The Impact of Inflation on U.S. Retailers in 2022 (Data Report)

You can’t go a day without hearing about the inflation rate and its impact on the global economy and consumer trends.

And to no surprise, because as marketers and business owners, we’re all feeling it. Whether it’s while running our everyday campaign activities or planning our marketing budgets for the next months to come.

But just how much impact does inflation have on businesses? And more importantly, how are business owners responding to them?

To understand the situation better, we decided to analyze one particular segment this time – retailers and online store owners.

To do that, in July 2022, we ran an online survey among 500 U.S. retailers and online store owners.

Here are the five key findings from the survey:

• Almost 4 out of every 5 (79%) retailers say they were affected by inflation in the past six months
• 72% of retailers and online store owners plan to increase their prices within the next six months
• More than half (51%) of retailers plan to use discounts more frequently in the next six months
• 72% of retailers are planning to increase or keep their marketing budgets on the same level within the next six months
• The top three marketing strategies retailers are planning to focus on in the next six months are email marketing (39%), organic social media (36%), and paid social (35%)

Inflation’s taking a toll on (almost) all retailers

We began the study by asking the participants about their businesses and whether the inflation rate had impacted them.

As we found out, 79% of all retailers said that their companies experienced the effects of inflation in the last six months.

No matter whether they were “just starting” to grow their business or whether they were a “seasoned profitable business, but struggling with bringing more traffic,” and even an “established shop with steady revenue and growing client base,” 80% of them admitted that they were affected by inflation.

Interestingly, the only group that was less likely to be affected by inflation were “blooming shops,” who, despite the times, were experiencing growing revenue and clients. Within that group, 65% (which is still a considerable amount) said they were impacted by inflation.

Two potential reasons for this may be that these retailers pursued marketing strategies that put them ahead of their competition, or they were sourcing their products locally, leaving them less susceptible to supply chain challenges.

Customers will bear the costs

We followed up the previous question with one that asked whether the retailers planned to increase their prices in the next six months. 

This is what you normally observe (and potentially expect) in times of a higher inflation rate. And to little surprise, we found that 72% of retailers plan to increase their prices, and 13% were still unsure.

In terms of how much they’re planning to increase the prices, we learned that almost one-third (31%) of retailers were planning to increase their prices by 3-7%. Slightly fewer than one-quarter (23%) chose to raise their prices by 1-3%. Finally, 13% decided to up their prices by 7-10% and 5% by more than 10%.

In terms of which segments are going to increase their prices by the highest percentage, we noticed that almost half (49%) of those operating in Grocery plan to increase their prices by 7-10% or 10%+. Within the same segment, 96% admitted they were affected by inflation.

Supply chain costs and challenges are (mostly) to blame

We also wanted to know whether retailers experienced any issues and increases in prices related to the supply chain.

As it turned out, for the most part, the increases in prices were very similar to what we observed in the previous section. What comes to our mind is that retailers want to transfer the increased costs to their customers. Which is what you typically observe on the market.

In terms of how much the supply chain costs have grown, we can see that for most Retail segments, they’ve gone up by, on average, 3-7%. The only two segments where the cost increase was higher (on average, 7-10%) were Furniture & Bedding and Grocery. The latter, as you may recall from the previous section, responded by spiking up their prices.

When it comes to the supply chain issues retailers and ecommerce owners have to face, the top three were: increasing freight prices (45%), material scarcity (33%), and changing consumer attitudes (22%).

Note: This was a multiple-choice type of question. One respondent could choose more than one answer.

Consumers respond differently

With the majority of retailers increasing their prices, you’d expect that some consumers will change their buying behaviors. That’s what we decided to investigate next.

We found that less than half (46%) experienced a slow-down in their business. At the same time, 32% said their sales remained the same, and 22% saw an increase in sales.

In terms of product categories, we didn’t see any particular winners or losers. The same goes for businesses at different stages (such as. just started vs. seasoned profitable business), whom we discussed in the first section of this study.

More focus online is the answer

Looking ahead, we wanted to know how retailers are planning to grow their businesses and where they’re planning to place their focus. Specifically, we wanted to see if they’re looking to grow their online or offline presence more in the next six months.

The trend we observed is that most companies (60%) want to concentrate on online selling or switch entirely to online. Only 9% said they’d like to limit their online part of the business and focus primarily on offline sales.

At the same time, a considerable group (28%) replied that they’ll keep the online and offline sales at the same level.

The results we saw here were not unexpected. Following a two-year pandemic period when the majority of retailers had to transform their business and enter the online world, it’s expected that they’d like to continue this journey. Especially given that selling online is often connected to lower costs and higher potential for scalability.

Customer experience and discounting will play an important part

We also asked our audience about their plans regarding discounting and customer experience.

We found that 51% of the study participants plan to offer more special discounts to their customers, and 30% will keep them at the same level. Only 8% say they’re planning to cut down on this strategy. 

These results are in line with the fact that two-thirds (66%) plan to focus more on customer experience.

Discounting may often be discounted (pun intended) because it’s often seen as a sales tool rather than a customer experience tool. However, as you can learn from our recent guide on ecommerce discounting, it can be used just as well for rewarding and driving repeat sales from your most valuable customers. It’s just a matter of what discounting strategy you choose.

In tough times, marketing is the driving force, not the cost center

When times are tough, business owners often cut down areas that drive the highest share of costs. Due to its nature, marketing is often considered a cost center rather than a profit center. We think this is a bit short-sighted, which is why we wanted to investigate what retailers had planned.

As we discovered, the majority (72%) of retailers and online store owners aren’t planning to cut their marketing expenses. The share of respondents who plan to increase their marketing spending in the next six months was the same as those who planned to decrease their budgets (28%).

One way to understand those findings is that, finally,  marketing is known as a driving force or a profit center, instead of a cost center. 

At the same time, it could be that since more retailers are running their campaigns online, they’ve also begun to trust online marketing more. 

This could be partly due to the fact that online advertising, unlike traditional advertising methods like billboards or radio ads, is more predictable and requires a lower budget to get started.

Email, organic social media, and paid social are the three key strategies to pursue

Finally, we wanted to identify which marketing strategies looked most promising to the retailers in the next six months.

The top three marketing strategies they highlighted were email marketing (39%), organic social media (36%), and paid social (35%). Not too far from them were paid ads (32%) and search engine optimization (29%).

Note: This was a multiple-choice question.

This suggests that retailers want to primarily focus on the strategies that let them build their own audience (hence email marketing and organic social media). However, they’re also willing to invest in paid campaigns.

Seeing email marketing at the top isn’t unusual, as its last reported ROI is 38:1 and a lot of that comes down to the fact that once you receive the consent to send marketing communications to your audience, you have a direct line of contact with them.

Here are several examples and strategies that ecommerce businesses can use to grow using email marketing.

Organic social media and paid social on the podium suggests that retailers see a lot of value in reaching their audience where they’re most engaged. With the ever-growing popularity of Instagram and TikTok, this is hardly surprising. Both platforms keep adding more functionalities, making “social commerce” ever more important.

The situation was slightly different when we only looked at the retailers that said their business has seen more sales in the last six months. Within that group, the most popular marketing strategies were paid ads (50%), email marketing (40%), and paid social (37%). These were followed by organic social media (35%) and TV/Radio (34%).

This again shows that ecommerce marketers and retailers want to keep building their audience, and yet they also recognize that both email marketing and organic social media are long-term strategies. To counter that, they’re willing to invest in paid ads and paid social as these approaches offer scalability and usually result in an instant conversion, AKA sale. 

Summary

According to Euromonitor, the global inflation rate is forecasted to reach 7.9% in 2022. And as we learned from this study, retailers and ecommerce business owners are already experiencing it firsthand.

While the chain reaction leads to increased prices that, unfortunately, consumers have to bear, not all seems to be lost.

Retailers are already rethinking their strategies, focusing on marketing channels that let them build an audience long-term and offset it with the ones that provide instant return on ad spend.

At the same time, the majority of businesses see that their customers’ experience is the key factor that’ll help them succeed in the long run.

Both the consumer- and marketing-side of us sees this as a positive trend, and one we recommend, even after inflation will finally (hopefully) drop.

Methodology

In July 2022, we conducted a multiple-choice study that surveyed 500 retailers and online store owners located in the U.S.

The respondents identified themselves as C-Level Executives (23%), Owner or Partner (69%), or President/CEO/Chairman (8%).

Half (50%) of the study participants said they sell their products both online and offline. Online-only retailers accounted for 43% of the participants. The last group was the offline-only, of whom there were 7%.

The following table represents the segments in which the survey participants operated.

Note: one respondent could choose more than one category.