Booming shopping apps Temu and Shein trigger surge in digital ad costs, pressure ecom pureplays | Mi3

Acquisition pullback

Looming US elections are behind some of that ad price inflation as campaigns buy up space. “And then these new shopping apps are buying up a tonne of inventory – driving up costs for what’s left.”

As such, she said, “It’s really hard to get in front of the right customer. So we’re seeing retailers refocus their efforts on loyalty programs, doubling down on loyal shoppers versus the efforts to build out an expensive and aggressive customer acquisition channel.”

The problem is, belt tightening across the board challenges those economics. Per Salesforce’s data, only 15 per cent of consumers are not actively trading down. “They are still buying with abandon. But 85 per cent say they are making these big changes [in what they will buy and how much they will pay],” said Schwartz.

She added that disposable income priorities have flipped. “Last year, the priority order was physical goods, then experiences, then savings. This year, it’s completely switched to savings, then physical goods, then experiences.” (Prioritising savings includes paying down debt.)

Which means shoppers are still hunting cheaper good – with Schwartz pointing to Walmart’s increasing capture of higher earners in its delivery business as another key indicator of overall belt tightening.

“Retailers and brands are having to react to a very price-conscious shopper. They are very much looking for discounts and free shipping and are willing to trade down on quality.”

Which in turn pushes the volume end of the market towards the new-breed cheap marketplace apps, creating a vicious circle. So what’s the antidote?

“I’m not sure anyone’s figured it out yet,” said Schwartz. “But we’re seeing some big retailers adjusting to price sensitivity – Target just announced that they’re cutting prices on 5,000 SKUs for their brand. So we’re seeing some real time reaction to the fact that consumers are leaning into these apps.”

That may create higher discounting pressure ahead of the December quarter online sales events and critical Christmas period.