5 Trends in Online Retail from 2016
By Andy Mulcahy - Editor at IMRG
2016 has been quite a year – featuring plenty of twists, turns and referendums (‘referenda’ even, some would claim).
Of course, every year there are a slew of annual reviews, all claiming it has been ‘quite a year’. But there’s no denying that 2016 really felt like a year in which some really seismic, epoch-determining developments kicked into gear – leaving a strong sense that there are some pretty profound changes coming down the line for how online retail works, even if we don’t quite understand what some of them actually mean yet.
Here are five examples of such changes.
1. The B word
There’s no getting away from it, as obvious a choice as it may be, but in case you haven’t heard the UK voted to leave the EU in June. And since then the whole process and what it means has become crystal clear. Or something.
The great cliché that has emerged in relation to Brexit is that it has brought uncertainty, which introduces complications for businesses around planning and investment. Be that as it may, it doesn’t mean that new trends and patterns haven’t already emerged and been identified as a direct result of the vote to leave (see our report from October - Brexit and online retail – what do we know so far?).
The main impact of Brexit to date has been the devaluation of sterling, which fell sharply in the days following the referendum. A lot of the trends that have emerged are directly related to that:
- In July, the month following Brexit, cross-border order volumes hit a record high for that month and have remained at a higher-than-expected rate since;
- The average order values for cross-border orders fell due to prices suddenly being a lot more attractive;
- There was an increase in the number of international visitors to retailers’ .co.uk sites, so they could pay in sterling and benefit from favourable exchange rates; and
- Non-EU destinations accounted for a greater share of cross-border online orders in September, whereas the higher share is usually dispatched to within the EU – this may be explained by the dollar gaining more than the euro against sterling following Brexit.
All logical enough when you think about it. So is it all set to continue in that same direction?
Well, maybe. There are elections due in France, Germany and Netherlands in 2017, none of which are dead-certs for the business-as-usual outcomes. In fact, should the fates align on the results of them, the survival of the EU as an institution could be in peril. And don’t forget we’ve a Trump presidency to, erm, ‘experience’. The pound may gain again by default if there is sufficient turmoil to come in other markets. Or not, of course, should it be relative plain-sailing.
Maybe they are on to something with this uncertainty lark.
2. AI became a bit more real
Artificial intelligence (AI) is hardly a new concept. It’s been a mainstay of science fiction for decades and usually tries to exterminate the human race in some capacity. All good and well when it only seems to exist in fictional outputs (films, novels etc), but in 2016 in a number of ways it started to seem a bit more real.
So it’s not a new concept, neither is it a new addition to how things work, depending on how you define what qualifies as being AI. There are the systems that are very overtly and unquestionably AI (IBM’s Watson), but then there are the types of system that run transport (automated flight control, driverless cars), process information streams in stock exchanges, or decide what to show you on a retail site based on your behaviour.
A lot of this stuff happens without most people realising things around them are being automated, however. In 2016 there were two notable AI developments associated with retail – and the thing with retail is it very much engages with the public on a mass scale, with AI suddenly being very present in people’s living rooms.
Voice-activated services (Apple’s Siri for example) have been around for a while, but now we are actively being encouraged to speak to numerous devices around our home (such as Amazon’s Echo) where we are very clearly having conversations with robots. Which is exactly what seems set to happen with various customer service operations, as chatbots really became a big talking (chatting?) point this year, with several major retailers indicating interest in it.
Whether you think it’s great or feel a little anxious about it, you’d better get used to it. Now, of course, I wonder if I’ll regret writing this blog as I’ve provided some clever AI programme with fodder to learn and ultimately replace me.
Nah, it’ll be fine (they don’t get sarcasm, right?).
3. Online sales were somewhat buoyant
Brexit, uncertainty, populist rebellions, inflation etc. It was a year in which we’ve been constantly warned (not to mention occasionally threatened) on impending economic crises. If this was circa 2009, all the negative information may have caused people to tighten their belts somewhat in anticipation – but eight years into austerity, has its capacity to affect spending behaviour become slightly stifled? Has economic crisis become shorthand for business-as-usual?
Perhaps, if you look at the online retail sales data for 2016. At the start of the year things were looking fairly unremarkable – with +12% growth recorded for 2015, we expected growth to be slightly lower at +11% for this year. Fast-forward to October 2016 and we had to revise our forecast up to +15%, following month after month of higher-than-expected growth. Even Brexit didn’t dent it – in Q3 2016, the period directly after the vote, we recorded the highest quarterly growth (+17%) since Q1 2014.
There’s a few things that might be driving this. One could be that 17 million people voted for Brexit, so might be feeling fairly bullish about future prospects despite the economic warnings. Another might be the looming inflation that may start to bite in 2017 encouraging people to make purchases now.
Or, could it be smartphones driving it? Check out this sequence of annual growth rates from our sales index:
- 2010: +18%
- 2011: +16%
- 2012: +14%
- 2013: +16%
- 2014: +14%
- 2015: +12%
It represents a consistent pattern of gradual decline, except for one year – 2013 – when it jumped back up again, which may well have been boosted by a big rise in the penetration of online sales made through tablet and smartphone devices (which reached 26% of total online sales that year, largely driven by tablets).
So previously when a device has started to account for a significant share of spend, it has pushed overall growth levels up. Over the past year to 18 months, smartphones have evolved from being a key part of retail in terms of carrying out research, to genuine purchasing devices – in October 2016, they accounted for 51% of mobile device sales (tablets are the other 49%). That’s the first time smartphones have accounted for a higher share, and it’s up from 32% a year earlier.
4. Fulfilment got faster
Same-day actually arrived in the UK in 2015, but realistically not every retailer has the distribution capability to support that easily. This year we’ve seen a pretty clear trend toward many online retailers promoting next-day delivery quite heavily on their homepages – often for free, provided the customer spends over a certain threshold.
A fairly logical outcome of this is more people selecting it as their fulfilment option, and the data we track reflects a notable shift. In August this year, the percentage of orders using next-day (36.7%) was higher than those using economy (33.8%).
There is only one direction of travel (sorry) – can you imagine a situation in which delivery speeds slow down again? Not really.
What’s quite interesting about this drive (sorry again) toward ever-faster fulfilment is that our annual UK Consumer Home Delivery Review 2016 (which is supported by Blackbay) has consistently shown that people are more concerned with knowing exactly when their order is due to arrive, rather than how fast it can get there.
I guess it’s the old Henry Ford classic on not asking what people actually want – if he did they would have just asked for faster horses, he is reputed to have said.
5. A split investment focus
On a slightly more technical, but important nonetheless, point – we tracked a notable disparity between online sales growth rates for multichannel and online-only retailers.
It’s complicated, but in a nutshell the online-only retailers seemed to be performing far better and the main reason appeared to be linked to investment. While the multichannel retailers had generally needed to direct investment toward enhancing their growing click & collect operations, online-only retailers could look to third-party solutions (if required), so were not under the same level of pressure.
Instead there was a greater tendency for them to focus on optimising their mobile offering at a time when smartphones were becoming far more important as sales channels – with the obvious outcome that they drove greater sales growth through those devices.
But – that doesn’t appear to be the end of the story. For the past two months in 2016 for which we have data in (October and November), this trend had been reversed with multichannel retailers recording higher growth; ahead by a full 10 percentage points in November no less.
So what does that mean for 2017? That’s a topic for another article.