Member Brief: Online Inflation

The online holiday shopping numbers are in from Adobe and we now have a better understanding of how the holiday season was impacted by the sociology of the times. The bottom line: people shopped online more, and it was more expensive. We recap the many why’s here.

Online inflation has raised prices across categories, particularly grocery, apparel, appliances, home improvement. Despite import taxes and issues with APAC container shipments: electronics actually saw prices decrease. Overall, online prices increased 3.5% in November over the same period in 2020, and increased 3.1% in December. Total online spending in 2021 increased 9% year-over-year, for a total of $855 billion, according to Adobe. The NRF’s November figures were exceeded by some $11.6 billion.

The data shows that convenience is trumping price in terms of the factors people seek out when they’re shopping. With higher prices, demand typically falls. But this season, demand sustained (if not exceeding in some categories). This reflected in online spend growing in total.

Adobe analysts say that there’s no sign of current inflation rates going down: the supply chain is still backed up, the Omicron variant is delaying production and uncertainty remains a constant. As reported in September here:

Since July’s COVID resurgence, there are now more than 60 container ships awaiting entry in the Southern California region.

This number exceeded 90 containers at one point in the fall season. Materials are still in short supply like aluminum and lumber. An increase in imports means there’s a bottleneck, slowing and delaying shipments into the US. And as the New York Times reported in June about a long-standing supply chain solution known as “Just In Time manufacturing”, where manufacturers receive components, materials and other parts only as they need them in order to minimize costs of overhead. The practice started in automotive production and rippled to other categories including fashion and food. We wrote a deep dive on logistics taking center stage here.

This has long term implications for retail and ownership trends, outside of a holiday season (which may be viewed as an anomaly). More effort is being put into digital goods that aren’t bound to supply chain woes. If these trends continue, consumers will continue putting their money elsewhere. In The Newly Rich, we explained:

With rampant inflation, wage stagnation, rising student debts, and NIMBYism preventing the wealth-generating benefits of home ownership for many, digital goods have become the new gold rush.

Adobe’s data proves that other holiday predictions came true. Customers shopped over a longer period of time and earlier, with sales figures particularly up the week preceding Thanksgiving, ahead of the Black Friday holiday shopping kickoff. The industry of online retail is no longer concentrated around specific events – it has permeated daily activities as incentives like curbside pickup have become normalized. That has led to a decline in discounting: According to Adobe, discounting levels were down across categories, with the exceptions of apparel and toys.

The 2021 holiday season is notable in the lessons it provides for retail year-round. eCommerce-first is a viable strategy (though stores are still valuable investments) as well as functions like buy now, pay later and buy online, pick up in store (BOPIS). These ancillary tools are now table stakes, along with inventory management. DTC brands have long used out-of-stock messages and waitlists as a marketing play, but retailers are nothing without product available to ship. Customers will follow that as they seek out convenience over price. This was expected. From October’s brief on the holiday season:

This means Black Friday will look different. In previous holiday seasons, pricing incentives were the sales hook. This year, retailers won’t need to offer flash sales or free shipping: availability is the hook. Plainly put, if a quality product is available to ship before the holiday season, it will likely be purchased. This is what Lowe’s is signaling with their premature focus on Christmas. If they waited until the normal beginning of holiday cheer, there may not be the stock to support the spike in demand.

The data from Adobe communicates what many of us have long known, eCommerce is becoming ubiquitous and we are beginning to see the data reflect the sentiment. Taylor Schreiner of Adobe Insights: “Like we saw during the Covid-19 pandemic, eCommerce has become a ubiquitous daily activity and a flexible way for shoppers to navigate product availability and higher prices.”

Edited by Hilary Milnes with art by Christina Williams

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