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As inflation slows down across the economy, online prices continued to fall for the seventh straight month in March.
While some discretionary categories are seeing relief, consumers may continue to feel the price increases. That’s because ecommerce inflation is remaining stubborn on the way down in key categories like grocery, pet products and apparel.
The Adobe Digital Price Index showed the following data for March:
- Online prices fell 1.7% year-over-year.
- That’s the seventh straight month of deflation.
- Compared to February, inflation was flat (up 0.03%).
Here's a breakdown of prices in key categories:
The DPI showed marked price drops in key discretionary categories. This offers signs that consumers won’t see as much sticker shock when they face a choice about a product that goes beyond a basic need.
Electronics, which is the largest ecommerce category, saw prices fall 12.9% year-over-year, and decline 1.3% month-over month. This shows continued staying power for electronics price deflation, even after the sharp discounts of the holiday season.
Toy prices fell 6.6% year-over-year, and 1.2% month-over-month.
Home goods prices also fell. Furniture and bedding prices were down 0.9% year-over-year, and fell 0.3% month-over-month. That’s the second straight month that prices feel on an annual basis, following a 33-month string of price increases. Appliances and home/garden products each fell 4.9% year-over-year.
Demand for furniture remained high despite the price increases. Adobe previously noted that February 2023 saw a 12.9% year-over-year increase in spending for home furnishings, following a 10.2% year-over-year increase in 2022.
“Consumers have become increasingly comfortable buying furniture online, after a pandemic where many wanted to spruce up their living spaces and had no choice but to tap ecommerce,” Adobe notes.
In all, 10 of the 18 categories tracked by Adobe showed price decreases for the year.
Essentials show continued, yet cooling, inflation
Yet consumers are still facing tough choices. Key categories that reflect the products consumers need for day-to-day life are still showing inflation, even as the price increases cool.
Grocery prices were up 10.3%, and rose 0.4% month-over-month. This is the latest slowdown in the category, falling off from an annual peak of 14.3% in September. Yet, as with the Consumer Price Index, it remains true that consumers are paying more for food. Still, the price increases aren't stopping online grocery from picking up. This category surged to 26.7% year-over-year growth in February, following 10.2% annualized growth in 2022. What became a necessity during the pandemic is now a choice consumers are making for convenience.
Personal care items saw prices rise 4.4% year-over-year, while falling 1.5% on a monthly basis. This carries on price increases in the category for a 16th straight month, but was also a smaller increase than February, when prices rose 6.1%.
Apparel prices rose 6.6% year-over-year, and 1.8% month-over-month. This is an increase from February, but Adobe noted that there has been cooling overall in the category in recent months. A year ago, apparel prices were up 16.7% in February 2022.
Pet product prices rose 11.2% on an annual basis, and 1.9% month-over-month.
The bottom line: Inflation remains a mixed bag in ecommerce, but overall there are plenty of signs that prices are trending down from their peak. With prices for essentials still going up, brands and retailers must be mindful that consumers will be weighing discretionary purchases carefully, even as lower prices help to take some of the edge off of the decision. It's important to zoom out and remember that inflation hasn't completely curbed demand, especially in top ecommerce categories. All signs indicate that consumers are still shopping, so a strong brand and execution can help light the way to sales.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.