Surging inflation and interest rate increases are making American consumers cautious about spending. According to JungleScout’s Consumer Trends Report, 55% of consumers admit that the current inflation has impacted their gifting and spending plans for this year.

Such trends can spell trouble for brick-and-mortar stores and eCommerce sites alike. This piece discusses the challenges posed by inflation for your eCommerce business and how you can fix it before it takes full effect.

Challenges Caused By Inflation in the Ecommerce Industry

To stay ahead of the game, you need to understand how inflation affects your business and what you can do to mitigate its impact. Here’s an overview of the top challenges caused by inflation in the eCommerce industry.

A Decrease in Customer Purchasing Power

As the cost of living increases, people are running short of cash that they can spend on buying from online stores. Due to the pandemic, about one in every four adults have had trouble paying their bills.

As a result, consumers have less money to spend on discretionary shopping. They are re-evaluating their purchasing habits and spending less on non-essential items, which can lead to lower sales and profits for your eCommerce business. 

An Increase in Freight Costs

The eCommerce industry relies on sea shipping to move goods from suppliers to eCommerce business owners. As of 2021, sea freight costs rose astronomically as part of the industry experiencing the fallout of COVID-19 and global lockdown, with a 466% increase in freight rate for August 2021 compared to the previous year.

To make matters worse, one negative impact of COVID-19 was that many drivers left their trucking jobs, causing the trucking industry to struggle to keep up with the demand for freight services. The trucking industry is facing a shortage of drivers, and there aren’t enough trucks to move goods around the country. This leads to higher shipping costs, delays, and longer delivery times for online retailers. It is a major problem for businesses that rely on just-in-time inventory management, as they cannot get the goods they need when they need them.

How Your eCommerce Business can Respond to the Challenges

Below are ways your eCommerce business can respond to inflation challenges and mitigate its effects on business operations:

1. Strategic Increase in Price

By strategically increasing the price of your products, you can stay ahead of the inflationary trend and keep your business profitable. You need to know your costs to raise prices without jeopardizing your profits. This includes the cost of goods sold and operational costs like shipping, warehousing, and employee salaries.

Also, stay up-to-date on what your competitors are charging for similar products. This will help you determine how much room you have to raise prices without losing your customers.

2. Build Your Brand

A brand is more than just your logo or business name. It’s the feeling customers get when they interact with and purchase from your store. 

Inflation can erode profits, but loyal customers help keep your business afloat. Building customer loyalty is key to retaining customers amidst a price increase or a decrease in consumers’ purchasing power. Building your eCommerce business brand is a great way to encourage customer loyalty.

3. Ramp Up Organic Marketing

One of the drawbacks of inflation is that you are trying to cut down on expenses as much as possible. Marketing is one aspect that should continue irrespective of the economic situation, and one way to keep it going is to focus on organic marketing.

You can:

Increasing your organic marketing efforts can bring in more traffic without breaking the bank.

4. Maintain Cash Flow

A sudden drop in sales can leave you without cash to cover business operations for your eCommerce store. In a period of economic uncertainty, it is crucial that you get a grip on your cash flow and keep it steady. 

Make sure you understand how money flows in and out of your business and forecast future needs. Try to maintain liquidity by having cash on hand to cover unexpected expenses and by utilizing short-term financing options to bridge any gaps in your cash flow.

5. Rework Your Inventory

By reworking your inventory, you can ensure that you always have the products and materials you need on hand while also avoiding costly shipping costs, delays, and the general instability of the supply chain. You can,

  • Monitor your inventory levels closely and adjust them as needed.
  • Build relationships with reliable suppliers to ensure steady product supply.
  • Diversify your supplier base to reduce the risk of disruptions if one supplier cannot meet demand.
  • Keep an accurate record of what you have in stock and the goods you need to replenish.
  • Take a close look at your sales data and buy some of your fast-selling items in bulk to avoid getting sold out.

6. Source Low-cost Suppliers in Close Proximity

Shipping costs are increasing, and logistics delays are becoming more common as carriers struggle to keep up with demand. A great way to combat this is to look for low-cost suppliers nearby. You can minimize shipping costs and transit by focusing on inexpensive suppliers close to your fulfillment center or customers.

  • Use online directories to identify manufacturers and suppliers that are close to you.
  • Attend trade shows where you can meet face-to-face with potential suppliers.
  • Use social media platforms to find suppliers who may be a good fit.
  • Vet the suppliers you identify properly: check references, visit their facilities (if possible), and get quotes to compare prices.

Ecommerce businesses can be hit hard by the fallout from inflation, but if you use these tips, you can get ahead of the curve, stay agile, and keep your eCommerce business booming. 

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by Benchmark Team