Inflation refers to the general increase in the price of services and goods with time. The annual rate of inflation in the United States averaged 3.27% between 1914 and 2022.1
Adobe says that the rise in prices online disrupts supply chains and increases online purchases. The disruptions to supply chains have led to increased raw materials for manufactured products and costs for transporting items. Additionally, many retailers have increased their prices to keep their normal margin on goods or haven’t discounted their goods to the extent they should have.
This is why it’s important to recognize the inherent impacts of inflation of any kind and those that occur during times with an unusually high inflation rate. This is what we’ll discuss below in identifying the most significant effects of inflation on investors, consumers, and the economic system.
What is Inflation In E-commerce?
In simple terms, inflation refers to rising raw materials and goods prices. In the case of e-commerce, specifically, is the increase in prices across different areas of the supply chain used by e-commerce. This results from the rising price of raw materials storage, production fulfillment, shipping, and storage.
What is Causing Ecommerce Inflation?
Many reasons can trigger eCommerce inflation, but most are related to an unstable supply chain infrastructure. The primary culprit is, of course, COVID-19, which, in hindsight, was the first domino to fall and created the conditions that led to the current crisis.
COVID Caused an Imbalance in Supply and Demand
The outbreak and subsequent introduction of lockdowns worldwide marked a turning point in online shopping. The people were forced to stay in their homes and turn to online marketplaces for home improvement items, consumables, products, and everything else.
The increase in activity in online retail drove demand up, which was a major positive for many businesses in the e-commerce industry. However, this increase in demand placed an enormous strain on the supplier side.
The rise in prices of e-commerce is an enormous imbalance between demand and supply.
The result was that suppliers faced challenges in meeting the increasing demand. Social distancing and isolation protocols meant that factories could not function at their full capacity. Many raw material suppliers were shut down for months to reduce the dangers of getting sick.
Fortunately for most Chinese suppliers, the Chinese economy rebounded much more quickly than that of the USA and Europe; however, this has created its own difficulties.
Chinese Suppliers are struggling to Keep Up
Supply cycles were significantly longer and costlier during the outbreak and even up to the present.
The worst part is that Q4 is close to the mark, which usually means an increase in demand from retailers and possibly more problems within this supply chain. Adobe thinks that the issue in the supply chain, especially due to Chinese suppliers having a hard time keeping up, could result in fewer discounts and sales than is usual in the holiday season since sellers struggle to remain profitable more than anything else.
Sea Freight Costs are at an All-time High
Perhaps the most significant disruption to the supply chain that e-commerce has experienced in the past is the astronomical rise in the price of shipping.
The price increase in sea freight is the result of a combination of factors on its own; however, the primary causes are the supply-demand imbalance caused by the pandemic resulting in shipping containers in short supply.
In the US and Europe, there was a significant amount of these containers remained blocked in ship lanes or major ports due to protocols that stopped hauls from being removed rapidly and prevented Western imported goods from getting loaded onto and being shipped back to Eastern markets.
In China, the scarcity in shipping container supply drove costs up to the point that discussions about the possibility of a Chinese container mafia that decides who is allowed to use containers were heard all everywhere.
How Are E-commerce Businesses Affected by Inflation
As prices rise in all aspects for companies and consumers, there is a lot of worry about the negative impact this could have on specific eCommerce retailers.
In JungleScout’s Q1-2022 Consumer Trends Report polled 1,000 people, and 72% of those who participated said they were spending less or avoiding “fun” or “impulse” purchases. In addition, 34% of shoppers are spending less on online shopping, and 47% of them prefer to shop at their preferred brand because of its cost.
The responses of consumers match with recent data released in the form of Salesforce Commerce Cloud, which indicated that the volume of online orders during February 2022 decreased by 11% compared to February last year. In the same period, the prices for consumers were up 11.2 percent.
Higher prices mean that consumers are more cautious about the items they purchase. In periods of high inflation, consumers tend to purchase less expensive products and spend more on basic products. This is likely to impact online businesses that are specialized in luxury goods.
Despite the rising cost of living and declining spending, online stores still achieved an average increase of 6% over the past year. There are many ways in which these businesses were successfully battling inflation.
Categories and products that are most affected by inflation
Inflation and the subsequent consumer response has a negative impact on various sectors and product category in various ways:
Grocery
Grocery is among the categories that are the most affected by inflation.
The cost of this famous strip of steak from Jack Links, For instance, the price has increased by more than 35% in the past year.
The price of coffee has increased steadily, due in part to the rise in inflation but also because of supply chain and weather issues that have affected the farming process and exports in countries such as Brazil or Colombia. On Amazon, the median price in the category of coffee has increased by 8% over the last year. Meanwhile, the overall revenue has decreased by 32 percent.
The cost of the Starbucks Ground Pike Place Roast jumped nearly 40% from July 2021. At the same time, the sales per month dropped by over 80 percent.
Apparel
The cost of clothing is rising all over all categories, and the median prices are rising for men’s, women’s, and children’s clothes and accessories.
The cost of these male Levis has increased by 26% in the last 12 months.
Electronics
In the world of consumer electronics, a recurring global shortage of chips has caused an increase in production and sales; as per Jungle Scout research that 25% of people bought fewer electronic products in the second quarter of 2022 than in Q1. This can be seen on Amazon and its website, where sales for electronics decreased by 25% over the past year while prices have increased by 7%.
Beauty
In some areas, like the beauty industry, sales and revenues have increased yearly despite increasing costs.
The sales on the Covergirl foundation, For instance, sales for this foundation have increased by more than 1,000% since July, despite an increase of 75 percent.
Luggage
Even with the cost of living away from home hitting the highest level at the end of April (according to the Consumer Price Index), consumers appear to be keeping on top of the plans for their trips.
This 3-piece Samsonite suitcase set remains a Top Seller in the category of suitcases despite an increase of 20% over the past year.
What Can Sellers Do to Cope with eCommerce Inflation?
There are five actions Amazon or Walmart sellers could take to combat eCommerce inflation and ensure that their businesses remain above water when riding the wave of inflation. First, to limit the negative effects of inflation on eCommerce businesses, sellers should focus on building brands, raising prices, keeping track of sales figures, keeping healthy stocks, and implementing Buy Box best practices.
1. Brand Building
In these times of uncertainty and uncertainty, Amazon or Walmart brands must concentrate on developing their brand and long-term growth, not on short-term challenges. The brands must establish an identity and build a community to keep bringing customers to their services.
It will increase the credibility of your brand and increase customer loyalty. To establish your brand, it is possible to leverage inserts into your products or market your product across channels by implementing a multichannel marketing strategy and using your buyer personas on eCommerce tools.
2. Raise Prices
There’s always a possibility that increasing prices could decrease demand, but it isn’t the situation with inflation rates at the level they are at present. It is good to know that you won’t be the only one to increase the price of your product; your others will follow suit. The increase in price can lower the costs you pay as a seller and, in the end, improve your margins on profit and stop stock depletion.
There are also eCommerce tools that permit Amazon as well as Walmart sellers to create custom product alerts that notify them whenever the price of the product changes to allow them to alter the price to remain in the market.
3. Monitor Sales Data
Perhaps the most efficient method to tackle inflation in Amazon or Walmart is to continuously monitor the sales data, including purchases, profit and loss, and the amount of the number of units sold. This is done with specifically designed Amazon as well as Walmart analytical platforms that let sellers evaluate the financial condition of their products and, in turn, determine areas and products that require improvement. Information gathered from such data points can reveal the most profitable possibilities for price increases.
4. Maintain stock
With the shortage of manufacturing and suppliers, having a good stock is more essential than ever to make you stand out from rivals who aren’t able to meet orders. If you can afford the price, it might be worthwhile to make bulk orders with suppliers. Customers will be drawn to your business and increase the value of your product if your product is among the few available.
A healthy inventory will assist you in avoiding inflation because the majority of sellers are frugal and will keep a minimum amount of inventory and risk running out of stock and increasing the chances of meeting their customers’ needs.
An effective strategy is to create alarms when your stock is out on your rivals’ products so that you receive notifications whenever their stock is reduced, or the product is out of inventory. Alerts like this could indicate an ideal time to increase the price of your product.
5. Find a closer and cheaper supplier
Based on the nature of your business, choosing a vendor who can produce and deliver your goods locally could help you save a lot of money in shipping costs, especially in light of the outrageous prices we see at the moment.
The cost and efficiency of manufacturing in China are appealing to many sellers. However, the higher cost of production could seem like a sensible trade-off to avoid paying massive amounts for shipping and handling.
6. Adopt Buy Box Best Practices
Fortunately that the four strategies discussed in the previous paragraphs (brand building, increasing prices as well as monitoring sales data, and ensuring inventory) are all considered to be the best methods to compete in each of the Amazon as well as Walmart Purchase Box alongside these four methods to tackle inflation, sellers and brands are also able to optimize their product listing information to show the most relevant information.
Listing optimization lets brands adjust the content of their PDPs to ensure that their products satisfy the requirements of consumers they want, and also rank higher in the results of searches, decrease the number of product returns and help improve the overall conversion rate. Two factors, in particular, are the key to the performance of your listing optimization efforts quality images and videos, as well as search engine optimization.
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