How is the cost of living crisis impacting online retail?

It feels like we can’t seem to catch a break. As if over two years of a pandemic wasn’t enough to contend with, we’ve now got a cost of living crisis looming over our shoulders.

This has a knock-on impact for consumer spending and businesses across a range of industries. More and more people are starting to re-prioritize their spending and asking themselves: can I live without it?

In this blog, we explore how the cost of living is impacting online retail and what consumers are looking for from brands. 

Online shopping: glimpses of a slow down

Online retailers were clear winners during the pandemic as lockdowns forced consumers to shift how they shop. But with Covid becoming something we increasingly learn to live with and the cost of living crisis ramping up, what direction could online shopping take?

While the answer isn’t so clear cut yet, we’re seeing signs of its growth slowing down.

Using GWI Core, the number of consumers globally who say they’ve purchased a product or service online in the last week has declined slightly by 3% since Q4 2021, when up until this point it was consistently ticking upward. While this is not a huge fall, it could be a sign that more instability is on the horizon. 

This is echoed in Mastercard’s SpendingPulse report from May, where it found e-commerce transactions have dropped. ONS data also revealed that UK online retail sales declined during May. Meanwhile, ecommerce powerhouse, Amazon, recorded its slowest-ever growth in the first quarter of this year. 

Many consumers have still embraced online shopping with open arms. Across 6 markets, 25% say their online shopping behavior has increased over the past year and 20% expect it to increase further in the future. 

At the same time, 15% say it’s declined compared to 12 months ago, and a further 12% expect it to decline even more down the line – signaling some people look set to pare back. Generally though, the majority expect their online shopping behaviors to stay the same. 

For the declines we’re seeing, there’s likely a combination of factors at play. Some consumers are returning more to physical stores, which can have a knock-on effect on online sales. At the same time, the cost of living crisis is forcing many consumers to re-prioritize their spending, as the cost of essentials like food and fuel go up. 

Discretionary buys, which are more likely to be online, look set to be first on the chopping block. In the US, for example, the number of consumers who say they’ve purchased clothing online in the last month has dropped by 12% since Q3 2021 when it reached a peak. 

At the same time, purchases of essentials like groceries online have ticked upward by 8% during this timeframe. Consumers might still be making changes to their grocery behaviors, like spending less when they shop or making smart product swaps, but we can expect to see essential categories have greater stickiness than others.

For brands and retailers, it’s important to use online retail to their advantage. Primark, a retailer who has traditionally steered clear of an online offering, is trialing a click-and-collect service across select stores in the UK. It’s a good example of meeting consumers where they’re at and creating more purchase touchpoints. 

Discount stores and own-label brands are in

Pretty much all consumers say they’re feeling more price-conscious to some degree. The majority of consumers also say the current cost of living has increased compared to 6 months ago.

As inflation continues to bite, some people are naturally more laser-focused on value and getting the biggest bang for their buck.

Consumers are turning more to discount or dollar stores, with the number of Americans saying they visit one often increasing by 9% since Q2 2020. 

Many retailers are starting to respond. Nordstrom Rack is expanding its off-price stores in the US, and leaning into its selling point: luxury brands at great prices. 

In the UK, supermarkets like Sainsbury’s and Iceland are leaning more heavily into value. Sainsbury’s recently added its 20 highest volume lines to its Aldi Price Match campaign, while Iceland sold three essential products for 1p in a limited online-only offer. 

Considering food or groceries is the top category consumers say they’re most price-conscious about (59%), these kinds of campaigns are likely to land well as people prioritize essentials. 

Own-label products could be something consumers start to consider more in a bid to cut costs. Using GWI USA, the number of US shoppers who say they buy own-label products has increased by 6% since Q2 2020. 

And across France, Germany, Spain and the UK, close to 70% say they buy own-label products often, with staples like dry goods (e.g. cooking oil, pasta, etc.) and baked items increasing the most since Q3 2021. 

This could increase even further as consumers make more money-saving swaps. In the UK, Boots has frozen prices on 1,500 own-label products until the end of 2022. While in the US, Kroger, Walmart, and Target indicated that shoppers are trading down to store brands. 

Many consumers also plan to jump on Amazon’s Prime Day to nab some bargains. Across 5 markets, 44% say they plan to purchase during the event, with household products and electronics top of their list. Some consumers might use this as an opportunity to pick up a tech product they’ve had their eye on at a discount or nab some gifts for loved ones. Either way, anything that allows consumers to save a few bucks is sure to grab their attention.

The secondhand clothing market picks up speed

The pre-owned market has shifted from charity shops and thrifting, to online retail and resale platforms. And it’s big business. The global secondhand apparel market is projected to grow by 127% by 2026, three times faster than the global apparel market overall, according to the tenth annual ‘Resale Report’ from online resale store ThredUp.

Purchasing secondhand items is one of the fastest-growing online activities we track, increasing by 12% among Gen Z globally since Q1 2021. 

In the US, a quarter of Gen Z say they’re comfortable buying pre-owned items rather than new ones. This remains relatively high among older generations too, with just over a fifth of baby boomers saying the same.

While buying secondhand is a massive opportunity to live more sustainable lifestyles, it’s also something that could cut costs too. 

In France and the UK, 25% and 20% of consumers say they plan to buy secondhand clothing to cut costs – the highest figures of all 9 markets tracked. 

For consumers looking to reduce their environmental impact, the shift from buying new to pre-owned is a manageable lifestyle change, while still satisfying their needs in a more cost-effective way. 

More brands are tapping into this resale phenomenon to match consumer demand. ThredUp recently launched Recommerce 100, an index that tracks which brands and retailers have resale programs. As of March 2022, the tracker recorded 41 fashion shops who have a resale offering, and more are sure to follow suit.

Key takeaways

The cost of living crisis casts a shadow over online retail

Even though online shopping is still on the agenda, we’re seeing early signs that its Covid-induced boom might be wavering. Some categories will be hit harder than others – think discretionary purchases like large household goods or clothes.  

Consumers have value on their mind

As the cost of everything from food to fuel rises, consumers are leaning more toward brands and retailers that have value at their core. Expect to see discount stores and own-brand labels continue to nab consumers’ dollars.

Pre-owned clothing is getting more love

Buying secondhand clothing is one of the fastest-growing online activities for Gen Z. Not only is pre-loved clothing better for the planet, it’s better for consumers’ wallets too. Resale and rental fashion is set to go from strength to strength.