Price spikes boost Q2 consumer spending; retailers face costly holiday

7/20/2021

The Q2 Salesforce Shopping Index indicates digital revenue growth is slowing, but online prices are being impacted by rising inflation.

According to Salesforce, global year over year (YoY) digital commerce revenue grew by a modest 3% in the second quarter of 2021, after posting four consecutive quarters of growth greater than 50%. U.S. digital revenue fell by 2% YoY.

“While year-over-year growth in digital commerce essentially flatlined this quarter, it’s clear that the online habits consumers formed over the last year are here to stay,” said Rob Garf, VP and GM, retail, Salesforce. “As we approach the holiday season, consumers should expect smaller discounts and increased prices at checkout as retailers continue to feel margin pressure from manufacturing challenges, supply chain delays, and labor shortages.”

While the U.S. Labor Department consumer-price index cites an increase of 5.4% YoY across consumer categories, Salesforce’s Shopping Index indicates that inflation is hitting the retail sector harder, with average selling price (ASP) in the second quarter rising 11% YoY.

The Shopping Index also shows that average order values (AOV) during the second quarter were up to $90.64, compared to $77.96 in Q2 2020, an increase of 17%, even as the number of units purchased by consumers decreased by 1%.

Average discount rates dropped to 17% during the quarter, compared to 20% in the second quarter of 2020 as limited inventory and sustained consumer demand limited markdowns. Buy now, pay later flexible payment options grew 86% YoY to account for 6.03% of all payment methods in the quarter, up from 3.25% of all payments in the prior year quarter.

Product categories with the most YoY growth in the quarter include:

Luxury apparel (43%).
General handbags & luggage (22%).
Luxury handbags (17%).

Product categories with the greatest YoY decrease in the quarter include:

Beauty - hair (-36%)
Food & beverage (-21%)
Beauty - makeup (-19%)

Have yourself an expensive little holiday
The Salesforce Shopping Index leverages Salesforce Commerce Cloud to analyze the activity and online shopping statistics of more than 1 billion shoppers across more than 51 countries, with a focus on 12 key markets: the U.S., Canada, U.K., Germany, France, Italy, Spain, Japan, the Netherlands, Australia/New Zealand, the Asia-Pacific (excluding Japan, Australia, and New Zealand), and the Nordics.

Salesforce also released its annual predictions for the upcoming holiday season. According to Salesforce analysis, U.S. retailers will face an extra $223 billion in costs of goods sold this holiday season, Salesforce predicts, which include year-over-year jumps in the costs of freight, manufacturing, and labor.

The prediction is based on proprietary research, data on the actual activity of more than 1 billion global shoppers, and several market assumptions. Salesforce advises retailers to plan for three key forces that will exert pressure on the global supply chain for the remainder of the year: manufacturing capacity, logistics costs, and the labor shortage.

Salesforce expects global manufacturing shutdowns to force retailers to pay suppliers $12 billion more than they did over the same period in 2020. The cloud-based software company also predicts U.S. companies will spend $163 billion more on ocean freight in the second half of 2021 than they did in the second half of 2020, roughly tripling their costs from the same period last year. With prices this high, Salesforce expects that some larger companies will turn to air freight as an alternative.

U.S. brands and retailers are also expected to spend $47 billion in additional wages for store associates in November and December, compared to the same period in 2020. The median hourly pay for store associates will hit $19 per hour in the November-December timeframe, compared to $13.02 per hour in 2020.

Other 2021 holiday predictions from Salesforce include:

Loyalty programs will increase by over 1,000 new programs in the US over the next 6 months.
The share of online orders redeeming loyalty points will increase by 76% in November and December.
Online traffic to e-commerce sites from social referrals will grow by 30%.
Consumers will see an 18% increase in marketing emails from brands and retailers this November and December (compared to a 6% decrease over the same time period in prior years).
Total U.S. digital ad spend on social media influencer content will grow to $6 billion this November and December, representing 20% of all digital ad spend.

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