What Does Inflation Mean For Your ECommerce Store?
February 14, 2022
In this blog we’ll cover:
- Inflation’s impact on eCommerce
- ECommerce categories being hit hardest by inflation
- How inflation affects funding requests
- What it means for your online store
Ecommerce may be unique from more traditional selling, but that doesn’t mean that it’s immune from the market forces we’re all familiar with. Recent events have proven this to be accurate more than ever. Inflation is the highest it’s ever been in 40 years, and online sellers are feeling the financial strain that it’s beginning to cause.
But it’s not just the prices of goods that are reaching record heights. A financial domino effect has begun to occur thanks to continually rising inflation. Certain logistics of eCommerce are becoming increasingly costly for sellers. Supply chains are rocketing upwards, and sellers are being forced to raise their prices to keep up with costs.
There are other ways that inflation can impact your eCommerce store. Read a quick overview of the situation below, and if you’re looking for more eCommerce articles to help you out with your online shop check out our blog here.
Inflation and ECommerce: A Closer Look
To understand what inflation means for your eCommerce store, we should look closer at inflation. As you already understand, inflation is defined as when money can buy less and less over time. The average prices of goods increase as a result of this. That’s why the cost of gas is way more than it used to be, for instance. The same can be said for groceries. The graph below shows how much prices have risen over the past 12 months.
But inflation in eCommerce tends to behave slightly differently. Because it is such a unique market, the inflation that online goods go through isn’t always one-to-one with the inflation that is going on elsewhere. Still, inflation happens quite a bit.
One of the significant reasons for inflation occurring for online sellers is when demand starts to exceed supply. This causes sellers to raise the price of goods in reaction to the fact that they can no longer just pump out more and more products. Similarly, changes in the supply chain also cause sellers to increase their prices.
The prices of online goods also tend to increase alongside increases in logistical costs. As the price needed to ship items goes up, the prices of the items themselves naturally need to go up to help sellers afford this. Production costs have also been going up alongside shipping costs, causing many stores to increase their prices further.
Finally, the general increase in wages forces online shops to make their items more expensive. Anything that raises costs for a shop will result in a sort of domino effect where the goods need to have higher prices. This results in eCommerce inflation, and it’s happening right before our eyes.
Online Prices are Rising in These Categories
Because of general inflation, the price of many items across many eCommerce niches is rocketing upwards. The data below looks at a few different categories and shows how much of a price difference we have seen. It should give you a sense of which items are being inflated the fastest.
There are some categories at the bottom, such as personal care products and home & garden, that are rising slowly but steadily. This is likely due to the fact that these items are relatively stable commodities with well-established prices. Inflation still affects these categories, but this is more of a baseline inflation rather than a rise in price that can be attributed to certain trends or events.
Once you get near the top of the data, you start to see some categories rising in price incredibly quickly. One category that jumps out is groceries, which has grown 5.82% YoY. While grocery prices have been increasing overall thanks to supply chain problems relating to COVID, eCommerce grocery prices are even higher. More and more customers have turned to buy groceries online thanks to the pandemic, and this has caused prices to jump up a lot.
There are a few other categories with huge price increases that can largely be explained by the pandemic: it makes sense that medical equipment has gone up in price with the large increase in demand, for instance. But the massive jump in apparel prices is a bit harder to understand. Perhaps this indicates the public moving away from shopping in traditional stores and malls and using the Internet to find all of their clothes. Regardless, the astronomical inflation of 15.75% YoY for apparel is something eCommerce sellers should not ignore. The impact of an increase like that is massive across the board, especially in an eCommerce industry that sees the highest return rates.
Online Prices are Dropping in These Categories
Interestingly, the record high level of inflation has not caused all eCommerce categories to rise in price. Some online niches have decreased in price in recent times. Unlike the categories that have jumped in price, these categories aren’t as easily explained by the pandemic or current shipping crisis.
While it’s still a small decrease at just -2.04%, books are becoming cheaper than ever. Could this be because the pandemic has caused people to give up on reading? That doesn’t sound too likely. If anything, this points more towards the public moving away from physical books and to digital reading and audiobooks. Still, the price decrease isn’t too significant. Sellers should be aware of it, though.
Electronics and jewelry have also become cheaper than ever with -3.44% and -3.57% changes, respectively. So what’s going on here? Like books, there doesn’t seem to be an obvious reason for this. It looks like the demand for electronics would go up during a pandemic. Jewelry, however, might be a consumer good that is just too unnecessary for times as unstable as ours.
The items with the most significant price decreases were computers and toys. The price of computers has changed by -5.68%. This is perplexing, as the recent move to working from home at many companies has caused more consumers than ever to need computers in their houses. Toys have dropped by -5.96%, making them one of the eCommerce goods to have the biggest decrease in price in recent times.
How Inflation Affects Funding Requests
Inflation doesn’t only increase the cost of goods. Traditional funding solutions such as banks will raise interest rates due to increase in bond yields. Credit lines, a popular way many founders bootstrap their businesses, will also be more expensive due to libor interest. Because of this, you should spend extra time researching solutions when looking for cash to scale your business during inflation.
Unlike traditional funding solutions, 8fig Growth Plans offer ultimate flexibility no matter where the economy is at. You can change your average selling price and adjust your COGS costs per inflation at any time, letting you adjust your business needs at any time. With our continuous capital disbursements you can also save money by placing larger inventory orders.
What Does This Mean for Your Online Store?
There are some exciting takeaways from this. First, it shows that eCommerce inflation trends aren’t always predictable. While some of the price increases seem par for the course, the decreases were relatively unexpected. You shouldn’t assume that honest pricing trends will move the ways that make sense.
Second of all, it demonstrates that sellers need to pay close attention to inflation to keep up in their niche. Some of the pricing changes we have seen here are huge. If you don’t watch inflation, you might not even notice that the market you are selling to has changed completely.
Finally, it shows that eCommerce isn’t immune to the effects of inflation. Prices change all the time, and key logistical issues in eCommerce contribute to this in unique ways that might not be seen in other forms of commerce.
To beat price hikes from inflation, you can build an 8fig Growth Plan and begin ordering your inventory in large batches while increasing your marketing spend. Start here.
Karlyn is an eCommerce writer and Content Marketing Manager for 8fig. She's on a mission to democratize online retail by empowering small and medium-sized businesses with resources and tools they need to compete in dynamic marketplaces.