Online Sales Pegged to Be Flat This Holiday Season
The latest data from Salesforce shows that inflation will be heavily impacting profits for retailers this upcoming holiday season while also noting that online sales, as compared to last year, are expected to be flat. But compared to the pre-pandemic period, online sales are strong, Salesforce said.
Researchers at the company said in their report that “inflation — in the form of skyrocketing retailer costs and increased consumer prices — will play a key role in the 2022 holiday shopping season.” Regarding online sales, the Salesforce Shopping Index is pegged to be about the same this year as last, with sales for the November and December period coming in at $1.12 trillion worldwide and $265 billion just in the U.S.
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“Retailers are feeling the squeeze from unprecedented margin pressure due to increased labor wages, fuel prices and inventory carries costs,” said Rob Garf, vice president and general manager of retail at Salesforce. “Retailers mustn’t let margin be the Grinch that steals the holiday. It’s critical to contain costs by automating and scaling operations — particularly by streamlining processes and removing friction as consumers increasingly shop across digital and physical touchpoints.”
Salesforce said as retailers and suppliers “struggle to absorb operating costs, leading to higher prices for consumers,” some of the emerging trends will be that overall online spending “will remain strong when compared to the pre-pandemic” period.
“The surge in online spending seen over the last two years will remain strong in 2022, though relatively unchanged compared to last year,” the authors of the report said, adding that “digital sales will continue to dwarf pre-pandemic levels (up 55 percent globally and 61 percent in the U.S. at a three-year growth rate compared to 2019 sales). However, they’ll remain essentially flat compared to 2021 — decreasing 2 percent globally and increasing 3 percent in the U.S.”
Some of the expected trends Salesforce identified include that increasing prices will likely result in fewer overall orders. “Inflation will tamp down consumer spending worldwide,” the company said in its report. “As global online prices grow 7 percent compared to 2021 — and 15 percent compared to 2020 — consumers’ total online orders will drop 7 percent compared to the 2021 holiday season (5 percent fewer in the U.S.).”
For retailers, higher inflation means gross margins will shrink. “The increasing costs for suppliers, labor and transportation will outpace retailers’ ability to pass costs onto customers, putting 10 percent of profits at risk for retailers and brands,” Salesforce said.
Echoing other consumer studies, higher costs will have consumers shopping earlier. “Inflationary pressure will drive more than four in 10 shoppers (42 percent) to kickstart holiday shopping earlier than ever this year,” the company said, adding that it predicts that 29 percent of holiday sales “will occur in the first three weeks of November — before Cyber Week even begins. That’s a 5 percent increase compared to 2021.”
There are increasing product costs for retailers: The Producer Price Index (or cost of goods) is still seeing double-digit spikes from a year ago, meaning that inflation will continue to rise. That will push selling prices even higher for the rest of the year.
Regarding the factors driving up prices and impacting margins, Salesforce said it includes increasing first- and last-mile fulfillment costs. “Gas and diesel prices are expected to continue rising, making fulfillment and returns more costly,” Salesforce said, adding that some retailers “are already charging for online returns to offset some of these costs.”
The authors of the report also said there is declining consumption. “Higher prices are driving down consumption,” the report noted, adding that according to Salesforce research, “51 percent of consumers plan to purchase fewer holiday gifts this year.” The company said consumers “already feel pessimistic about the economy, especially in the U.S. Consumer sentiment is at its lowest level since the metric was first tracked in the 1970s. This means consumers could pull back further on discretionary spending as they anticipate challenging economic conditions ahead.”
Another key trend this upcoming holiday season is that about 60 percent of consumers “say they will look for sustainable products and shipping options this holiday season,” and that despite this strong preference, “less than one in four brands and retailers (23 percent) will promote and offer sustainable options throughout the shopping journey,” Salesforce noted.
