For the first time in history, global e-commerce sales are expected to fall, following two years of supply chain disruption and rising inflation that was triggered by the Covid-19 pandemic. Recent reports predict that revenues generated by e-commerce in 2022 will fall $95 billion short of sales in 2021. Ongoing inflation across the globe provides the backdrop for reduced consumer spending, and this must be tackled before commerce can bounce back.
Post Covid-19 inflation and reduced consumer buying power
The risk of inflation had concerned economists for many years. In 2020, the extensive disruption to global supply chains, forced closure of entire sectors and limited international travel triggered economic downturn even in the world’s biggest economies. In the two years that have followed, economic situations have faced the additional challenges of increasing unemployment and rising inflation, which returned more aggressively and has proved more persistentthan major central banks predicted.
Recently, the US Bureau of Labor Statistics announced that the consumer price index increased by 7.5%from January 2021 to January 2022. This level of increase had not been recorded since the 1980s. The UK is feeling a similar impact, with prices rising by 5.4%at the end of 2021, representing a 30-year high. In Italy, consumers face a 59% price hikefor utilities this winter, a situation that is being reflected in many countries across Europe.
Rapidly rising inflation across the globe has had the effect of reducing consumer spending power. When consumers are forced to spend more on the necessities, such as food, utilities, and housing, they have less disposable income for non-essential purchases.
Significant changes in consumer buying habits
Over the course of the pandemic, people were forced to change their shopping habits due to uncertainties with employment and many people losing paychecks due to the forced closure of major industries. For many, these changes have remained in the years that have followed, with new trends in consumers preferring value, availability, and convenience.
Additionally, in the current landscape of rising inflation, companies are finding it more challenging to market to their target groups given the increasing costs of marketing.
Prior to the pandemic, e-commerce sales were increasing, and fashion and electronics in particular showed promising growth with revenues from global fashion e-commerce increasing by 67% from 2017 to 2021 and electronics e-commerce rising by 46% in the same period.
Since the pandemic, e-commerce sales have been hit hard, with a 24.4% drop in revenuefrom January 2021 to January 2022.
Fewer sales in electronics and fashion may account for a significant portion of this loss in revenue. Recent reports have indicated that sales of discretionary itemssuch as computers and TVs have been cut, and the fashion industry has also seen a decline in online sales.
This data indicates that consumers are being far more frugal following the pandemic and are spending less on non-essential items. It is possible that this trend will continue until global inflation rates fall. Until then, consumer spending power is jeopardized, and non-essential purchases may be curbed. Currently, it is unsure when inflation will end, although some experts are optimistic that the world has reached its worstpoint, and 2023 will be brighter.
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