Behind the scenes
Inflation: one in two comparing prices more often
by Alex Hämmerli
Inflation hasn’t hit online retail yet
8.11.2022
Translation: Katherine Martin
The Digitec and Galaxus product range in Switzerland was 2.6 per cent cheaper in September 2022 than in September 2021, with healthy competition in the online retail sector billed as the main reason why. However, some products have become significantly more expensive over the past twelve months, including furniture, swimwear, baggage and Lego sets.
Switzerland is an island of price stability. While we’re seeing an inflation rate of 10 per cent in the Eurozone, the September figure was 3.3 per cent here. Experts quoted in the German magazine Der Spiegel mostly attribute this to the strong Swiss franc, which enables us to import goods cheaply from abroad. A relatively self-reliant electricity sector and a food market separated from the rest of the world have shielded Switzerland from the worst of the global upheavals, keeping inflation in the country slight.
But online retain is dampening the effects of inflation too. In fact, a price analysis of the Digitec Galaxus range showed that the products on the site were actually 2.6 per cent cheaper in September 2022 than in September 2021. Meanwhile, Digiec Galaxus was buying the products at slightly higher prices.
«Swiss online retailers have barely passed on their increased purchasing costs to their customers yet,» says Chief Commercial Officer Hendrik Blijdenstein, who’s responsible for purchasing and sales at Galaxus. This is down to the fierce competition between companies in the sector: «Anyone who raises their prices too high will end up in the sorry situation of having a pile of items they can’t sell,» says Hendrik.
Price transparency across the entire range
The analysis took every product type comprising of over 100 items into account, with examples including cuddly toys, cat food and video cameras. It compared the monthly median sales prices of the same products over a twelve-month period. To illustrate this, let’s take two data points: the price of a Cyborg Hand science kit on 30 September 2021 and 2022. Incidentally, we know this technical, educational toy was purchased at least once on both days. Customers can find the historical data under the «Price trend» tab, which was introduced in the interests of transparency in autumn 2021.
Newly launched products or products that were unavailable at the end of September 2022 were excluded from the scope of the analysis. The following example clearly illustrates why. Galaxus recently introduced high-end cosmetics from La Roche Posay, Vichy and Bioderma to its product range. If they’d been included in the price comparison, we’d see an inflation outlier in the form of face creams and body lotions.
In addition, the analysis obscures the fact that new versions of products are often brought to market, particularly in electronics. Basically, instead of comparing the price of the iPhone 14 to that of the iPhone 13, we compared the price of the same iPhone 13 at two points in time. The price, by the way, has been down since the end of January. However, most of the products sold by Digitec Galaxus don’t change over time – think ink cartridges, USB cables or diapers. So, the effective rate of inflation is likely to be only marginally higher that the minus 2.6 per cent figure.
Flip-flops are boosting inflation
That being said, some product groups have risen sharply in price within a year. This is especially apparent when you cast a glance at Lego sets. In September 2022, the branded building blocks cost 10 per cent more on average than in the previous year (see graphic). Rising prices are just as noticeable in the swimwear range, particularly when it comes to flip-flops and beach shoes. Baggage has also been hit by price increases, as have sports equipment and furniture. «The prices we’re paying to purchase these products have increased at an above-average rate,» says Hendrik.
Rising energy and raw material prices, expensive shipping container transportation costs, high demand and shortages seem to be driving up prices everywhere. Lego, for example, increased the price of its sets for the first time ever, citing rising manufacturing costs. According to industry platform «Kunststoff Information», plastics got 59 per cent more expensive in 2021, with a further 14 per cent increase this year so far. This also explains the explosion in the price of flip-flops and wheel trims.
Producers of furniture and home textiles such as bed linen have used raw material costs to justify raising their prices: «There’s been a stark increase in the prices of cotton, wood and brass,» says Category Business Manager Jennifer Häring. «Not to mention official requirements and regulations such as the Fuel Emissions Trading Act, which put Germany-based manufacturers in particular under pressure.»
Transportation costs for garden lounges have doubled
Jennifer’s colleague David Widmer, who’s part of the team that manages our garden furniture range, adds: «It’s not just the raw material prices that’ve gone up. Freight costs from Asia to Europe have skyrocketed as well.» Since the beginning of 2020, the price per container has risen from around 4,500 to an average of 10,000 francs. David does the maths out loud: «If we get 75 garden lounges in a container, the transportation costs us more than 130 francs per unit, as opposed to the 60 francs per unit we used to pay.» When it comes to small, high-value items such as notebooks and mobile phones, transportation costs have comparatively less impact.
As for swimwear and baggage, the steep rise in holiday bookings is likely to have had a further, major impact on prices: «Brands such as Samsonite and American Tourister have bumped up their prices significantly this year,» says Davide Merz, who’s purchasing and sales portfolio at Galaxus includes baggage. «Because of the high demand, the market has passed on a large portion of these additional costs to customers.»
If you’re not desperate for the latest mobile phone, you’ll get a cheaper deal
Despite all this, there are dozens of products and product groups that have dropped in price within the last twelve months. At product group level, this is particularly true of notebooks and mobile phones, though, as explained above, recently launched devices weren’t taken into account here. The same goes for workstations, graphics cards and webcams that top the rankings. However, one reason why electronics have got cheaper is the drop in demand fuelled by the global economic situation and the waning Covid-19 pandemic. Graphics cards, for example, are available at significantly lower prices again due to overcapacity. In economics, this is referred to as a hog cycle.
Looking at product category level, Digitec Galaxus has become less expensive across the board. Price decreases are less apparent in the «Home + Living» (e.g. sofas, cutlery and lamps) and «Garden + Car» (e.g. deck chairs, lawnmowers and wheel trims) categories.
Ultimately, the question remains as to whether and for how long online retail in Switzerland can avoid the clutches of runaway inflation. «Inflation happens in stages,» says Hendrik. «First, the firms selling raw materials raise their prices. After a while, so do the manufacturers and their suppliers, with the pressure on margins finally forcing retailers to follow suit.» As a result of strong competition and easy price comparison, he adds, this all happens later in online retail than in brick-and-mortar retail. «But the longer inflation lasts, the more often I guess we’ll have to raise our prices too.»
Alex Hämmerli
Senior Public Relations Manager
Alex.Haemmerli@digitecgalaxus.chAt Digitec and Galaxus, I’m in charge of communication with journalists and bloggers. Good stories are my passion – I am always up to date.
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