work hard to drive customers to your products, and establish[MJ1]  a brand identity and a loyal community.

For brand building, you can leverage new product inserts, market through cross-channel and multi-channel retailing strategy, and utilise your eCommerce buyer persona approach. 

5.Raise Your Prices 

The impact of inflation most often affects the end user. To avoid the rising costs, raw materials suppliers raise their prices to the manufacturers, manufacturers raise the prices to the retailer, and retailers have no choice but to raise their prices and pass them on to customers.

Raising prices can reduce your selling cost and ultimately work to increase your profit margins and prevent inventory depletion.

6.Monitor Sales Data

Regularly monitor sales data such as orders, profit and loss, and units sold using designated Amazon and Walmart analytics platforms that help to measure the financial worth of your products and identify areas and products that need improvisation. 

 7.Adopt Best eCommerce Practices 

Sellers can also enhance their products’ listing optimisation which will allow brands to adapt their PDPs ensuring their products meet shoppers’ needs, rank higher in the search results, reduce product returns, and increase overall conversion rates. High-quality images/videos and keyword research with optimal display content will dictate the success of your listing optimisation.

Final Thoughts

Adobe analytics points out that as eCommerce expands its hold in the overall retail market; inflation will become a bigger and bigger problem for eCommerce sellers.

The best thing eCommerce sellers can do is take the prices rising into account, leveraging the above tips, maximise your competitive advantage, use fisher price index to track the price changes on competitors store, and strategise smartly.

Using competitor analysis tools can more accurately help brands to adapt to marketplace strategies accordingly and come out strongly of the eCommerce inflation.

 

References:

The truth about ecommerce inflation and what sellers can do about it. EcomCrew. (2022, February 12). Retrieved July 26, 2022, from https://www.ecomcrew.com/ecommerce-inflation/

Wilde, D. (2022, May 10). Inflation and eCommerce. Falcon Fulfillment. Retrieved July 26, 2022, from https://www.falconfulfillment.com/blog/inflation-and-ecommerce/

The impact of inflation on eCommerce brands and sellers. DataHawk. (2022, July 12). Retrieved July 26, 2022, from https://datahawk.co/blog/impact-of-inflation-on-ecommerce

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    Author avatar
    Minal Jain
    https://247commerce.co.uk
    Senior Content Writer

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