A Critical Mass? The Impact Of Inflation On eCommerce During Q4 2021

It may not have been a long time in the making, but the effects of the past two years on the US economy have been undeniable.

In June, the Federal Reserve raised its personal consumption expenditure (PCE) inflation rate to 3.4 percent for 2021, considerably higher than its initial forecast of 2 percent. The announcement resulted in a subsequent 210 point loss in the Dow Jones Industrial Average; a significant blow for many manufacturers already reevaluating their own infrastructure processes in light of the rising cost of materials.

But the impact of inflation on the future of retail is a critical one. While eCommerce itself saw a 9.3 percent increase in sales during Q2 of 2021, brick and mortar sales grew by almost 20 percent as pandemic restrictions lessened and vaccinated consumers began to return to physical storefronts with a vengeance. But sadly, that momentum may not necessarily last much longer.

According to recent data from Adobe Analytics released as part of their Digital Economy Index, online prices saw an increase of 3.1 percent in August 2021 compared to the previous year and a 0.1 percent hike from July. In spite of an estimated prediction of $4.2 Trillion in sales by the end of this year, August marked the fifteenth consecutive month of online price increases; a sharp contrast to pre-pandemic costs which decreased an average of 3.9 percent each year from 2015 to 2019.

The spike in prices was nowhere felt more acutely than in the apparel category, which saw a staggering increase of 15.5 percent in costs between August 2020 and August 2021. But it’s not merely the demand which is raising the cost of online consumer goods. The price of commodities rose by over 19 percent year-over-year in August as global supply chain disruptions continued to surge with little relief in sight, with an estimated $4 Trillion in losses being reported in 2020. In China, the supply chain crisis is taking on critical proportions. A five year high of 300,000 units were exported from the nation’s factories in September of last year despite an increasing scarcity of raw goods and labor shortages, with import restrictions exacerbated by new regulations.

Yet eCommerce is particularly vulnerable to the increased cost of raw materials by relying on a “Just in Time” (JIT) business model of management where production output and delivery is predicated strictly on sales volume forecasting .For many digital sellers, inventory management can be a tightrope walk demanding a balance between efficiency and consumer price advantage. Vendors can begin to adapt to the current turbulence by reviewing both immediate and long term projections of growth and adjusting their processes to suit the potential for increased demand. Both automation and outsourcing account management can seem like a risky investment in times of uncertainty. But the amount of time and frustration saved can ensure survival in an accommodating climate.

There’s one glimmer of short term hope in the face of rising costs. While current delivery times for domestic manufacturers may be at record highs, recent data from the Federal Reserve suggests manufacturers may have already begun to adjust output and delivery processes for the next six months to meet the ongoing pressure on supply chains. Six months may not necessarily be sufficient for some sellers currently facing the effects of the supply chain crunch, but it is an indicator that digital commerce is no longer an outlier in retail. It’s a tangible driver of economic growth. That means being aware of just how quickly circumstances can impact that growth. Preparation isn’t only just applicable to Q4 sales. It’s applicable at all stages of your business life cycle. There’s countless examples of companies who failed to adapt to changes in the marketplace, and eCommerce is no exception. Don’t let yours become just another statistic.


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