Online retail hit by fall in consumer confidence
Recent months have seen e-commerce firms discover that they are far from immune to the same pressures that have led to a high street crunch in the UK. According to the most recent data, while sales saw a positive bounce in June, online stores have had to discount heavily to foster this impact, the sustainability of which remains to be seen in the long-term.
UK retail continues to face uncertain conditions – Brexit anxiety and stagnant wages have hit consumer spending hard – while digital disruption has rocked the traditional brick-and-mortar retailers of old. The British high street subsequently saw record numbers of closures last year, largely due to a reduction in openings, as risk in the sector continues to be high. When talking about the decline of the traditional retail scene, e-commerce is often brought up as the key driver in this process.
According to a recent study by AlixPartners, traditional retailers saw sales volume and value stabilise at the start of 2019, enjoying growth of 4%. However, while this might represent hope for bricks-and-mortar retailers, their figures paled in comparison to non-store retailers, who saw heightened expansion of 15% in the same period. Indeed, over the duration of 2018, while a miscellaneous group of stores enjoyed 7% in February, online sales for the segment skyrocketed by 32.3%.
That by no means makes online retail untouchable, however. Sales saw a disappointing May 2019, with the sector hit by the worst growth on record. While the latest IMRG Capgemini eRetail Sales Index confirms that June saw 8.5% sales growth year-on-year, representing the strongest growth so far this year, the momentary hiccup shows that online retailers are still vulnerable to the same pressures as the rest of the market.
Speaking to the Retail Gazette, IMRG Insight Director Andy Mulcahy said June’s overall positive growth could be interpreted as “a bounce-back,” ending what has been a “tough” first half of 2019. On a month-on-month basis, June’s online sales were up 5.1% compared to May, driven by good results in both menswear, which saw its strongest performance of 2019 at 31.2%, and womenswear, reversing May’s negative growth to achieve an increase of 3.3% on 2018’s levels.
Clothing in general recorded the highest growth so far this year with a rise of 15.7%, while further category analysis highlighted positive performances for health & beauty and home & garden, witnessing growth of 20.4% and 9.8% respectively. It was not all good news for e-commerce operators though.
While summer’s ferocious heat may have sparked a need for cooler clothing among customers, accessories and footwear notably did not fare as well. Accessories sales declined by 7.4% – their lowest ever June growth – and footwear also fell by a troubling 8.8%. In this context, Mulcahy warned that e-commerce may not be performing as healthily as the figures would suggest. Beyond fashion, meanwhile, there was a negative trend with electrical goods dropping 23% and gifts down 23.4%.
He explained, “The discounting has been heavy so the margins achieved may not be high – online clothing sales were up 15.7%, but the average basket value for clothing was down 25%. That doesn’t suggest shopper confidence is very high. It is the summer sales period now, so end-of-season sales campaigns are in full swing. The key now for retailers is whether they can come out of discounting and maintain a reasonable level of sales growth before we get too close to the Black Friday period. Otherwise we may be in for another difficult peak where the rates of discount are wider and deeper than many retailers would like.”
Consumer spending power
Consumer power has taken a hammering in recent years. Despite GDP growth, the average weekly wage remains lower than pre-financial crisis. While salaries are said to be accelerating at the highest rate in eleven years, average pay sits at £468 a week when adjusted for inflation, or £5 less than the £473 a week recorded in April 2008.
As a result, consumer confidence is flat-lining, with anxiety over stagnant wages and the spiralling cost of living meaning many are reluctant to spend on anything approaching ‘luxury’. As seen with ailing fashion site Asos, which recently issued its third profit warning in a year, this is something which has cost many retailers, offline and online, dearly. Capgemini Principal Consultant Bhavesh Unadkat argued that because of this state of play, June’s positive sales performance should be “considered with a note of caution.”
Unadkat elaborated, “Consumer confidence is down 25% against last year, and the overall performance is masked by weaker comparables in June 2018 and higher discounting activity, indicated by higher conversion rates and lower basket values. The change of tune in June was also not enough to counter the overall quarter performance… The hint of optimism lies with the hope that performance picks up in the second half against weaker comparisons last year.”
