High inflation leads to consumption downgrade, and Americans flock to the Internet to buy low-priced goods

According to foreign media reports, the continued rise in inflation in the past two years has caused many American consumers to bid farewell to high-end goods and turn to cheaper alternatives. New research from Adobe Analytics explains this trend in online shopping.

Across all 11 e-commerce categories tracked by Adobe Analytics, lower-priced items gradually gained market share while higher-priced items lost share from January 2019 to February 2023. The trend is occurring even as inflation continues to cool from a 41-year high hit in the middle of last year.

"As inflation hits consumer purchasing power. Consumers are turning to cheaper products offered by online marketplaces," said Vivek Pandya, principal analyst at Adobe Digital Insights.

Prices for everything from meat to fruit to eggs have soared over the past two years. In online groceries, the most expensive tier 1 products have fallen from 24.5% of the market in January 2019 to 9% now. But the market share of the cheapest grocery products has grown by 13 percentage points to nearly half the market, Adobe said.

"Americans have had to downgrade and give up certain premium products in favor of cheaper ones. In grocery stores, this is reflected in people switching from organic to non-organic fruit," said Vivek Pandya.

The cost of food at home has increased 10.2 per cent over the past 12 months, according to the government's February Consumer Price Index inflation report.

The shift away from expensive items is one of the reasons why discount food retailers are the fastest growing in the U.S., according to a Tufts University study released earlier this year. Discount supermarkets like Aldi have seen stronger growth in recent years.

Beyond food, online shoppers are also trading down on big-ticket electronics, with the market share of the cheapest items surging to 39% from 25% in the past two years, according to Adobe data.

"In 2020, consumers were flush with stimulus money and savings. Now they are much more constrained," said Vivek Pandya.

Data from Adobe also shows that in January 2019, the most expensive first-tier clothing accounted for about one-fifth of the market, but now, it accounts for only one-tenth. Even expensive toys have taken a back seat. The most expensive online toy tier has risen from 25% of the market four years ago to 13% today.

In January 2019, expensive personal care products accounted for 31% of the market, but in February of this year, these higher-priced personal care products accounted for only 7% of the market. In contrast, cheaper personal care products doubled their market share during this period to 54%.

"It's clear that retailers are dealing with a very price-conscious consumer, and it will take some time for the U.S. consumer to unlearn that behavior given the economic pressures they are facing," added Vivek Pandya.

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