You’re not imagining it — online discounts are getting stingier

Black Friday is just 66 days away. The retail extravaganza — which has mutated into an 11-day orgy of cash outlay and cardboard shipping boxes — kickstarts a season of spending, and retailers like Amazon make big bucks. 

Last year the world’s biggest online retailer sold more than a billion items, according to its Black Friday postmortem, with hundreds of millions more sold on specialized days in early October that Amazon calls Big Deal Days.

But before you click “Add to basket” at any retailer this shopping season, it’s worth looking twice at the price you’ll pay. The Fed may have finally reined in inflation, but there’s another way things are getting more expensive: Steep online discounts aren’t as sweet as they used to be.

The average discount offered by online retailers in the US is down to 36% so far this year, data from Centric Market Intelligence shows. That’s down two percentage points from last year, and down from an average of 42% in 2019 — a 14% drop in real terms.

Finding a bargain is getting tougher for a variety of reasons, according to retail experts who spoke with Sherwood. Sellers are having to pay more for raw materials, and they’re shelling out more in customer-acquisition costs to get you to order from them. Fulfilling online orders is also generally more expensive than selling items in person. All these add up to increased costs that make it harder to offer discounts. 

Redditors have recently lamented the capping of Shein discounts for certain items, while additional discounts for using preferred payment options have been discontinued. They’ve also mourned the shrinking size of McDonald’s coupon books (though the McDonald’s app continues to serve meal deals and discounts to customers as the company looks to dig itself out of a hole).

Those complaints don’t come from nowhere. Not only has the average discount on items gotten smaller, but the proportion of products on sale online has also dropped, Centric data shows. In 2019, 42% of all stock was discounted in some way. According to this year’s data through July, just 28% of items are discounted.

There is an important caveat to note: the biggest discounts come at the tail end of the year, enticing you into spending big around Thanksgiving and ahead of Christmas. Case in point: November through December 2023 saw nearly half of items stocked on retailers’ websites discounted in some form. That immediately dropped to 28% of items when January 1, 2024, rolled around. (What comparatively little remains on sale is still steeply discounted, though, by an average of 38% in December 2023 and 39% in January 2024.)

In part, consumers’ tendency to shop online, which was stoked by necessity during Covid, is to blame, said Miya Knights, an independent retail expert. American shoppers spent $291 billion online in the second quarter of this year, the Department of Commerce found, accounting for 16 cents in every dollar spent on retail. E-commerce’s share of total retail sales is up by an average of 8.6% in the past year. Prepandemic, online retail accounted for 11 cents in every dollar spent.

“What has happened in concert with our increased appetite for shopping online is that the costs of operating online have increased as well,” Knights said. It’s three to four times more expensive to service customers online than in-store, she said, because of the cost of individually fulfilling purchases from warehouses, as well as the financial burden of missed deliveries and processing returns of unwanted goods.

Customer-acquisition costs have also skyrocketed for online brands as a result of the pandemic-related shift to online shopping: more brands entered the online ad space, pushing up the price to appear at the top of search terms. 

“All these costs went up because they had a captive audience,” Knights said. “It’s like if you have the only billboard in town.” Knights said customer-acquisition costs went up 30% to 40% compared to prepandemic levels, and the closure of physical stores is increasing online competition.

“Retailers have been forced to look really, really hard at how they maintain margins online, and one of the best ways to do that is to reduce the amount that they’re giving away in terms of promotions,” she said.

That behavior is also feeding through to online marketplaces like Amazon, where competition for prime placement is also becoming more cutthroat. “It’s likely driven by the need to play with marketplace algorithms while keeping profit margins,” said Ben Graham, a commercial director at a third-party logistics provider for online retailers. “If you dip the price a little bit, then you can win badges and boost visibility without sacrificing too much profit.” 

Retailers are choosing to give prices fine haircuts to boost rankings while not sacrificing too much of their margin, Graham said. “Essentially, the discounts aren’t being used in the traditional way anymore — to incentivize consumers at the point of purchase — but to increase visibility and drive traffic.”

He added that many retailers, and their suppliers, are already being squeezed in an increasingly competitive world. “At the end of the day, a lot of the time it’s a crowded marketplace and prices are already pretty low, so they’re less likely to be able to do a huge discount,” he said.

That puts retailers in a tough position. Consumers have already indicated they’re unable to stomach ever-increasing price hikes. For example, potato chip prices are up 30.6% since the end of 2020, leading many to leave them out of their grocery baskets. 

Even discount retailers like Dollar Tree missed analysts’ sales estimates in the second quarter this year, prompting record-low share prices, while manufacturers are turning to shrinkflation — giving you less for the same price — in an attempt to keep rising costs under control in a way that doesn’t materially affect the end price for users. 

Some savvy shoppers are even noticing what Reddit has dubbed “saleflation”: the listing of items as being on sale when they’re in fact the same price the product was just a year or so ago.

And while retailers still want your business online, the perfect blend of business for them is what’s called “omnichannel retailing,” Knights said. “The ideal situation is to have a mix of digital and physical touch points,” she said. “The minute a customer shops with you both online and in-store, they are orders of magnitude more valuable.” The desire to prop up physical retail encourages retailers to focus on both channels to maintain profitability and customer loyalty— meaning steeper discounts may disappear online.

Nevertheless, what discounts do remain will be fast coming around the corner, first with Amazon’s Big Deal Days and then with the wider industry’s involvement in Black Friday and Cyber Monday. But Knights said shoppers need to be savvier in how they approach the retail bonanza. 

“What we’ve seen historically over the last two to three years, in terms of mitigating the increased costs of serving online, is that the promotion starts earlier and gets spread out longer, and so therefore doesn’t need to be as deep,” she said. “It puts the onus on customers to shop around and start looking earlier.”