By Ellie-Rose Davies, Content Executive at IMRG
Look at the weather – blimey it’s hot – It’s absolutely freeeeezing – What’s the weather like near you? – I wonder if it will snow – I can’t wait to wear winter clothes – Bring on summer – I need a fan.
The one thing British people love talking about is the weather, and another thing you should probably know is that, for most of us, we’re never pleased. One minute it’s raining, and then the sun comes out for a while, only for rain to be hiding around the corner again; perhaps we are the city of rainbows. Yet in Q3, from the end of June to August, we were all baking under the sun week after week, causing draughts and even hose pipe bans. As 2022 saw the UK’s hottest summer on record, experiencing temperatures above 40°C, customer behaviour online altered accordingly. This article analyses some of the trends we picked up during this period.
Chart A represents year-on-year (YoY) growth in online revenue from May 2022 until the second week of September, showing 2022 growth against 2021. You will notice that there were only two positive growth peaks; one being the unnerving and abnormally early 30 degrees in June, and the other being the 40-degree heatwave in July. If you look to the far left, there is a significantly low drop in revenue in May, near -12%, perhaps a result of the end of April when the first energy cap went up, on top of national insurance contributions on people’s pay packet. From here on out, things did slightly better – though this is in the context of negative growth – with little pulses of growth until the first peak in June. Besides the summer sunshine and the general improvement in mood, England’s win of the women’s Euros could have been a leading driver of growth here.
Now, have a look at what happens during the second week of September. YoY revenue dropped a considerable amount around the time of the death and funeral of Her Majesty The Queen (8th Sept/ 19th Sept). In a time of communal grieving and, subsequently, gatherings, retailers could expect that people wouldn’t spend plenty of their time online shopping in this period. The energy cap was announced on the same day the Queen’s death was reported, so it is difficult to tell whether that might have some positive impact on shopper confidence.
Chart B, presenting revenue growth in the second week of June (leading into the first heatwave) per category, demonstrates total market growth of +5%. Signs of British summertime and communal celebration saturate this graph, with categories such as beers, wines and spirits, womenswear, menswear, garden, and accessories leading the way for market growth. Therefore, in particular social periods, such as big sporting events and heatwaves, the market presents itself as highly responsive and reflective to its environment. While these categories might make it look like there was immense growth, chart A shows that around the time that England played Germany at Wembley in the women’s Euros, all it did was bring nearly positive growth – yes, we were still in the negative. These findings do question what kind of event would really see some significant growth in the market. In this instance, the 87,192 fans at the stadium, and the 17.4 million fans watching at home on the BBC, meant attention could have been somewhere other than online shopping.
Since England’s win of this increasingly popular football event, overall YoY revenue has been overwhelmingly flat, with dips that saw wholly negative growth (see Chart A).
The week-on-week (WoW) percentage change for revenue in the second week of September saw slight growth (+1.6%, as demonstrated in Chart C), but this was following quite a sharp dip in the first week. This change happened around the time of the new energy cap. Might we see more weeks of increasing spend following five weeks of decline across July and August? Luca Clivati, Senior Consulting Manager at Sovos, points to some positives: ‘multiple measures such as freezing energy cost increases and the application of zero or reduced VAT rates on essential products and energy, popular in most European countries (Overview of the VAT rate reductions on Energy in EU Member States), should help demand for UK retailers.’
Categories such as gifts, at roughly -3% growth in June, following -21% growth in May, continue to lose priority in an economically turbulent year. Also, with the summer heat kicking in and, consequently, more people desiring fans, one might expect growth in electricals. However, the demand just wasn’t there (yet!).
Now, let’s go back to Chart A for a moment. The highly noticeable peak in this four-month period sits in July, at a respectable +6% growth in revenue.
July 2022 was scorching hot, with temperatures exceeding national records. As many people struggled to cope with the heat, categories such as electrical (+27.5%) and garden (+21.2%) did very well in WoW revenue (as demonstrated in Chart D). In this case, there were happy heatwaves indeed. Although in mid-July and mid-August, while categories such as womenswear stayed relatively afloat, garden saw a big decline in comparison – in this case, it might be the problem that people realised they cannot do any gardening during a drought.
Fergal O Carroll, CRO, at Scurri, voiced, ‘there was something of a sales recovery in late July, driven by electricals, clothing, and garden’ (take a look at Chart C). ‘Currys sold a record 17,000 electric fans, and there was a 2,240% sales spike for Argos in air conditioning units. Some clothing categories also grew for the first time since the pandemic.’ Heatwaves often drive performance, especially in these categories, and with that, Fergal states, ‘surges in demand for bulkier items like garden furniture’ might ‘emphasise the need for retailers to offer two-person delivery and more flexible shipping options.’ Owing to things such as the growth in the electronics industry in July, despite weathering ‘supply chain storms in recent years’, and other setbacks, ‘the sector has shown itself to be adaptable.’
Alongside electricals, other categories have had their fair share of growth in Q3. According to Ben Scherpenbergs, Director, Business & Program Management at PFS, in the summer of 2022, ‘PFS represented brands saw an increase in sales of beauty, jewellery, and topically- electric fans, a direct reflection of the beautiful weather. In fact, twice as many fans were sold compared to summer 2021.’ In Chart E, you will see how these categories ride above the wave of the total market, particularly beauty, which experienced four noticeably high peaks (the highest being the w/c 21st August, at +21.7%). Ben also noted that ‘luxury brands seem to fare well no matter the financial climate…with luxury beauty brands benefitting from increases of 10% in July and 20% in August.’
The Q3 summer period reinforced what we saw in Q2, with a real downturn in customer confidence and willingness to participate in discretionary spending; customers are likely to prioritise buying essential items rather than a nice shirt in a cost-of-living crisis for example. When we take a look at Chart F, we can see how the conversion rate has been very flat for the entire year in 2022, and it is even a bit worse than the flat rate of 2021. Since the 2020 pandemic, we might have thought that trading online would rationalise but continue pushing on, but it just hasn’t happened, especially with problems such as the war in Ukraine and issues with supply.
Monica Eaton-Cardone, Founder at Chargebacks 911, reflects on how ‘this summer has seen further developments in the post-pandemic “new normal”, both from customer behaviour and product trends.’ While overall spending is down in retail, customers continue to use online shopping and contactless payments, and ‘buy now, pay later (or ‘BNPL’) payments have also made substantial gains in popularity for consumers. Nearly 30% more merchants offer this option at checkout as compared to last year.’ Customers in an average UK household might use this option as a coping mechanism and strategy to help them mitigate the rising cost-of-living. However, whilst customers might be initially attracted to BNPL options, Monica explains that ‘roughly 60% of consumers have used BNPL to purchase frivolous items they might have otherwise not bought. This could lead to buyers’ remorse, which is one of the leading factors connected to friendly fraud, and cost retailers dearly.’
While some retailers have enjoyed time spent in summer’s sunshine, the dark shadow of low conversion and revenue has remained in the background. Nonetheless, with little spikes of growth in categories such as electricals and beauty in Q3, some retailers might anticipate the Q4 peak season with slightly less worry than others. Retailers could see more confidence from customers as we head towards Black Friday, which might, and I mean might alter the overarching sense of negative growth that we expect for the rest of the year.