By Emily Black, Content Executive and Analyst at IMRG
As we near the second quarter of 2022, the geo-political climate around us is changing. The pandemic lockdown comparisons, that have made understanding the regular Year-on-Year (YoY) growth measure (in the IMRG Capgemini Online Retail Index) so difficult will start to ease from around April, but with the cost of living increasing, the Russo-Ukraine crisis, and gas and electricity spikes, will April really signal the light at the end of the tunnel for online retailers?
Here at IMRG, we’ve heard some interesting observations, as well as concerns, from our retail community, with data to back their various claims. In this article, we’ll be focussing on three major trends which might define Q2 of 2022, as we explore how the next quarter of the year could play out under these major social and economic pressures. Our three focuses will lie with the average basket volume (which is rising for the first time since August), Month-on-Month growth (and whether it’s suggesting a return to normal trading patterns, as we recently thought), and growth predictions for the rest of the year (what might the market look like?).
Key trends for Q2, 2022:
Average basket volume
Across most of 2021, the average basket volume (ABV) shot up compared to the same months the year previous, but by August, it had reached its peak. The average spend dropped from almost £150 in August, to under £110 by December, but in January 2022 it began to rise again for the first time. Our February 2022 data shows that this trend has continued, and it may well peak further in March. Reasons for this could be due to inflation, and the rising cost of living, as retailers bump up the prices of their stock, in order to keep up with the increasing costs of supply. We might expect to see continued increases in ABV, as prices are driven upwards by economic factors such as the Russo-Ukraine crisis, rising petrol prices, and inflation reaching its highest rate in 40 years. However, reasons for a potential drop could include people spending less due to this squeeze on personal finances or holding out for discounts even more, but history tells us it is more likely to creep, or even shoot, up at the expense of conversion. We’ll be paying close attention to March’s results at the end of the month, to indicate where the spend might be heading.
Month on Month growth
Month on Month growth is definitely one to watch at the moment, as February showed signs of a return to normal spending patterns, however, this may not last. Whilst February’s MoM growth was at -7.7%—marginally outside the normal range between -3.5% and -5.5% (a minor difference when it comes to growth patterns at times during the pandemic)—we have since heard from many retailers that they’ve seen a drop in spending. Once again, this may be linked to financial fears regarding a market crash, as the result of inflation and European conflict. Whilst retailers seem to be worried about revenue and spending, this drop has not yet produced a significant impact on index growth data, as last month’s results can be considered relatively normal given the circumstances.
Overall market growth for the next quarter
So, with all this uncertainty and turmoil, what might the next few months look like for online retail. Sign up for our Weekly Data Show #94, in order to review our March findings with us, once we have the data from over 200 household name retailers, we’ll be seeing if there really has been a significant drop in revenue and traffic by this point. Our data analysts here at IMRG took a look at the figures back in January, in order to predict what might happen in the year ahead. They ran models of three different scenarios, based on the performance of the market as either ‘average’, ‘good’, or ‘bad’. Our average predictions for March show that the market might come in around -23.4% YoY revenue growth overall, as the high growth rates from the pandemic are still exerting an influence, however, with the current situation, it may be closer to -28.4%.
Then, when we take a look at how the next quarter might play out, the best case scenario shows growth between -6% to +18% as the months progress, whilst the worst case scenario could be -16% to +8%, perhaps where we might end up, if the economy continues to struggle.
The forecast figures for overall growth for the entirety of 2022 came out at +0.3% with average results, 5.3% for a good year, and -4.7% for poor performance. Only time will tell where the next few months will take us in both the UK, and globally.
It seems that with the unstable state of the global economy, and volatile prices for gas, petrol and the cost of living, we’ll be seeing some major shifts in the market in the coming months. Whilst we can conclude that the next few months will be a crucial time for online retail, we spoke to some of the experts within our community, in order to find out how retailers can best prepare for what lies ahead.
“As economies reopened, the omnichannel experience has evolved. It’s no longer purchasing in-store or online. Shoppers have blended the experience to create a journey that personally suits them. This has massive implications for omnichannel retailers optimising the digital shelf to provide access to the information consumers want when they want it through brand pages.” said Vijayanta Gupta, SVP of Growth Strategy at Salsify, summarizing the results of Salsify’s latest consumer research “How to Meet the Demand of Omnichannel Shoppers”, which looked into how online product details and images as well as brand trust, impacts online and in-store purchase decisions.
Barley Laing, the UK Managing Director at Melissa, argues that, “As the pandemic abates it’s not surprising that people are increasingly venturing back to the high street.
“Those e-tailers who will experience significant sustained global growth today and in the future, will be the ones that have clean and accurate customer data. This will help ensure they deliver a strong customer experience, with fast, accurate deliveries, while avoiding costly return to sender scenarios. Such data will also improve the ability of retailers to personalise customer communications, and therefore help drive customer value. Additionally, clean data will aid retailers to gain insight they can use to improve their product range or services.”
Monica Eaton-Cardone, COO and Co-Founder of Chargebacks 911, suggested, “Following the turbulence of the last two years, we expect further acceleration of ecommerce and online retail. However, online retailers must be aware that more sales means more chargebacks, and an overall uptick in online fraud. It is because these are both so damaging to companies and require so much effort to counter effectively, that it is essential that retailers look to the market for help in stopping fraud and successfully dispute chargebacks. This will help them grow revenue at an essential time.”
Matt Furneaux, Director of Location Intelligence, Loqate said that, “It would appear this influx of online shoppers we’ve seen in the past two years could potentially plateau. For this reason, the retailers who will thrive moving forward will undoubtedly be those who have the most accurate view of their customers and do not rely on models from this exceptional period.
Understanding the nature of how a customer behaves boils down to an appreciation that their behaviour isn’t what’s changing, but rather, their behaviour remains consistent, but responses vary depending on the situation. While these two approaches would appear to yield the same result, the former doesn’t allow the retailer space to consider what has brought about those changes.”
Thomas Kasemir, Chief Product Officer at Productsup, observed that, “While the return of in-store shopping is partially responsible for the dip in ecommerce growth, the inability to provide a seamless online shopping experience is also to blame. Most brands and retailers aren’t equipped to manage a strong online presence because their product data is siloed and they’re reliant on manual processes. To sustain long-term growth, they need to radically rethink their ecommerce operations with an entirely new strategy – product-to-consumer (P2C) management. With a P2C strategy, 39% of UK decision-makers feel they’ll be able to develop best practices globally and grow internal ecommerce knowledge.”
Lee Metters, from Awin, says that, “The increased adoption of digital commerce has made it easier for shoppers to discover and try new brands. Online product reviews, relatable influencer recommendations and advances in AI technology have reduced the demand for an in-store experience. Such an unquestionable shift in consumer behaviour cannot be undone. And this is chapter one of the new normal. To ensure sustained growth, retailers will need to work harder to convert and retain customer loyalty in the face of increased competition both on and offline.”
Will Ashton, CEO of Nest Performance, noted that, “Although we saw an acceleration in growth in 2020 and spikes in online sales during national lockdowns, we still see at Nest that the baseline percentage of online sales remains 10% higher than pre-pandemic, which displays a shift in consumer behaviour towards shopping online.
We expect that there will be an economic crunch due to inflation and the rising cost of living, which will lead to a subsequent squeeze on consumer spending. This will likely take effect in the second half of the year and will impact retail in general. This issue could deepen depending on how the crisis in Ukraine unfolds.
That said, it is possible this could result in more people shopping online as they search for the best deals. This will particularly impact mid-priced consumer brands, and I expect consumers to be more price-sensitive and reactive to sales and discounts, especially throughout Q4.”
Jennifer Griffin Smith, Chief Marketing Officer at Brightcove, said: “As we begin to emerge from what has been a turbulent period for the global retail industry, we expect to see retailers offering a more sophisticated digital shopping experience. Gaining the consumer’s attention in a crowded digital space will be key, and we expect to see digital video ads, interactivity, and live ecommerce making gains. As video empowers brands to showcase their products in action, these assets are critical for delivering the new ecommerce experience that consumers seek. Through video, retailers can showcase products in engaging ways, increase cart value and conversion, and ultimately boost online sales.”
Kim Johal, Senior Retail Lead UK&I, at Infobip, said that, “Retail brands that set up digital-only shopping alternatives during the pandemic should now focus on setting up a hybrid experience. The goal is to provide highly personalized, safe, and stress-free experiences that transcend from online to offline – and vice versa. Brands should develop omnichannel communication strategies that enable them to continue conversations from one channel to another. Based on the interactions that took place on our platform during Cyber Week 2021, we see that customers continue to gravitate towards rich, interactive two-way communication with brands. Having an omnichannel communications provider can help you connect all your channels, campaigns, and data in one place – making it easier to personalize and track each interaction.”
Katharine Biggs, Head of Marketing and Communications EMEA, at parcelLab, said that, “With the hybrid working model looking set to remain as we recover from the pandemic, online retailers must embrace flexibility – providing choice to their customers at all stages of the order process. Retailers must offer flexible delivery options as people split their time between home and the office – including the often neglected click and collect option – as well as offering a seamless returns process. With high street stores now reopened and seemingly not set to shut, online shopping experiences need to be even better, but from parcelLab’s recent research we found that surprisingly brands are ending communications with customers following dispatch at higher rates than previous years. Online retailers must strive to improve the whole online experience and create a lasting positive impact in the mind of their customer, encouraging them to shop online rather than on the high street.”