It’s no surprise that retail and consumer behaviour have changed dramatically over the past year-plus. These changes have led to major impacts, such as the rise in the average selling price (ASP), and the separation of dollar sales and unit sales in most general merchandise industries. As soon as the pandemic hit Canada in March 2020, the ASP in total retail, as tracked by NPD, increased by 19%, while unit sales declined by -40% for that month. That trend has continued. In the 12 months ending June 2021, the ASP increased by 8%, while unit sales declined by -2%.
Overall, there are four main drivers of this change:
- Consumer demand
- Shift in promotional activity
- Product mix
- Consumers trading up
Additionally, Canadian consumers have saved more money during the pandemic, leading them to feel more confident in trading up. Our latest data shows 47% of Canadian consumers have either actively saved more money or saved more money due to the lack of experiential spending during the pandemic.
Through a granular lens, we can identify that what drove the dollar and unit separation varied dramatically by industry and even by category. Let’s look at how pricing has changed across the industries tracked by The NPD Group in Canada.
Toys and Video Games
Year to date, the toy industry ASP is up 4% from the same time a year ago. Only price points over $30 grew compared to 1H 2020. Sales of building sets, dolls, and electronic toys over $30 drove most of the increase, with higher-priced fashion dolls selling rather than lower-priced playset dolls, and higher-piece count building sets growing. Interestingly, outdoor and sports toys, which saw huge price increases last year as households bought playground equipment for at-home outdoor play, have seen prices retreat; sales of items over $100 are flat to last year.
Pricing has increased significantly within the video game industry. Over the first six months of 2020, the ASP increased by 27%. However, when we look closer at this trend, it becomes clear that the increase in pricing was driven entirely by the launch of new, higher-priced hardware systems in the fall of 2020.
The increase in the technology industry ASP exists at the total industry level and within many categories. One of the largest factors driving the increase at the industry level is consumer spending shifting into high-ticket categories. Products such as notebooks, TVs, and tablets have seen tremendous growth in the last year-plus. These categories represent some of the most-expensive items we track at NPD. Within categories, we have also seen spending shift into more expensive products. In some categories, this means larger-sized items. In others, it could be products with improved specifications. It’s also worth noting that many technology products became necessities as consumers adapted to working and learning from home. As a result, consumers have become less sensitive to discount pricing. Put quite simply, if they need the product, they are more inclined to purchase it because it’s available rather than because it’s on sale.
This trend is also apparent in the B2B technology space, where component shortages have been well documented throughout the pandemic. This has led to a higher ASP in the notebook category. Windows-based notebook computers have increased in price by 8% over the last year and 10% over the three months ending June 2021. The Chromebook market has experienced similar increases, growing 7% over the latest 12 months and 11% over the latest three months. This trend is expected to continue throughout the back half the of the year and into early 2022.
Prior to the pandemic, apparel dollar sales were modestly increasing, a trend driven by the increase in ASP and not unit sales. When the pandemic hit in March 2020, the ASP for the apparel industry dropped by -1.5%, and it wasn’t until May 2021 that we saw the ASP return to pre-pandemic levels. The change in trend was not related to discounting, as promotional units had the steepest decline and non-promotional units increased by 4 points, representing 54% of the unit sales for the industry. What did contribute to the pricing trend shift was the product mix consumers bought. Casual everyday fashion and social fashion declined in unit importance as consumers pulled back on purchases. Yet the importance of basics and athleisure increased, and within these markets, the ASP continued to rise. In the six months ending June 2021, the ASP for the apparel industry returned to pre-pandemic highs, increasing 5% over the previous year. Non-promotional apparel remains the driver in 2021, as 56% of the units sold were at regular price. As for those challenged markets that drove the mix change, casual everyday fashion and social fashion unit sales have also returned to growth, and the ASP has increased as consumers have returned to these markets.
In 2020, the Canadian beauty industry saw more promotional weeks than ever before, with a range of 30 – 40% of product units sold at a discount. Promotional activity is on the rise both online and at brick-and-mortar locations, which in turn has had a strong impact on pricing. The online channel is generally more promotional, but the story changes by category. For example, makeup is more promotional online, while fragrance is not as heavily promoted overall. This may be a contributing factor as we look to recovery. During 1H 2021, the skincare category saw units increase compared to two years ago, but ASP declined -16%. In the fragrance category, on the other hand, units are down -9% compared to two years ago, while average price is up 15%.
It’s no surprise that the home industry has been positively impacted by the ongoing stay-at-home trend that began in March 2020. Within the small appliances industry, over 75% of the 89 subcategories we track increased over the last 12 months. And over 25% of categories saw an increase greater than 10% over the last year. Changes in average prices were due to multiple factors, including innovation, premium brands developing into new categories, and changes in promotional activity over the last year. As a result of the shift in ASP, we have seen the premium segment increase in importance across all three small appliance segments. Pricing of personal care items as also grew: The ASP for handheld massagers grew 118%, and for flatirons and straighteners, the increase was 26%. ASPs also increased significantly in kitchen items, such as electric woks (+46%), toaster ovens (+33%), multi cookers (+33%), specialty drink makers (+28%), and electric grills (+22%).
Foodservice has arguably been one of the hardest-hit industries in Canada since the beginning of the pandemic. However, there is no obvious indication that pricing in foodservice is rising. Despite reports about rising food prices, strained supply chains, and increased operating costs, our CREST foodservice industry tracker indicates COVID-19 did not have an impact on the average spend per restaurant occasion in the 12 months ending June 2021. Instead, any changes in average spend are a result of a shift in consumption behaviours brought on by the pandemic, rather than changes in prices. For example, a shift in visits from full-service restaurants to quick-service restaurants has had a downward influence on average spend. Meanwhile, the changes in average spend, filtered by individual menu items, has remained within the usual range of anticipated annual price increases. All told, the net effect on average spend has been relatively flat over the past 18 months.
One area of pricing that we are watching closely is the ever-increasing rate of promotion activity. The dealing rate has risen by 5 points since pre-pandemic levels and now approaches 30%. This marketing tool is increasingly used to drive traffic to restaurants and clicks to mobile apps. It could also indicate a rise in price sensitivity among consumers who may face economic challenges.
Restaurant pricing tends to be a lagging inflationary indicator. Operators secure the supply and pricing of key menu items many months in advance to shield them against the inevitable variability of the food supply chain. Plus, operators may be hesitant to change prices at this time, just as guests are beginning to return to their restaurants. If the rising costs mentioned above hold true for an extended period, then we may have a different discussion about restaurant pricing in the months ahead.
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