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ANALYSIS: Why was H1 2019 online growth the lowest recorded?

A boost in June wasn’t enough to save online retail in the first half of 2019, with records showing that sales slumped to their lowest ever growth rate of just +5.4% Year-on-Year (YOY), according to the latest IMRG Capgemini eRetail Sales Index.

The Index tracks the online sales performance of over 200 retailers with a combined annual spend of £28bnComparatively, the same time period in 2018 saw results of +16.9% YoY, with consumer spending buoyed by events like the Royal wedding, World Cup and the Spring heatwave.

This slowdown in growth was also broadly reflected across the sectors, with all but three recording reduced but still positive increases. Health & beauty (+13.0%), home & garden (+9.3%), and clothing (+7.3%) saw the strongest growth, with clothing in particular having a substantially better Q2 (+11.2% YoY growth) than Q1 (+2.6% YoY), due to the hot weather and retailers starting their summer sales early. 

Looked at individually, one of the largest YoY declines in growth was seen in garden (-34.4%), although this reflected a fall from a particularly high growth rate in H1 last year thanks to the standout weather from April onwards.

Elsewhere, the sectors which fared worst were electricals (-22.7%), gifts (-22.8%) and lingerie (-8.9%), all of which have experienced a continuous decline in sales over the past six months.

Bhavesh Unadkat, Principal Consultant in Retail Customer Engagement at Capgemini, said: “The year started with a lot of gloom in the retail sector following the drop off in performance in H2 2018 and consumer confidence also fell to all-time lows. During the first half, consumer confidence settled in negative territory, on average 5.5points below 2018 and growth was lowest recorded 5.4%, a third of last year.

“In addition to this, consumers are cutting back on non-essential according to a Barclaycard survey, and sectors such as electricals are taking a hit online (-23%).

“If this year continues to mirror performance of last year, we can hope for a stronger second half.  However, with Brexit happening just before peak period and still uncertainty around what it will bring, we cannot know whether the index will recover or growth under 10% will be the new norm, at least for this year.  Caution and volatility within the market remain for the foreseeable.”

Andy Mulcahy, Strategy and Insight Director at IMRG, said: “In this country we have a tendency to regard online retail and physical retail (high streets) as being completely separate; an idea that has been feed over the past few years by the consistent growth in online even as the high street struggled. What we are now seeing is that they are not separate at all, but in fact deeply interconnected – hence growth in the first half of 2019 was the lowest yet recorded.

“With so much media coverage of well-known retailers announcing profit warnings and store closures, customer confidence in shopping with them is low. This forces them into heavy discounting to drive sales and their competitors get dragged into it too. It has now become so widespread that shoppers are used to the wide availability of discounts and many retailers – whether online-only or with a store portfolio – seem a bit stuck in it even before we reach the Black Friday peak.

“That said, from an online sales growth perspective it is the multichannel retailers (+5.2% for Jan-Jun 2019) who are currently experiencing lower growth than the online-only retailers (+7.4%). It may be that the old perception of getting better value online still persists, and that shoppers associate high street retailers with the highest chance of falling into administration, so they are having to work even harder than their online-only competitors to build sales.”

UK online retail on the rise, boosted by the World Cup and beating the weather

Online retail has enjoyed a 16.8% (YoY) growth during the first half of 2018, defying extreme weather events like the Beast of the East and various heatwaves to record strong sales results every month so far, according to the Capgemini IMRG eRetail Sales Index.

This sits in stark contrast to the sustained downturn recorded on the high-street so far this year (Feb-Jun). H1 2018 e-retail has in fact seen the highest average H1 year-on-year growth since 2011, above the 5-year-average of 14.1%. The H1 average basket value was also at its highest for the decade at £94, and again outshines the 5-year-average of £85.

Despite the UK being hit by freak cold weather moving into Spring, online retail grew by 15.3% (YoY) between January and March, with the reduced high street footfall driving shoppers to home spending. However as the weather picked up and the UK experienced some unseasonably hot weather in April, online retail sales went from strength-to-strength, with a 18.2% (YoY) growth between April and June.

Some sectors appeared to particularly benefit from the unpredictable weather. Garden enjoyed a YoY growth of 24.9% overall, its strongest first half since 2014, with a 33.7% growth in the warm months of April – June. Clothing has enjoyed consistent growth during the year so far, recording 16.3% growth (YoY) in Q1 and 17.8% (YoY) in Q2 for an average of 17.1%. Health & Beauty experienced its best growth during the wintry months of Q1, with 18.6% growth (YoY). It was also strong during Q2 (16.8% YoY) to give it an overall growth of 17.7% (YoY) for 2018 so far (Jan-Jun).

Despite the impressive growth of online retail, conversion rates for online retailers actually decreased overall every month other than May. This could be accredited to the continued trend of online shopping via smartphone devices, which are accounting for a larger share of total online sales but feature lower (albeit increasing) conversion rates. Indeed, spending via smartphone devices was up 39% against last year during Q2, although growth rates are inevitably starting to slow as this channel reaches maturity.

Andy Mulcahy, Strategy and Insight Director at IMRG, said: “The performance for online sales in the first half of the year has been a lot stronger than anticipated. There are a number of factors that may be influencing that – the extreme weather events (both hot and cold), the Royal Wedding, World Cup etc – and it might be possible that the feelgood elements associated with some of those events has encouraged people to spend a bit beyond their means.

“This could mean that we see a pinch on shopper spend as we move through Q3 – though the weather in July has been incredibly hot – which may lead to an imbalance in online retail growth between the first and second halves of the year.”

Bhavesh Unadkat, Principal Consultant in Retail Customer Engagement at Capgemini, said: “The year started with a lot of doom and gloom and uncertainty around retail. What has been encouraging is how well online retail has performed in H1, particularly in seasonal categories like Clothing and Garden. These two sectors have delivered higher basket values (38.0% and 19.6% YoY respectively), with consumers becoming impulsive in their purchases as they refreshed summer wardrobes and prepared for more time spent outside.

“Despite that online-only retailers outperformed multichannel retailers during most of H1, with average growth at 18.6% and 14.7% respectively, multichannel actually closed the gap on last year’s YOY growth. Basket value growth was also stronger for multichannel retailers, with a 4% (YoY) increase in average basket value to £100.77, compared to only 2% (YoY) for online only retailers at £87.77. It demonstrates the continued importance of an omnichannel presence for retailers – a focus on connected retail will help ensure that the ecommerce sales performance outlasts the good weather.”