At Moriarty’s Gem Art, a jewelry store in Crown Point, Indiana, that makes most of its sales online, low-margin merchandise is not worth the effort anymore.
“Due to inflation, we had to remove all items with the lowest margins,” says Brian Anderson, the retailer’s general manager. “Because our cost has gone up across the board, our strategy was to only offer items that had big enough margins that the price increases from our manufacturers wouldn’t hurt us.”
Moriarty’s is not alone in rethinking its business strategy due to inflation. With consumer spending priorities changing and business costs rising, retailers are adapting. That can mean changing their product mixes, seeking efficiencies wherever they can find them, and accepting lower profit margins to limit price increases for their customers.
At Moriarty’s, eliminating low-margin products reduced its offerings by about 20%, Anderson says.
“But it just wasn’t worth the extra work to sell items that didn’t make us enough money,” he says. “This way, we don’t have to increase our prices sitewide, and can still be very profitable, keep our customers happy, even with inflation.”
On Tuesday, the U.S. Bureau of Labor Statistics reported inflation rose 0.1% in August on a seasonally adjusted basis, compared with July. That was after July inflation was flat compared to June. Over 12 months ending in August, inflation increased 8.3% before seasonal adjustment, the federal agency said.
Nikki Baird, vice president of strategy at Aptos, a retail technology company, says inflation will change how people shop for the holidays.
“With inflation still having an impact and consumer budgets shrinking this holiday season, people will be looking for smaller luxuries and gifts that still deliver feel-good quality,” Baird says.
“One way retailers can capture demand and help customers do more with less is through personalization. Customers will value creative and inexpensive ways to help pack a punch with presents, so retailers who can pivot to more personalized offers should definitely emphasize it,” she added.
Retailers also should find ways to make themselves environmentally friendly, she says.
“Despite the crunch on spending, sustainability is still high on consumers’ radar,” Baird says. “While gift wrapping might look stylish, consumers are starting to see that as wasteful. So, retailers who can offer alternatives, like reusable gift bags or stylish packaging, could attract consumers this year.”
Higher prices and ‘shrinkflation’
Passing along rising costs to consumers was unavoidable at nutritional supplement retailer Supplement Warehouse.
“We have seen all the prices of our raw ingredients increase, especially with the cost of protein supplements, which have jumped 20% or more,” says Jeff Moriarty, product manager. “And due to our low margins on these types of products, we have had to pass the cost onto the consumer.”
Supplement Warehouse sells online and in 18 stores around the U.S.
To help offset the price increases, he says Supplement Warehouse worked with manufacturers to add “promotional swag” or supplements unaffected by ingredient price increases for free with purchases.
“This definitely has helped keep sales on those products going,” Moriarty says.
Moriarty says the retailer is talking with many manufacturers about offering smaller packages — a practice known as “shrinkflation”— to lower customers’ costs.
Shrinkflation is “not our first choice, but trying to implement as many options as possible,” Moriarty says.
Moriarty says Supplement Warehouse passes the exact cost of shipping to customers, so those prices have gone up as carriers raised rates. The retailer also recently raised its threshold for free shipping to $99, up from $75.
Nuleev, a retailer that sells cannabidiol (CBD) and other health and wellness products, has so far held online prices steady, but has raised in-store prices due to higher costs, says Robert Burns, chief marketing officer.
“So far, inflation has not caused us to raise prices online,” Burns says. “However, increased wages in our physical stores to keep up with inflation have resulted in higher prices. It was unavoidable. We changed some procedures to make things more efficient in both our ecommerce and physical stores.”
Nuleev has two physical stores: One in Fargo, North Dakota, and another in Bloomington, Minnesota.
Holiday sales forecasts reflect inflationary fears
Data released Thursday by Salesforce Inc. shows inflation could contribute to a lackluster holiday season for e-retailers.
“Inflation will tamp down consumer spending worldwide. As global online prices grow 7% compared to 2021 — and 15% compared to 2020 — consumers’ total online orders will drop 7% compared to the 2021 holiday season (5% fewer in the U.S.),” according to a Salesforce statement.
The Salesforce Shopping Index indicates online retail sales in November and December “dwarf pre-pandemic levels” — up 55% globally and 61% in the U.S. compared to 2019 sales. But compared with last year, Salesforce expects online holiday sales to decrease 2% globally and increase 3% in the U.S. Salesforce expects November and December online sales to reach $1.12 trillion globally and $265 billion in the U.S. The Salesforce index analyzes global data from more than a billion consumers.
Inflation also weighed on last week’s U.S. holiday sales forecast from Deloitte LLP. The consulting firm predicts ecommerce sales in November through January to rise from 12.8% to 14.3%. That would push holiday ecommerce sales to between $260 billion and $264 billion this season. It would also be up from $231 billion in 2021.
Inflation and an economic slowdown could “further drive ecommerce sales as consumers look for online deals to maximize their spending,” Nick Handrinos, vice chair at Deloitte, said in a statement.
Salesforce is a cloud-based business software provider.
Shoppers prioritize essentials
“We haven’t seen any clear signs of inflation causing our customers to buy less, because we haven’t seen any dramatic changes in sales,. “Rollins says.” Maybe that’s because our product isn’t an extravagance. People who need it are likely to see it as a necessary purchase. If we had seen a decline in sales, maybe we could attribute it to people having less money to spend overall. But since our prices haven’t gone up, we know it wouldn’t be due to inflation on our part.”
The cost of Axon migraine glasses has stayed the same. However, prices are up sharply for other essential products, such as food. According to the U.S. Department of Agriculture, the cost of supermarket food purchases increased 1.4% from June 2022 to July 2022. Food prices were 13.1% higher in July 2022 than in July 2021.
Retailers say higher food and fuel prices dramatically changed shopping habits this year. Retailers like Walmart Inc. (No. 2 in the 2021 Digital Commerce 360 Top 1000) and Target Corp. (No. 5) have reported selling large amounts of slow-moving inventory at discounted prices, hurting their bottom lines.
During an Aug. 16 conference call with analysts, Walmart CEO Doug McMillon said that, as food inflation continued to rise, Walmart saw its sales shift. It saw “a heavier mix of sales in food and consumables in many of our markets and that put pressure on margins overall.”
Making deals easier to find
One way to attract deal-hungry shoppers is by making it easier for them to find deals they might like.
Flash-sale retailer Zulily recently revamped its site and mobile app in ways intended to help customers more easily find products and brands they want. Zulily hopes the new site will draw more of its core customer base of bargain-hunting mothers and build customer loyalty
Zulily will continue offering more than 100 daily flash sales, most lasting 72 hours or less. To that, the retailer added more than 300 virtual “stores-within-a-store” for brands including BOGS, Carter’s, Champion, Burt’s Bees Baby, Fisher-Price, LEGO, Levi’s and Melissa & Doug. Lastly, the site now includes an everyday discounted assortment of “daily essentials and basics.”
The retailer also started offering free shipping on orders above $89. As in the past, customers can still “unlock” free shipping by ordering for specified periods. Zulily typically consolidates purchases during those time windows, packing as many items as possible into one box.
“Shipping costs are part of every ecommerce business,” says John Lohnas, Zulily’s chief merchant. “But we aim to reduce friction for our customers and pass along savings versus costs.”
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