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inflation impact on ecommerce 2022

5 things inflation means for your store this Prime Day (and how to respond financially)

Richard ClaytonRichard Clayton
June 30, 2022

In the midst of record-breaking inflation rates, consumers are starting to feel a significant pinch on their finances. Recent surveys have found that as many as 88 percent of Americans are worried about inflation, with many planning to reduce a variety of expenses to keep their finances in check.

So, when Prime Day arrives this year on July 12th, it will be interesting to see how consumers respond compared to previous years. Will they take advantage of cut-price goods they would normally splurge on during this annual spending spree, or will they hold back due to high inflation rates and the cost of living crisis to save their money for more essential everyday items?

However, while inflation can be problematic for the everyday consumer, it also complicates things for online store owners too. Understanding the implications that inflation can have on your online business, and how this will also affect your customers, can prove vital to maintaining revenues and profits during turbulent financial periods such as these.

1. Price increases are inevitable

Many online stores compete on their ability to offer low prices — but if their own expenses go up, raising prices will become a necessity to maintain a similar profit level for each item sold.

Just like how many freelancers raise rates at the start of a new year, suppliers will often increase the rates for the products they send to online vendors. This is done to alleviate their own expense increases — from rising shipping and production costs to wage increases, the process of manufacturing items has gotten more expensive for many suppliers.

In an effort to remain profitable, they pass these costs on to online stores, resulting in a domino effect of price increases. As much as you might not want to raise your store prices, this will likely become a necessity sooner rather than later.

2. Understand specific trends in your product category

While most areas have seen dramatic inflation, some product categories have actually seen prices decline due to decreased demand or other factors.

As Karlyn McKell notes in a blog post for 8fig, a company providing flexible capital for online sellers, “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. […] Electronics and jewellery have also become cheaper than ever with -3.44% and -3.57% changes, respectively.”

Continues McKell, “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. Jewellery, however, might be a consumer good that is just too unnecessary for times as unstable as ours.”

Before you decide to raise your prices, be sure to consider the state of your niche as a whole. For so-called “luxury” or “unnecessary” products, you may actually need to lower prices to keep customers engaged.

3. Use cash flow to build up stock now

Economists expect both wages and prices to continue to increase in the months ahead, with some fearing that accelerating inflation will eventually lead to a recession. Increasing prices combined with ongoing supply chain unpredictability means that online retailers would be wise to build up stock sooner rather than later.

When possible, online stores should consider placing larger bulk orders with their suppliers. Not only does this often yield discounts during “normal” times, but it protects you from the price increases that are likely to occur in only a few months’ time.

For example, by purchasing a six-month supply of product, you will likely save more in the long run than if you need to resupply every two months.

4. Consider switching suppliers

Even in relatively stable times, online stores should regularly re-evaluate supplier relationships to diversify their supply chain. Getting bids from several potential suppliers and evaluating the potential risks associated with each — including political and environmental issues that could disrupt their operations — will help you determine the right option.

Remember, while overseas production is often cheaper, you could still be subjected to inflation from sea freight and handling costs — not to mention supply chain delays. Taking a long-term view when evaluating the pros and cons of domestic vs. overseas product sourcing could prove key to mitigating inflationary pressures.

5. Building a brand is more important than ever

Adjusting your online store’s prices will likely become a necessity in the face of e-commerce inflation. The good news is that many of your competitors will need to do the same thing.

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Of course, such pricing adjustments can drive away some of your customers if you’re not careful. This is especially true of online stores that focus on generic products. To avoid this, building a strong brand in the e-commerce space is crucial for maintaining a consistent sales volume, even as you are forced to raise prices.

Focusing on other distinguishing features of your online store — such as material quality or unique product design — will ultimately be far more suited to gaining a loyal customer base than focusing on price alone. A targeted focus on such areas with your marketing messages will prove vital when price can no longer be the primary differentiating factor.

Successfully navigating inflation is tough — not impossible

While inflation affects different categories of e-commerce differently than it does key commodities such as groceries or gasoline, there is no denying that it can still have a significant impact on your store’s sales numbers and overall profitability. To continue your online store’s success, you must account for how inflation is directly and indirectly impacting your bottom line.

Whether your own acquisition and logistics costs have gone up or you’re seeing purchases slow down as customers try to save, inflation is much more than just a headline. By taking a proactive approach to mitigate its impact, you can put yourself on stable financial footing.

How Payoneer can help

As an online seller looking to expand your business online and increase sales, Payoneer is your go-to partner for managing all your business payments.

From multi-currency receiving accounts that enable you get paid from international marketplaces, to Capital Advance to help you overcome higher costs due to inflation or invest in your business and bring it to the next level, to paying your suppliers or VAT requirements directly, Payoneer has a whole suite of tools to help.

Open an account today and see how easy, fast and low-cost managing your business payments can be.

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The content provided in this article including any information relating to pricing, fees, and other charges is accurate and valid only as of the date it was published. In addition, changes in applicable regulations, policies, market conditions, or other relevant factors may impact the accuracy of the mentioned pricing and fees and other associated details. Accordingly, it is further clarified that any information regarding pricing, fees and other charges is subject to changes, and it is your responsibility to ensure you are viewing the most up to date content applicable to you. Payoneer will provide the most up to date and accurate information relating to pricing and fees as part of the account registration process. Registered customers can view this information via their online account.

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