Best Practices from Renewal Logistics:
How to Offset Inflation as an E-Commerce Seller
In June, inflation reached 9.1%, a 30-year high
The United States annual inflation rate hit a 30-year high of 9.1% in June. This means that prices for consumer goods across the country were, on average, 9.1% higher this June than in June of 2021. Families and individuals have been forced to squeeze every penny to pay for essentials like food, gas, and utilities.
Businesses like retailers and e-commerce sellers are further impacted by a 21-year record in producer price inflation, which hit 11.5% this past March. While this rate did fall slightly to 10.8% in May, producers continue to struggle to cover their business expenses while providing high quality products at affordable prices.
What You Need to Know:
Inflation and E-Commerce
E-commerce companies have flourished during the last several years. Through the 2010s, e-commerce sales grew as more and more consumers became accustomed to using the internet for everyday needs. By 2019, e-commerce sales made up 10% of total retail in the U.S. When the pandemic hit in early 2020 and lockdowns swept the nation, the share of retail sales made online shot up above 16%. Today, e-commerce sales have remained important with consumers now accustomed to finding anything they might need online. In 2022, e-commerce now makes up about 14% of retail.
However, these companies are being hit particularly hard by high inflation and associated economic challenges. Rising gas prices are driving a good deal of the world’s overall inflation troubles. While prices across industries rose an average of 9.1% in the 12 months ending in June, gas prices rose nearly 50%!
Rising gas prices mean more expensive transportation costs for goods and people. With many workers still working from home and some families still avoiding long-distance travel, we may have avoided the worst possible impact. However, e-commerce purchases are still in high-demand – and e-commerce companies are struggling to ship out their goods to meet this demand.
Even more challenging for many e-commerce sellers is the rising cost of inventory purchased from overseas, which also needs to be shipped using pricy gas.
As an, e-commerce seller, you have probably been grappling with a lot of new business questions this year, such as:
- “How can I afford to keep buying inventory with prices rising?”
- “Should I raise my prices?”
- “Will I lose customers if I raise prices?”
- “Are my competitors raising their prices?”
- “How can I afford rent for my facility when my other expenses have increased so much?”
In today’s post we’ll offer you seven tips you can use to offset inflation in your e-commerce operation. Read on to see if these tips might provide relief for you.
Renewal Logistics Advice:
Top Tips to Offset Inflation
The following tips are our recommendations to you. However, no one knows the ins and outs of your own operation like you. As you read through the tips, use a critical mindset to think about whether each tip applies to your industry and the particular set up of your operation.
1. Cut Inefficiencies
This tip can be used to improve your profit margin at any time – not just during periods of economic instability. But if inflation is causing a particularly uncomfortable squeeze on your margins, right now is the time to streamline all of your operations.
E-commerce is a fast-paced industry. Especially with demand so high right now, e-commerce sellers are under great pressure to process orders quickly and have their packages out the door as fast as possible.
Under such conditions, it can be tempting to fall into a disorganized strategy of “Go! Go! Go!” However, you’ll find that you actually save more time by applying a carefully structured and well-thought-out inventory management system. A robust system will also help avoid lost or damaged inventory, which will save you money as well.
Additionally, a great inventory management system helps employees work smarter and more efficiently, which can help avoid burnout and save you from spending on excess work hours.
You can learn more about best practices for efficient inventory management in our recent post on the topic.
2. Spend Less on Rent
Many desk workers were sent home during the pandemic and about 25% of them remain there. While individuals in the workforce and management have varied opinions on the trade offs of remote work and in-person work, one thing is for sure – a remote workforce saves employers money on rent.
As an e-commerce seller, you may not think the opportunities of remote work apply to you or your workers (at least not all of them). But, with warehouse rents at an all-time high, it’s time to consider alternatives.
By outsourcing to a third-party fulfillment partner, you can stop paying rent for good. Most fulfillment partners provide space for all of your inventory in their own warehouses and charge you on a fractional basis. Taking advantage of such a service can save you money on rent, wages, and even on the types of inefficiencies that we mentioned above since fulfillment partners are often highly experienced in inventory management.
Renewal Logistics does offer fulfillment services, which you can learn more about on our site.
3. Review Margins for Each Product
It’s always a good idea to set aside time every quarter or so to review the profit margins for each individual good. With prices changing so rapidly – and not entirely evenly across industries – it is particularly important now.
With rising gas and transportation costs, the costs associated with certain products may have increased a lot more than others. If your business sells a wide variety of different goods, you may be able to offset inflation by shifting away from the goods where costs have risen most significantly and toward goods where costs have remained more stable.
4. Raise Prices
This is the action that most small business retailers are agonizing over the most. On the one hand, it seems risky to raise prices when customers are already struggling with their budgets. But on the other hand, it’s hard to carry on as usual when the costs of your inventory are rising so fast.
While some sectors can benefit more than others by raising prices, the truth is, the majority of business owners are doing it or plan to if inflation continues.
5. Ship at a Lower Cost
Because of high energy costs, shipping is now one of the biggest expenses for small e-commerce retailers. There are a few ways you can offset inflation on your transportation costs.
You can increase shipping costs for farther customers. While we want to offer the same great rates for all customers, it can be quite pricey to move product all the way from one side of the country to the other. If you have a large customer base that lives far from you, you may consider a tiered shipping rate.
Instead of increasing the burden on customers, you may be able to benefit from the type of bulk shipping rates that larger companies receive by partnering with a fulfillment company. Since these companies ship large quantities every day for many clients they often receive a lower rate from carriers.
6. Don’t Lose Money on Last Season’s Inventory With Circularity
The advantages of circularity are twofold. Circularity promotes sustainable practices in retail, which avoids waste and excess pollution. Furthermore, it saves retailers money! When we talk about a “circular economy” we’re talking about goods and materials being constantly reused, recycled, or repurposed. This circular process contrasts to the traditional linear process of production > consumption > waste by replacing the waste phase with reuse.
With profits tight right now, it may be time to pull out unsold product from past seasons and see what you may be able to sell, even if it’s at a discounted cost. A sale you did not expect to make is better than no sale and old product that’s sitting in storage will not result in a sale!
7. Use Automation Where Possible
Automation is a great way to save time and effort on repetitive tasks. In e-commerce, you’ll find opportunities to automate functions like inventory management, order management, customer notification emails, and payroll.
You may want to explore warehouse management software platforms that roll several types of automation up into a single product. While sometimes costly, the organizational benefits of these tools can end up saving you from extra costs – and from pointless headaches!
New to E-Commerce?
Transitioning into E-Commerce During Times of High Inflation
The tips we laid out above are geared toward experienced e-commerce retailers who are having to adjust their processes due to unprecedented inflation. If you are a newcomer to e-commerce or looking to transition from a traditional brick and mortar store, you may find yourself with a whole additional set of challenges to adjust to. If you’d like more general support on beginning in the space we have another guide just for you, which you can find on our blog
Offsetting Inflation for E-Commerce Sellers
Now that you have a few ideas, your next task is to explore the potential benefits for your company and then, to enact them! While inflation is expected to be temporary, it may continue to plague us for at least the rest of the year. However, there’s no need to despair! As the owner of an e-commerce business you have many levers to pull and supports to use to weather the inflation storm.
As always, we encourage our readers and customers to reach out to us to discuss business plans or brainstorm new ideas. We’d love to hear from you!