Adobe Digital Economy Index: eCommerce hits new milestone — Online prices continue to rise

Image source: Adobe Stock / jan_S.

The COVID-19 pandemic created a seismic shift in eCommerce, as consumers spent months avoiding physical stores and going online to buy everything from groceries to fitness equipment. By the end of 2020, the final tally came in at $844 billion, a staggering 42 percent more than consumers had spent online in the year prior.

In 2021, many are keen to understand where the new bar for eCommerce has landed — consumers got comfortable ordering everyday staples online, and many will continue to do so. At the same time, categories like furniture and sporting goods, traditionally shopped in-person, became more digital. And as the eCommerce share of overall retail expanded, higher prices were also observed, driven by demand and pressure on supply chains

Adobe is issuing new data today in advance of the holiday season. Through its Digital Economy Index, Adobe has the only real-time barometer of eCommerce, analyzing over 1 trillion visits to U.S. retail sites and over 100 million product SKUs in 18 categories.

2021 so far

Consumers have spent $541 billion online from January 2021 to August 2021 (8 months), 9 percent more than the comparable period last year and 58 percent more than 2019 — Considering that many were unable to leave their homes in 2020, the year-over-year (YoY) growth highlights the staying power of habits formed during the pandemic.

Retailers are also getting more people to hit ‘buy’ and not abandon their shopping carts: Conversion (percent of visitors who make a purchase) is now 4.1 percent on desktop (up 1 percent) and 1.9 percent on smartphones (up 3.7 percent) in the first eight months of 2021. Shoppers are making larger purchases as well, with average order values seeing a 13 percent increase at $169. And with mobile, despite people spending more time at home, smartphone share-of-revenue is at 41 percent (up 8 percent YoY) while share-of-visits is at 59 percent (up 2 percent YoY) from January to August.

The improvement in these figures is a signal that online shopping experiences have become more refined during the pandemic, becoming stickier for consumers. Adobe is forecasting a major milestone, that even before the big holiday season begins on November 1, consumers will have spent more online than they did in all of 2019 — a year that had netted $575 billion in online spend.

Rising prices

Online growth has meant that eCommerce is now approaching roughly $1 of every $5 spent by consumers (up from $1 of every $6 spent in 2017). As online shopping becomes more ubiquitous, the convenience is also coming at a cost. Prices across the 18 categories tracked by Adobe have been rising for the first time in the history of eCommerce. And while supply chain disruptions have contributed, surging (and durable) consumer demand can create less discounting as retailers look to preserve margin.

For the month of August 2021, online prices are up 3.1 percent YoY and up 0.1 percent month-over-month (MoM). In the month prior (July 2021), online prices were up 3.1 percent YoY and down 0.7 percent MoM. This is the 15th consecutive month where online prices have risen on an annual basis. Consider that as a historical benchmark, from 2015 to 2019, online prices fell 3.9 percent on average each year.

In the 18 categories tracked by the Adobe Digital Economy Index, all but one (books) saw higher prices in August 2021 when compared to a pre-pandemic period (2015-2019 average). Notably, apparel prices have been elevated in both July (up 15.3 percent) and August (up 15.5 percent). This category is cyclical in nature, with predictable peaks and troughs. And historically, July and August see the greatest price drops, with heavy promotions for the back-to-school season and mark downs of summer items. Online prices for apparel have even begun to outpace the Consumer Price Index (CPI) in recent months, which captures offline prices.

Medical equipment and supplies, which typically saw prices fall 1.1 percent on average before the pandemic, rose by 3.2 percent in August 2021. It is another category that is outpacing the CPI and is driven in part by the recent COVID-19 Delta variant surge. Mask sales online for instance, which had been in decline since May 2021, jumped 24 percent in the last week of July 2021 (7/21-7/27). Sales were then up 51 percent in the week after (7/28-8/3) and up 40 percent in the week after that (8/4-8/10).

Furniture and bedding, which typically saw prices fall 2.58 percent on average before the pandemic, rose by a higher amount (2.60 percent) in August 2021. This is a category where historically, much of the shopping happened inside of a store. Consumers are now becoming more comfortable ordering furniture online, with higher sticker prices that make a significant contribution to eCommerce’s growing share of retail. This also makes a 2.6 percent price increase even more notable. Appliances are seeing a similar trajectory, with prices up 2 percent in August compared to a pre-pandemic period where prices typically fell 2.7 percent.

“In addition to notable categories such as apparel and home furnishings, consumers continue to see prices rise online for everyday goods such as groceries, pet products, and personal care,” says Vivek Pandya, lead analyst, Adobe Digital Insights. “As we hit this upcoming milestone for eCommerce, where all of 2019 spend will be observed before the holiday season, we are entering new territory where the dynamics of the online world has greater implications for consumers, policymakers, and business leaders. Categories that once had a minor presence in eCommerce are now becoming staples, with unprecedented pricing trends that no longer hold down overall inflation.”

Methodology: The Adobe Digital Economy Index offers the most comprehensive set of insights of its kind, based on analysis through Adobe Analytics that covers over one trillion visits to U.S. retail sites and over 100 million SKUs — more than any other technology company. Analysis is significantly more in-depth and accurate compared to survey-based reports, because only Adobe has access to this volume of real-time, transactional consumer data. It is aggregated and anonymized, to provide insights on consumer spending, online prices and 18 product categories.

To measure online inflation, the Adobe Digital Economy Index uses the Fisher Price Index to track prices in the world of eCommerce. The Fisher Ideal Price Index uses quantities of matched products purchased in the current period (month) and a previous period (previous month) to calculate the price changes by category. Adobe’s analysis is weighted by the real quantities of the products purchased in the two adjacent months. Adobe uses a combination of Machine Learning and manual effort to categorize the products into the categories defined by the CPI manual. The methodology was first developed alongside Austan Goolsbee and Pete Klenow.