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Consumer prices are in focus this week as businesses track rising inflation.
With the topline inflation number reported by the federal government for March at the highest level in decades, an index that breaks out data for ecommerce continues to show rising prices, as well.
Here’s a look at the latest numbers.
Consumer Price Index
Over the year from March 2021-March 2022, inflation rose 8.5%, according to the US Department of Labor’s Consumer Price Index. That’s the highest year-over-year increase since 1981, when the nation was in the midst of another period of intense price pressure. The benchmark comes after a 1.2% month-over-month increase from February to March.
Year-over-year Consumer Price Index comparisons (Chart via US Bureau of Labor Statistics)
The DOL said the prices of gas, shelter and food were the largest contributors to rising inflation. However, when setting aside food and energy, the year-over-year increase was still 6.5%, which was the highest rise since August 1982.
In the area of online sales, inflation similarly rose for the 22nd straight month. According to the Adobe Digital Price Index, online prices increased 3.6% year-over-year in March, and .3% month-over-month.
Of the consumer categories measured, 14 out of 18 saw rising prices. Meanwhile, electronics, jewelry, toys and computers all had prices fall.
The year-over-year change in online prices across all categories (Image via Adobe)
In digital pricing, inflation was primarily driven by a few categories:
- Apparel had the biggest increase year-over-year, rising 16.3%. This outpaced the Consumer Price Index, Adobe notes. The recent trend line also departs from the typical pattern in this category, in which discounts help to create more predictable ups and downs.
- Grocery prices rose by 9% year-over-year, continuing a surge over the last couple of months.
- Pet products were more expensive to the tune of 7% year-over-year, continuing an increase that has been present for almost two full years as demand rose in the category during the pandemic.
- Tools and home improvement prices rose 8.5% year-over-year, marking 16 straight months of rising inflation amid a boom in home renovation and maintenance.
Ecommerce demand continues
Adobe data shows that Americans spent $83.1 billion on ecommerce purchases in March. This was up 7% year-over-year, and amounted to a significant increase from the $67 billion spent in February. It indicates a continued uptake of digital shopping.
“While ecommerce prices have risen more than years past, durable demand shows that consumers are embracing more personalized experiences in the digital economy as well as the conveniences of online shopping, particularly for growing categories like groceries,” Patrick Brown, Adobe Vice President of Growth Marketing and Insights, said in a statement.
The Digital Price Index vs. Consumer Price Index, year-over-year. (Image via Adobe)
Ecommerce isn't insulated from wider economic issues. In categories like pet products and grocery, online prices and the consumer price index now show similar trend lines. Along with rising prices, supply chain challenges also continued to manifest in ecommerce sales. Consumers saw 3.1 billion out-of-stock messages in March, which was up from 2.8 billion in February. In the big picture, the growth of ecommerce spending has moderated from the explosive early days of the pandemic.
Yet the growth line still points up. In March, Adobe reported that ecommerce sales were on pace to reach a record $1 trillion for the year in 2022. It shows the importance of ecommerce to the economy, especially as online shopping habits remain intact and the tools to facilitate ecommerce continue to improve.
Trending in Economy
Retail media networks must drive sales incrementality, a new report from the Association of National Advertisers states.
Retail media networks are creating a new layer to the relationship between brands and retailers, and a new report indicates that brands in particular are still navigating the growing pains.
The last two years brought fast growth of retail media networks, as retailers recognized the value of providing advertising opportunities through ecommerce marketplaces that grew rapidly during the pandemic, and the value of the first-party data they possessed in a world where third-party cookies and IDFA are becoming less valuable tools. For a historically low-margin business like retail, digital advertising also presents an opportunity for a high-margin business line of 50-70%.
Brands have proven to be eager adopters as they sought new ways to reach customers in this environment, as well. According to eMarketer, ad revenue from retail media networks will reach $52 billion in 2023 and $61 billion in 2024. Over the next two years, retail media will account for one in five digital ad dollars spent by marketers. The spend is only expected to grow. According to a survey from the Association of National Advertisers (ANA), 73% of brands said they expect to be spending somewhat or significantly more on retail media in the future than they do today.
However, this proliferation has also created “more marketing decisionmaking complexity for advertisers,” ANA CEO Bob Liodice said in a new report.
The need to navigate multiple networks and still-developing tools to maximize the opportunity presented by retail media is leading to a multitude of approaches. Layer on top of that the fact that brands are both selling goods and advertising through retailers, and it’s clear the landscape is being reshaped.
A recent report from the Association of National Advertisers uncovered the areas where fault lines may emerge under the surface:
- Reluctant buyers: 88% believe they are somewhat or heavily influenced by retailers to buy advertising on retail media networks.
- A multitude of players: 56% said they are currently working with five or more different retail media networks.
- Differing goals: Two-thirds of respondents see driving conversion as the most important investment. Only 12% indicated the most important objective was “to invest for future brand growth,” and 7% cited “to drive awareness.”
The results underscore key areas where relationships between brands and retailers can be strengthened.
Sales vs. growth. Retail media must be able to drive both conversions of a single sale in the lower funnel, and brand equity growth in the mid- to upper-funnel.
As one respondent put it, "The jury is still out on if the RMNs are truly driving sales incrementality."
This also has implications for how a brand is budgeting retail media. Some brands are shifting dollars from shopper marketing, brand marketing, and trade spending, which could put the emphasis on short-term sales. But as another respondent put it, "There is concern that while attribution shows RMNs are driving brand sales, they are not necessarily driving brand growth. This is especially concerning where incremental RMN spending is being sourced from brand building budgets."
Standard measurement. Brands want to see an improvement in transparency in measurement. They also want results to be measured in the same ways across platforms. Further, brands believe retail media networks are not fully optimized for their KPIs.
This all leaves room for retailers to show they truly understand what brands are seeking from retail media, and show how they are delivering, all while reducing complexity.
As the report put it, “The next phase of growth for RMNs and value creation for brands will be through RMNs assuming shared responsibility with advertisers for driving brand growth, and demonstrating the ability of their platforms to drive incrementality and positive ROAS for brands. In other words, the next stage of growth will be driven by results versus relationships.”