By Emily Black, Content Executive and Analyst at IMRG
It goes without saying that 2022 has been a difficult year for retailers and customers alike. For countless geo-political reasons—including the ongoing war in Ukraine, the cost of living crisis, and the aftermath of the pandemic—it hasn’t exactly been smooth sailing. In order to look ahead and find out what the rest of 2022 might look like for online retail, it’s often useful to analyse the past, to see what trends are emerging, and what this could mean for the rest of the year. From category performance, to conversion rates; online-only retail, to multichannel stores, what are the defining trends of H1 2022, so far?
When looking at category growth in the past three months, the results paint a rather dire picture. In March, the market was still being measured against the ‘pandemic boom’ growth, which is why categories were seeing growth as low as almost -50% Year on Year (YoY), as they couldn’t match that of the lockdowns. In April, this was the first month where the market could be measured against non-pandemic influenced growth, and as we can see, the results were very low. The only area seeing any growth close to a neutral 0% was Clothing, whilst categories such as Home and Garden, and Health and Beauty suffered the worst. By May, growth had improved slightly, but it was still way below 0%, which might currently be considered a ‘good’ post-pandemic result for retailers, and it was negative growth building on negative growth in May 2021. Clothing continued to hold steady growth around 10-20% YoY.
More recently, the market has been showing slight signs of an uplift, but it is marginally positive and still against negative growth from last year. For example, the revenue growth across categories in the second week of June was rather anomalous, as many more categories such as Home, Makeup, Furniture, and Garden joined Clothing in positive growth. Beers, Wines, and Spirits lead the way with over +32% YoY growth. Again though, these are all against negative growth from the same week in 2021.
When looking at the last 16 months of total market growth, we can see this downward trend, particularly between January and March 2022, showing how difficult the start of 2022 has been to understand (given the lockdown influences). If we compare May 2022 with May 2021 however, we can see the extent to which the market has been struggling. May 2021 saw -5.9% negative growth, followed by a further -8.7% negative growth exactly one year later in May 2022. This highlights the impact of the cost of living crisis, as the negative growth in 2022 is even worse than it first appears, dropping further against negative growth from the year before.
When we take a look at average basket volume (ABV), some interesting trends emerge. Whilst there’s a cost of living crisis, and the overall market growth has been down, the average spend per transaction is actually higher this year than it was in 2021, reaching an all-time high of £160. It’s thought that whilst customers may be switching to cheaper options in categories such as groceries and household items (more often, in-person essential shopping experiences), they’re actually spending more in one go online for a few reasons. Reasons for a higher ABV in 2022 could include investing in items which will last longer and need replacing less so they’re spending less in the long run; adding more items to the basket in one go as shoppers are more thoughtful about adding what they need together in one shop; utilising free delivery thresholds, and trying to do less small shops here and there for which they pay delivery.
Moving onto the difference between online-only and multichannel growth in the past two years, some interesting trends have emerged. Multichannel retailers seem to be experiencing a switch from 2021, whereby they’re actually experiencing higher growth than the year before, on average. In May 2022, multichannel growth overtook that of May 2021, after it had previously been far below the pandemic growth of 2021 back in January, February, and March.
Then, when looking at the same data for online-only growth, the opposite is actually true, as 2022 growth has sat below that of 2021, right up until the beginning of June when it switched around—but only time will tell whether this will be sustained, and 2022 online-only growth will continue to outperform that of the year before.
What have we found out about the year so far by looking at our 2022 results? A few conclusions can be made: whilst market growth is drastically down overall, ABV seems to be skyrocketing, reaching several new records already this year; multichannel growth is outperforming itself against last year, whilst online-only is struggling to do the same; and unless you’re a clothing retailer, your growth is likely to be very heavily in the negative.
We spoke to some of the industry experts amongst the IMRG community, to find out what they had observed over the past 6 months, and what they thought this meant for the rest of the year ahead.
Scurri’s CRO, Fergal O’Carroll, said that, “So far this year we have seen a multitude of barriers to effective trade, and little to ease the concerns of retailers moving into the busiest months of the year. With Back to School, Cyber Monday, Black Friday, and seasonal demand just around the corner, retailers should do all they can to keep logistics processes running as smoothly as possible. Given the current climate, optimism is in relatively short supply, but a collective ‘can-do’ approach will definitely help, amid the uncertainty.”
Joelle Hillman, Retail Client Partner at Awin, observed, “Awin tracked over £2billion in revenue across 2,294 UK retail brands. Online shopping has had a rough time (haven’t we all) with lockdown conditions still in place early last year, to the world moving into a state of war and the UK battling with a cost-of-living crisis. Sales were down just -3% YoY, revenue -2% despite the current market conditions, traffic was up +43%. AOV hit £68.10, a 60p increase from H1 2021, that said with prices rising as brands are forced to pass extra costs back to customers we aren’t spending more out of choice. Conversion rate sat at 3.87% Jan-June, with ROI reaching £20.43, publishers continuing to drive one of the strongest ROI’s across the whole digital marketing mix. 56% of retail sales were tracked on a mobile device, 36% of total retail sales had a voucher code used as customers hunt for offers.
Best performing sectors YoY include erotic, electrical entertainment – PC, video games, audio visual, pet, and DIY. A lot of these sectors saw growth over the last 24 months and were cited as ‘lockdown trends’ however it’s clear that purchase behaviour across these sectors has moved online for good. One lockdown trend that hasn’t remained however is alcohol purchases online, down -54% YoY, as well as computer sales -41% and office supplies -34%. Clothing has seen strong growth YoY, with menswear up +28%, womenswear up +24%, and childrenswear up 49% YoY in terms of sales. Sustainable brands are also seeing huge growth YoY, and Awin are seeing more brands enter the digital space, with ‘green’ sales up 25% in 2022 H1.”
Gabriel Hughes, CEO of Metageni, said, “With the inflationary squeeze on consumer spending, it is becoming even more challenging for retailers to reach their sales and marketing KPIs. Retailers are responding by making their own cutbacks. We would urge clients to resist the temptation to cut back on data science and analytics. Flying blind is never a wise move in ecommerce and cutting back on data analytics only increases the risk of being left behind. Data remains key to understanding how to engage with your customers, offering significant long term ROI when applied to areas such as marketing attribution, customer segmentation, and personalisation. The opportunity presented by machine learning to optimise the customer journey remains enormous, even in the current challenging environment.”
Alex Baulf, Senior Director at Avalara, “We’re seeing that many retailers successfully adapted to the Import One Stop Shop (IOSS) this year to report and pay VAT when selling into the EU. In fact, UK businesses report a 94% rise in positive customer feedback and a far simpler export process. At a time when consumers are in the driving seat with regards to where they spend their hard-earned money, increased satisfaction equates to customer loyalty. Yet, many remain tied to older methods or are not aware of IOSS. In the next half of the year, businesses will be looking to sell overseas to drive growth. It is crucial that they embrace IOSS when doing so.”
Nick Williams, Head of Strategic Partners & Product: Parcels at PayPoint suggested, “Global factors such as the shift to hybrid working, the cost of living and rising inflation continue to influence consumer purchasing habits and the way we do our shopping. It’s why it’s never been more important for retailers to not just show a level of adaptability but accessibility – two distinct features that have seen Collect+ retailers go from strength to strength. By offering convenience and reliability, whether it be collections or returns, while providing retailers with an incentive to grow their businesses such as increasing footfall, we’re hopeful that the growth in volumes we’ve seen in the first half of the year will continue throughout 2022.”
Monica Eaton-Cardone, Founder of Chargebacks 911, said that, “The first half of the year has been incredibly tough and turbulent for retailers. First, there has been the slow return to normality from the previous two years. However, we’ve seen the global supply chain crisis which slowed down production and the shipping companies who take their finished goods across the world similarly slowed down their operations in anticipation of much less demand. Now we’re in the middle of a cost-of-living crisis that is likely to get worse throughout the rest of the year with many consumers potentially not looking to spend as they did previously. Retailers must focus on what they can control, including consumer experience, retention and acquisition, as well as mitigating the threat of fraud and chargebacks. It is because these can be so damaging to companies and require so much effort to counter effectively, that retailers must look to the market for the solutions that can help them grow their revenues for the rest of the year.”
Thomas Kasemir, Chief Product Officer at Productsup, suggested, “Consumers will continue to be extremely price-conscious for the remainder of the year, which means they’ll be looking for discounts and using price comparison sites. As a retailer, offering sales and competitive pricing is step one. But more importantly, step two is making that information as prominent as possible across all channels. Pricing information needs to be detailed, with shipping and tax estimates, to avoid angering customers with hidden fees. If shoppers have to look too hard for the total cost, they’ll move on to another retailer. And when spending is down, every purchase matters.”
Gavin Warwick, European Partnership Manager at SmartFreight, noted, “To survive in a sink or swim environment, retailers must deliver a shipping solution that compliments their products. Providing customers the ability to track their parcel in real-time makes for a better experience enhances trust, and encourages repeat and referral business. Continuing port delays. Labour shortages. Global inflation and record-high petrol prices. Even if they dissipate, we don’t expect these and other challenges to disappear in the year’s second half. These will continue to strain final-mile shipping budgets in the face of growing e-commerce sales. So it will be more critical than ever for retailers to optimise their shipping to control costs, reduce time in transit, and manage returns utilising TMS made specifically for the final mile.”
Jamie Saucedo, Senior VP of Business Operations at PFS, said, “Similar to clothing brands, many of the beauty and luxury brands supported by PFS continue to see strong sales despite the challenging economic circumstances. Although there has been a shift back to brick-and-mortar sales in the first half of 2022, many retailers are hesitant to make any concrete predictions regarding how consumers will shop in the latter half of the year, especially during peak season. The ability to leverage store inventory in support of the digital channel through store fulfillment solutions will be critical to ensuring inventory optimization and meeting consumer expectations for faster delivery and more choice (BOPIS, ship-from-store, etc.).”
Heath Barlow, Regional Vice President & MD for EMEA North at Emarsys, said, “An analysis of 2021’s marketing and commerce predictions found that nearly a quarter (26%) never came true, showing how difficult it is to anticipate the future of retail – especially under the shadow of a cost-of-living crisis. As a result, we’ve seen – and will continue to see – brands developing an omnichannel experience that follows consumers across devices. Retailers must accommodate record-high customer expectations, so can’t afford to neglect the channels that shoppers like to use..”