The report examined more than 40,000 SKUs between July 2022 and January 2023 to see these trends. Retailers include Dillard’s Inc., No. 103 in Digital Commerce 360’s ranking of the Top 1000 ecommerce retailers in North America, Macy’s Inc. (No. 17), Zappos and Nordstrom Inc. (No. 20). Amazon.com Inc. is No. 1 and owns Zappos.

Retailers and brands adjusted prices

Pricing competitively is especially important in times of high inflation, according to the ecommerce analytics software vendor. Many of the retailers examined in the report reduced prices between June 2022 and January 2023 to attract customers and drive sales.

Per the report, Nordstrom cut prices the most of the brands examined, by 19% in the period. Net-a-Porter, Saks Fifth Avenue, Neiman Marcus (No. 73), and Dillard’s also consistently reduced prices in that timeline by 14%, 8%, 6%, and 6%, respectively.

Lowering prices didn’t drive sales, according to Nordstrom’s annual report for 2022.

“During economic downturns or inflationary periods, including those resulting from the impacts of COVID-19, fewer customers may shop as these purchases may be seen as discretionary, and those who do shop may limit the amount of their purchases. Any reduced demand or changes in customer purchasing behavior may lead to lower sales, higher markdowns and an overly promotional environment or increased marketing and promotional spending,” the retailer said.

Individual brands also offered discounts during the period, according to DataWeave. The majority of brands examined had discounts of more than 15% across retailers that sold them. Joe’s Jeans had an average discount of 25%, Silver Jeans Co. offered 22%, and Mango came in at 19%. Nike (No. 9) came in a bit lower at an average discount of 11%.

Some retailers bucked the trend of reducing prices, per the report. Macy’s increased prices an average of 18% over the seven-month period, and Zappos increased by 6%.

Retailers focused on lower-cost products

An examination of merchandise in stock for different apparel retailers showed that supply chain pressures like delayed shipments could still be impacting businesses. However, some are faring better than others. Nordstrom maintained nearly 100% of merchandise in stock during the entire time frame. Macy’s, Dillards, and Zappos saw stock decline from 98%, 96%, and 85% in July, respectively, to 87%, 93%, and 80% seven months later.

Saks Fifth Avenue and Neiman Marcus seem to be far more impacted by supply chain issues, according to the report, with in-stock levels of 45%-55% and 35%-45%, respectively. Neiman Marcus also said in February 2023 that it would focus on the top 2% of customers that drove 40% of sales, which could impact inventory.

The report also shows retailers are differentiating which products they prioritize keeping in stock. DataWeave broke down the stock availability of premium products at retailers compared to availability of other products. Premium products are defined as in the top 20 percentile by price. In each month examined within the report, retailers had higher stock availability for non-premium products, with a breakdown of 72% of premium items in stock and 78% of other products in stock in January.

“It is clear that there is a greater focus by all retailers on the more affordable range of their assortment,” DataWeave wrote in the report.

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post Retailers are lowering prices and reducing premium products to fight inflation, according to a report from DataWeave appeared first on Digital Commerce 360.

The additional items are a way to woo new consumers to subscribe to the monthly service even as inflation bites.

“The customer is more cost-conscious than she’s ever been before,” Rent the Runway CEO Jennifer Hyman said in an interview with Bloomberg News.

Rent the Runway Inc. is No. 407 in the Top 1000, Digital Commerce 360’s database of the largest North American online retailers by web sales.

Executives at the subscription apparel retailer considered cutting monthly subscription fees in response. They instead decided to give consumers more for the same price, Hyman said, reasoning that it would help with both retention and appealing to potential customers. The more items that subscribers wear, the greater the probability that someone will comment on their dress or sweater, accelerating word-of-mouth marketing.

Rent the Runway strategy for boosting sales

“This business grows by women organically telling other women about Rent the Runway,” Hyman said. “We get a lot more bang for our buck investing into the customer experience than investing into marketing.”

Rent the Runway’s most popular plan offers subscribers eight items a month via two shipments. Under the new plan, those subscribers will receive one more item in each shipment, or two per month.

The move is the latest by the retailer to boost sales. Rent the Runway launched a storefront on Amazon.com in January. It features previously worn styles from designers it already works with, as well as new and unworn designs.

“We can make this investment into the customer with it having minimal impact on our gross margin,” Hyman said. In the past couple of years, the company has boosted its gross margin and reduced the costs to ship out and take back its rental items.

The company can offer additional items at no extra expense to subscribers in part because of cost savings from the recent restructuring plan. Last year, Rent the Runway dismissed about a quarter of its nonhourly employees. That has generated cost savings of between $25 million to $27 million, Hyman said. Also, the New York-based company restructured its debt. It’s pushing out the maturity to October 2026 from October 2024. That reduces its cash interest payments to 2% from 7%, she added.

“Our goal,” Hyman said, “is to drive Rent the Runway to free-cash-flow profitability.”

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post Rent the Runway offers subscribers extra items — for free appeared first on Digital Commerce 360.

Macy’s said digital sales were down 9% for the fourth quarter ended Jan. 28, 2022, though they were 24% higher than the comparable period in 2019. Brick-and-mortar store sales fared better, decreasing just 2% year over year. Macy’s is No. 16 in the 2022 Digital Commerce 360 Top 1000.

Nordstrom’s ecommerce business felt similar pressures over the period. Digital sales for the fourth quarter ended Jan. 28 were down 13% year over year, and made up 40% of total sales for the quarter. Nordstrom is No. 20 in the 2022 Digital Commerce 360 Top 1000.

Macy’s said promotions hurt margins

Macy’s gross margin in the fourth quarter was 34.1%, down from 36.5% a year earlier. The company attributed the decline to markdowns and promotions that were larger than in 2021, a reflection of “the company’s commitment to end 2022 with inventories at the right level and composition.”

“We were competitive but measured in our promotions, took strategic markdowns and intentionally did not chase unprofitable sales,” CEO Jeff Gennette said in the statement. The retailer is focused on areas of growth that include private brands, off-mall expansion and luxury goods, he added.

Total same-store sales, a key performance metric for retailers, fell 2.7% in the fourth quarter. That figure was supported primarily by strong growth at Bloomingdale’s and Bluemercury, the New York-based company’s higher-end brands. At Macy’s namesake brand, meanwhile, they fell 3.3%.

“We believe discretionary spend will be under pressure across income tiers and spending will move toward services and essential goods,” Gennette said on a call with analysts, noting that he expects demand for gift-giving and occasion-based products to remain strong.

Nordstrom Rack couldn’t find customers

Like Macy’s, Nordstrom struggled with selling discounted merchandise.

While discount rivals such as TJX Companies Inc.’s T.J. Maxx and Ross Stores Inc. (No. 70 in the 2022 Digital Commerce 360 Top 1000) have attracted more shoppers as inflation bites, Nordstrom’s off-price Rack business has floundered. Sales remain below pre-pandemic levels, a sign that Rack’s market share has been shrinking.

Sales at Rack fell 8.1% in the quarter versus a 2.4% drop at the Nordstrom-banner stores. Still, executives told analysts on an earnings call that they plan to open 20 Rack stores starting in the spring because off-price consumers tend to prefer in-store shopping. Rack locations are less expensive to build than a full-fledged department store, executives added. 

Sales at U.S. department stores have been uneven in recent months, signaling a pullback by some shoppers amid stubbornly high inflation. Companies’ decisions to build up merchandise during the pandemic consumption boom have now left some store operators stuck with too much inventory, leading to profit-busting markdowns.

Nordstrom says a reduction of merchandise and the winding down of its Canada operations will improve performance in 2023.

Macy’s earnings summary

For the quarter ended Jan. 28, Macy’s reported:

• Net sales were down 4.6% year over year to $8.3 billion.
• Digital sales were down 9% over 2021, and sales in stores were down 2%.
• Net income was $508 million, down from $742 million in 2021.

For the year ended Jan. 28, Macy’s reported:

• Net sales were $24.4 billion, down 0.1% over 2021.
• Digital sales decreased 6% over 2021, while sales in stores grew by 3%.
• There were 42.7 million active customers, a 4% decrease.
• Net income was $1.1 billion, down from $1.4 billion in 2021.

Nordstrom earnings summary

For the quarter ended Jan. 28, Nordstrom reported:

• Revenue was $4.3 billion, up 5% year over year.
• Net sales were down 4.1% to $4.2 billion. 
• Digital sales made up 40% of total sales, and were down 13.1%.

For the year ended Jan. 28, Nordstrom reported:

• Net sales were $15.1 billion, up from $14.4 billion in 2021.
• Revenue was $15.5 billion, up from $14.8 billion the previous year.
• Digital sales made up 38% of total sales, down from 42% in 2021. 
• Nordstrom opened three stores in 2022.

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post Macy’s and Nordstrom reported declines in online sales appeared first on Digital Commerce 360.

Total net revenue for the quarter ended Dec. 31 2022 grew 10.2% year over year to $146.5 million, a $13.6 million increase. Net loss decreased by $25.7 million to $20.3 million.

Revenue was up for the whole year too. The glasses retailer reported total net revenue of $598.1 million for the year, a 10.6% increase over 2021. Net loss for the year was down 23.5% to $110.4 million.

Warby Parker is No. 317 in the 2022 Digital Commerce 360 Top 1000.

Ecommerce is a relatively small part of the business

Warby Parker started as an online-only eyeglasses retailer, but today, physical stores make up a larger part of the business. In 2022, customers returned to stores after a shift to online shopping during the COVID-19 pandemic, co-CEO David Gilboa told investors on Feb. 28. Ecommerce now makes up 37% of the business, compared to 41% in Q4 of 2021, and 34% in Q4 of 2019.

The retailer opened its 200th store in 2022, including 10 new stores in the fourth quarter. Warby Parker plans to open another 40 stores in 2023, the company said.

Ecommerce sales are more sensitive to marketing spending than in-stores sales, Gilboa said, so they’ve felt more impact from cutting marketing budgets. Consumers are also going back to physical stores across the industry, so Warby Parker’s locations benefited from the trend. Finally, each new store opening immediately boosts sales and brings in customers while depressing online sales in the local market, Gilboa said.

Warby Parker ramps up eye exams

Warby Parker is largely known as an eyeglasses provider, but the retailer is shifting to offer more services, including eye exams. 150 of the company’s 200 storefronts offer eye exams, including all 10 opened in Q4. 

Eye exams are good for revenue, Gilboa said. Revenue from eye exams was up 87% in 2022 over 2021. Nearly 80% of glasses are purchased at the same location as an eye exam, Gilboa said, so Warby Parker views offering exams as a driver of glasses sales. More older customers, who tend to buy pricier progressive lenses, are also eye exam customers. This raised average revenue per customer to its highest ever level of $263 in the fourth quarter. 

Pivoting to more expensive products

Warby Parker has plans to grow revenue by selling more expensive products, too. 

Most glasses the retailer sells are priced at $95, but in 2023 there will also be pricier options. Warby Parker will launch 20 collections including glasses priced at $145, $175, and $195, co-CEO Neil Blumenthal said. 

Contact lenses, typically lower priced than glasses, made up 7% of business in 2022, Blumenthal told investors. That was an 84% increase over 2021, but still a relatively small part of the business compared to about 20% industry wide. The company hopes to expand this business in 2023 because contact lens customers are some of the “highest value” buyers, Blumenthal said, due to the repeat nature of the purchase and tendency of contact users to also buy glasses. 

Warby Parker released guidance for 2023:

• Net revenue of $645 to $660 million, an increase of 8% to 10% over 2022’s net revenue of $598.1 million.
• Adjusted earnings before interest, taxes, and depreciation (EBITDA) margin of about $51.5 million, and adjusted EBITDA margin of about 7.9%.
• 40 new store openings will bring the total count to 240 at the end of 2023.

For the fourth quarter ended Dec. 31, Warby Parker reported:

• Revenue of $146.5 million, an increase of $13.6 million over the revenue of $132.9 million in 2021. 
• A net loss of  $20.3 million, a $25.7 million decrease from the reported loss of $45.9 million in Q4 2021.
• Active customers increased 3.6% to 2.28 million.
• Average revenue per customer increased 6.9% year over year to $263.

For the full fiscal year ended Dec. 31, Warby Parker reported:

• Net revenue of $598.1 million, a 10.6% increase over revenue in 2021.
• Net loss decreased by $33.9 million to $110.4 million.

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post Warby Parker stemmed losses by focusing away from ecommerce appeared first on Digital Commerce 360.

“The data our report uncovers confirms the growing discrepancies between what consumers want and what ecommerce merchants are delivering,” Shippo CEO Laura Behrens Wu said in a press release. “It’s clear the economy is the primary driving factor for these concerns, as supply chain disruptions, decreased capacity and labor constraints take a backseat.”

Results are based on a survey of 1,191 ecommerce retailers across apparel, food, jewelry and electronics, and responses from 1,000 shoppers in November and December 2023.

Prices are the biggest factor

The cost of shipping remains a key factor for both consumers and retailers.

62% of shoppers said they won’t consider purchasing from a retailer that doesn’t offer free shipping. Another 35% said they prefer it, and just 3% of consumers said they don’t care about shipping costs. Digital Commerce 360’s August 2022 consumer poll had similar findings. 76% of the 1,116 consumers surveyed ranked free shipping one of the three most important factors in online shopping, more than any other option. Delivery speed was a distant second place at 43%. 

Customers are willing to make concessions to reach free shipping. According to Shippo’s data, 42% are willing to join a loyalty or membership program to get free shipping. Nearly half, 47%, said they would add products to meet a minimum cost threshold for free shipping. 

Shoppers overwhelmingly prefer free shipping to fast shipping, at 75% versus 25%. They ranked shipping cost as the most important information a retailer should share, over average shipping time, when the item will ship, and when it will likely be delivered.

Retailers cited the cost of shipping, too. 41% of respondents said shipping cost was their biggest challenge in 2022, more than any other response. About a third said it would be the most pressing challenge in 2023, while another 20% were more concerned about decreased consumer spending. Despite the costs, retailers largely offer free shipping.

Nearly three-quarters of retailers that rank in Digital Commerce 360’s Top 1000 database offered free shipping in 2021, though 45.1% of those retailers required customers to reach a minimum purchase threshold for the perk.

Consumers still value online shopping

Consumer survey responses indicate online shopping is still valuable for its convenience, according to Shippo’s data. 60% of respondents said they do at least half their shopping online, a significant increase from just 41% in 2021. 

61% of shoppers prefer online shopping over visiting a store when they have the choice.

Consumers want as much information as possible

Survey results show ecommerce customers want as much data as retailers can share about their orders. 68% of surveyed customers want to be notified when a purchase has shipped, and 45% also want to know when an item is delivered. 

Shoppers want to keep tabs on their purchase while it’s in transit. 59% of consumers say they want to receive shipping updates, and 39% track their orders once per day. Retailers largely comply with this desire from customers. 85% share some kind of tracking information, either through a branded link or through the shipping carrier’s service.

Consumers responding to the survey valued up-to-date information on their orders over fast shipping times. Just 10% of shoppers want same-day or next-day delivery, down from 18% in 2021.

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post The cost of shipping is the biggest concern for customers and retailers, according to a new report appeared first on Digital Commerce 360.

For the first time, Amazon’s average cut of each sale surpassed 50% in 2022, according to a study by Marketplace Pulse, which sampled seller transactions going back to 2016.

The research firm calculated the total cost of selling on Amazon. This includes the commission, fees for warehouse storage, packing and delivery, and money spent to advertise on the site. Paying Amazon for logistics services and advertising is optional, but most merchants consider these a necessity.

Sellers have been paying Amazon more per transaction for six years in a row, according to Marketplace Pulse. They were able to absorb the increases because the company was attracting new customers and rapidly increasing sales. That changed when pandemic lockdowns eased and people chose traveling and dining out over online shopping. Last year, Amazon generated the slowest sales growth in its history.

Amazon is No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales. It is No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.

Buyers are pickier than ever before

Consumers are far more deal-conscious than they were during the pandemic, so Amazon merchants fear fees and raising prices. Along with the steady increase in fees, that means many sellers are struggling to make money. Now, some are shifting to handling shipping themselves and spending less to advertise on Amazon’s site.

“For these small businesses, it’s getting harder and harder to be profitable because they are spending more and more money on Amazon fees,” said Juozas Kaziukenas, Marketplace Pulse’s founder and CEO. “Amazon might be tempted to keep increasing fees because it’s in a tough spot, but you have to reach some kind of equilibrium.”

Amazon sellers choose to use its logistics services because, on average, they cost 30% less than alternatives. Merchants are free to buy advertising anywhere, company spokesperson Mira Dix said in an emailed statement. The fees Amazon charges reflect the company’s own costs and investments, she said.

“Many selling partners have built and run their businesses without advertising,” she said. “If they choose to advertise their products, they have many service providers to choose from. Sellers are not required to use our logistics or advertising services, and only use them if they provide incremental value to their business.”

Amazon is cutting costs with layoffs

Maintaining profits as sales slow presents a major challenge for Amazon’s core online retail business. Without Amazon Web Services, the profitable cloud computing business, Amazon would have posted a $10 billion operating loss last year. CEO Andy Jassy is trying to restore the balance by cutting 18,000 corporate jobs and narrowing the company’s focus.

Subsidiary Zappos laid off more than 300 employees — about 20% of its workforce — in January, the Wall Street Journal reported.

The cuts, described as being part of broader layoffs at the company, included customer-service representatives at the online shoe and clothing retailer, which Amazon bought in 2009, the WSJ said.

Longtime executive Tyler Williams also left during the layoffs, it added, part of an ongoing shakeup two years after the death of former CEO Tony Hsieh in 2020 at age 46.

Zappos spokesperson Laura Davis said the cuts were part of regular business planning, and “ultimately made to ensure Zappos is set up to continue to provide an exceptional customer experience, long-term.”

Amazon is charging merchants higher fees

In response to rising costs, Amazon increased the annual price of a U.S. Prime subscription by $20 in 2022. Last month, the company announced plans to levy fees on online grocery orders of less than $150. But charging customers more is risky. Merchants, many of whom generate 80% to 90% of their sales on Amazon, are less likely to rebel.

Chuck Gregorich, who sells fire pits and outdoor furniture, says turning a profit on Amazon is getting harder. One of his popular fire pits costs $200, of which Amazon takes $112 for commission, warehouse storage, delivery and advertising. That leaves him with $88 to pay the manufacturer, ship the product in from China and cover his overhead. He expects his Amazon logistics expenses to increase up to 8% this year under a new fee structure that took effect in January and further scheduled changes.

“I’ll have to raise my prices, and I already raised them a lot last year,” said Gregorich, who is based in Eau Claire, Wisconsin.

The higher fees have compelled Gregorich to do more logistics himself. Other carriers can deliver fire pits for $28, he said, or about half what he pays Amazon. Amazon’s delivery service often takes longer than the two days customers expect, so it’s no longer worth the premium, he said. Dix said Gregorich’s experience is “the exception and does not represent the vast majority of both Amazon sellers we partner with and customers that we deliver for.”

Sellers are cutting down on advertising to save money

Amazon sellers don’t control the commissions Amazon charges or fees for things like packing and delivery. One thing they control is advertising, and there are signs they are pulling back. Advertising revenue over the holidays grew 18.9%, a slow-down from 32.2% growth a year earlier.

Amazon is dedicating more space on its site for advertising, which  makes each spot less valuable, said former Amazon executive and president of online marketing consulting firm Pacvue Melissa Burdick. Conversion rates, which measure the number of shoppers who purchase a product after clicking an ad, declined each quarter last year, she said.

“The advertising space on Amazon isn’t as successful as it used to be for sellers,” Burdick said. “A lot of sellers are choosing to offer discounts rather than advertise because shoppers are responding more to discounts.”

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post Amazon is taking more than half of each sale from its merchants while laying off Zappos workers appeared first on Digital Commerce 360.

The post Online holiday sales bump up 3.5% in 2022 appeared first on Digital Commerce 360.

The post Online retailers offer price matching, price adjusting and extended returns [Member-exclusive content] appeared first on Digital Commerce 360.

“The raw [metal] materials needed to weld have gone up. One reason we’re not selling as many bigger ticket machinery items is because people are trying to fix what they have because they have to spend more on consumables,” says Robert Goodliffe, president and CEO.

Customers are buying lower-cost items, Goodliffe says. “They’re buying safety gear and some replacement parts but overall, fewer machines,” he says.

During the pandemic in 2020, Cyberweld customers purchased more consumables to keep their existing equipment running instead of buying expensive products like welding machines, Goodliffe says. Consumables include flux (welding wire) and filler metals (including aluminum, stainless steel, copper and silver). To offset this shift, Cyberweld found a new batch of shoppers in 2020 for vented masks and other respiratory safety gear to guard against COVID-19. The retailer pivoted its selling strategy to sell personal protective equipment (PPE) and, as a result, received an influx of industrial customers in 2020.

In 2021, the demand for PPE subsided and Cyberweld found selling welding equipment and consumables presented new challenges. In 2021, Cyberweld (No. 1048 in the Next 1000) ranked No. 714 in the Top 1000 after a banner 2020 year. 2021 and 2022 have proved to be more challenging.

Inflation affects equipment prices

While supply shortages weren’t problematic for Cyberweld in 2021, inflation was and continues to impact the retailer in 2022. The merchant’s top-selling piece of equipment is a good example of this — the price for this one product jumped by 28% from 2020 to 2022, Goodliffe says.

The Millermatic 211 is historically the merchant’s bestselling welder machine. In July 2020, Cyberweld paid a distributor $1,219 for each welder. Cyberweld than sold the machine to its customers for the retail price of $1,717. By July 2022, that same welder cost Cyberweld $1,689, which the merchant sold to customers for a retail price of $2,380. Overall, this piece of equipment increased its price five times between July 2021 and 2022 and 18 times since COVID-19 began in March 2020, Goodliffe says.

That cost increase has impacted demand, Goodliffe says. In 2021, Cyberweld sold 866 units, compared with 1,262 units in 2020. Through June 2022, Cyberweld had sold 245 units, which is less than the norm, he says.

Shoppers buy fewer welding machines

The types of products shoppers buy also changed in 2021. Historically, Goodliffe says the retailer’s average order value (AOV) was about $440. But in 2022, that has decreased about 25%. Customer buying behavior has shifted, and that’s reflected in what Cyberweld sells, Goodliffe says.

Web sales decreased around 10% in 2021 compared with 2020, Goodliffe says.

“2022 is on par with 2021,” he says. “And inflation makes the impact worse.”

This is an excerpt from the 2022 Next 1000 Report. The report can be downloaded now as a PDF for $499. Digital Commerce 360 Gold and Platinum Members receive a complimentary copy of this report as a part of their membership.

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

The post Shoppers opt for less-expensive merchandise at Cyberweld appeared first on Digital Commerce 360.

Government data shows retail prices keep moving up. But consumer expenditures increased more than inflation in September, indicating consumers still have money to spend. And consumer confidence went down in October after rising for two consecutive months. Despite the apparent willingness of Americans to keep buying, online consumers say they are budget-conscious this year.

2022 Ecommerce Fulfillment Report

Analysis of the latest trends in ecommerce fulfillment. Includes over 30 charts, shipping policies of Top 1000 retailers, Amazon’s fulfillment practices, the state of the worldwide supply chain, and updates on in-warehouse automation and delivery robotics. 

View Details

Inflation adds uncertainty

Scott Crawford, chief merchandising officer at FreshDirect, an online grocer specializing in fresh produce, says the economic data is “giving us signals we’re not used to reading.” He compares the level of economic uncertainty to the beginning of the COVID-19 pandemic. At that time, he said, retailers were better off sticking to what they already did well. Crawford said it’s a bad idea for retailers to upend their business models when there is so much economic uncertainty.

“This is not a time for high experimentation,” Crawford said.

At FreshDirect, the retailer raised prices this year at a rate comparable to other grocery merchants, Crawford said, without providing specific numbers. In a low-margin sector like grocery, he adds, retailers don’t have much room to absorb wholesale price increases without losing money.

Crawford said consumers have moved to ordering more private-label products and other “value-centric” offerings. In response to consumer demand, he says the retailer has made promotions and value-for-dollar messaging more prominent on its home page and other marketing.

He added that prices for fresh foods — which make up about 60% of FreshDirect’s sales — leveled off over the past couple of months. Crawford said the cost of packaged goods is still rising, but at a slower rate than earlier.

Some retailers absorb the extra costs, others can’t

Sensing consumers’ skittishness, some small and mid-sized retailers are absorbing, rather than passing along, higher costs to retain existing customers and attract new ones, leading to shrinking profit margins. But some online merchants cannot do that.

Eric Jones, CEO of Couture Candy, which specializes in women’s dresses for special occasions like weddings and proms, says the business has dealt with a hike in the cost of raw materials, overhead prices and manufacturing costs. But he has been reluctant to raise prices.

“To avoid losing customers due to increased costs, we have to deal with the hike in expenses and cut our profits,” Jones said. He did not provide specific numbers.

Meaghan Thomas, co-owner and president of Pinch Spice Market, an online organic spice shop, faces a similar dilemma.

“We’ve not increased our prices even with increased costs on our end. … It’s not great. We’re taking a temporary hit to our profit margins,” Thomas said.

She says increased costs include rising sea and truck shipping costs as carriers pass along higher prices for fuel and other necessary purchases.

Other small retailers have felt compelled to pass cost increases to customers. Among them is Kate Backdrop, which sells photo backdrops, and has raised prices.

“While this may be a challenge for our customers, it has been a necessary and crucial change that we’ve had to make to keep our business running smoothly,” said David Zhang, CEO of Kate Backdrop, without providing details. “We invest heavily in the quality of our products and must ensure that they are priced appropriately to cover the cost of production.”

Many consumers will look for holiday deals

Retailers have good reason to worry about raising their prices. According to September’s survey of 1,088 online shoppers from Digital Commerce 360 and Bizrate Insights, 40% of consumers surveyed said they would comparison shop more due to expected higher prices. And 35% expect that high inflation will cause them to purchase less overall in the 2022 holiday season compared to a year earlier.

Conservative inventory decisions

With consumers feeling jittery, Thomas at Pinch Spice thinks holding the line on prices is the right thing to do.

“I think most people think we’re a little nutty for not raising prices,” Thomas said. “But we’re not going to because one of our core values is that fresh, high-quality organic spices should be priced to be available to as many people as possible, not just for the wealthy.”

But holding the line of prices doesn’t mean doing business as usual. Thomas says Pinch Spice only adds new spices to its product line if it knows consumers want them. She said Pinch Spice is also considering increasing its free-shipping threshold to $49, up from $45. And the retailer plans to boost the rate it charges for shipping when customers don’t reach the free-shipping threshold.

Thomas also said Pinch Spice does not want to make inflation worse for its customers.

“Some big companies are raising prices so much they’re actually growing their profit margins. That seems unethical to us,” Thomas said. “When will all this price increasing stop? In our case, we decided it ends with us — in fact, it won’t even start with us.”

She said Pinch Spice is committed to keeping product prices stable for the rest of 2022. The retailer will also try hard to avoid raising prices in 2023, Thomas said.

Inflation and consumer spending data

In September 2022, prices across the United States economy rose 8.2% compared to a year earlier — the worst inflation rate in 40 years — according to the U.S. Bureau of Labor Statistics (BLS). The higher-than-normal inflation led the central bank to raise interest rates. So, not only did shopping become more expensive, but so did borrowing money to buy goods or operate a business. 

But as prices rose, consumer spending grew faster in September, according to data the federal Bureau of Economic Analysis compiled. For the month, inflation-adjusted consumer spending rose 0.3%, matching the August rate.

Consumer confidence dips

The Conference Board’s Consumer Confidence Index decreased in October after two months in a row of gains. On Oct. 25, the Index was at 102.5 (1985=100), down about 5% from 107.8 in September. The business membership and research group also found:

• 45.2% of consumers said jobs were “plentiful,” down from 49.2%.
• 12.7% of consumers said jobs were “hard to get,” up from 11.1%.
• 19.8% of consumers expect more jobs to be available, up from 17.4%.
• 20.8% anticipate fewer jobs, up from 17.8%.

‘This too will pass‘

FreshDirect’s Crawford says the retailer, launched in 2002, has been around long enough to see a variety of economic trends come and go.  

“This too will pass,” Crawford says.

In 2023, he added, the retailer plans to “keep eyes wide open” and be ready to take advantage of the nimbleness of its web-only structure. Selling on the web, Crawford says, frees FreshDirect from the need to stock store shelves and commit to in-store displays.

“It’s much easier to move to where the customer is going,” Crawford says.

Zaandam, Netherlands-based Ahold Delhaize bought FreshDirect in a deal that closed in early 2021. Besides FreshDirect, Ahold Delhaize operates more than 1,000 U.S. grocery stores under banners including Giant, Food Lion and Stop & Shop.

Crawford said the acquisition had not changed FreshDirect in many ways consumers would notice. He said one exception is that FreshDirect can now offer its parent company’s stable of private-label brands.

Sign up

Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News.

Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.

The post Inflation will shape the 2022 holiday season appeared first on Digital Commerce 360.