The growth rate of online sales is slowing in the UK, but there are still plenty of interesting dynamics at play that are likely to revitalise many businesses, finds Joanna Perry.
Age comes on suddenly, they say. And in the case of the UK ecommerce industry, with age inevitably comes the end of the stellar online sales growth that we have become used to retailers reporting.
The IMRG’s prediction for online sales growth in 2011 had just been downgraded from 18% to 16% at the time of writing. And while some argue that this is a sign of general economic conditions, there is no doubt that the market is moving on a level in its maturity.
As retailers in fiercely competitive online sectors such as music and electricals have struggled to maintain growth at all, even Asos has not been immune. Its latest UK sales figure was flat, although, of course, overall sales were still up sharply thanks to its lightning quick move into international markets.
But there is barely anyone in the industry who is not still optimistic about the opportunities ahead, and some of the multichannel developments in particular could revitalise both online growth and the fortunes of the stores of certain retailers.
Last year in the Etail Power List supplement, we wrote of the strong online sales growth of some multichannel retailers, and according to IMRG’s figures, this continues. IMRG chief marketing and communications officer David Smith says with major multichannel retailers still experiencing growth far above the average of e-sales index, it begs the question who is underperforming?
Multichannel forges ahead
Speaking at the Internet Retailing show, HMV Group’s new marketing and ecommerce director, Mark Hodgkinson, pointed out that having an established infrastructure is no longer a guarantee of success. In fact, more and more multichannel retailers are asking whether it is appropriate to have such a large physical presence.
Hodgkinson said: “There is still the challenge of how you blend traditional strengths with new channels in a way that people can engage with and buy into.”
Some in the market were shocked by the low price of £25m that was achieved for Play.com only a few months back. And there is likely to be more consolidation of smaller pure-play etailers in a market where increasingly you need either to have scale or a niche offer to survive.
Smith believes convenience is the final piece of the ecommerce puzzle to be solved, but innovations such as Collect Plus are helping: “The convenience aspect is the final issue. It’s not security, we are all covered on our cards.”
Stephen Ashton, chief operating officer for Unipart Consumer Logistics, agrees, saying: “It is increasingly going to be about choice and immediacy, and the ability to flex quickly around demand.”
Multichannel retailers have a head start on convenience if they can utilise their store stock and locations. Click and collect is the obvious first step, but some retailers are beginning to go further. Smith points out that a service such as Shutl means stock can be quickly picked up from a local store and delivered to a customer, whereas a pure-play etailer may have only one distribution centre to serve customers from.
Awareness of the convenience factor may well be behind Amazon’s locker launch. And a physical presence is something other online brands are likely to experiment with. N Brown Group is doing it with its SimplyBe brand, and Kiddicare has revealed plans for 12 more superstores to support its current online and single showroom proposition.
But adapting to the new levels of convenience consumers expect could test some. Ashton says there is a risk of volatility from offering same-day delivery from a distribution centre, as you have very little scope to spread any peaks and troughs in demand in such a short timeframe.
Out and about
The other big development that’s front of mind for many – mobile – also brings new challenges. After many years when it was hyped as the next big thing, the functionality of consumer devices and mobile data speeds have finally caught up enough to allow the market to actually take off.
PayPal UK general manager, merchant services, Cameron McLean says: “We are seeing a massive revolution around the mobile device. There is great uptake in mobile payments. There is a real blurring of what’s considered traditional ecommerce, it’s the connected consumer.”
eBay has said it is picking up new customers through its mobile channel, who have never interacted with the site in any other way than through a tablet or smartphone.
Kiddicare says 10% of its revenue today is through mobile, and chief operating officer Simon Harrow expects it to be 20% by the end of 2012. However, he also thinks that mobile will be the saviour of physical retail.
Lakeland marketing director Tony Preedy says the retailer is creating a mobile version of its website, and will also put public Wi-Fi networks into new stores so people can easily download its product demonstration videos.
Lakeland has created over 500 product demonstration videos, plus other editorial content on its site, that Preedy says makes customers interested in using its products: “It’s selling the sizzle, not just the steak.”
Debenhams.com director Simon Forster says the department store retailer has decided it must stay one step ahead of the customer, as it’s no longer possible to run 18-24 month projects before delivering something new. Mobile is increasing this need for pace.
Debenhams developed its iPhone app before its customers were demanding it but since then it has been responsible for £2.5m in sales and been downloaded 700,000 times. Now Forster says mobile is a stated priority of Debenhams customers, and so it has already launched an Android app and mobile-optimised website too.
And several retailers have commented on how their mobile developments have made them reconsider the ease of use of their main websites too. For Debenhams, it has informed their thinking on the user experience provided by the in-store kiosks they have launched, rather than just replicating the website on a device in store.
If last year there was a trickle of UK retailers opening up their sites to international customers and considering separate international sites, then in 2011 this has turned into a flood. Smith says about a third of the cross-border ecommerce trade within the UK is being done by UK retailers.
“People have confidence and trust in British retailers.” McLean adds: “Retailers understand that within reason the world is their customer base, and they are able to target that online.”
McLean voices a sentiment many others echo: “We are seeing a lot of innovation coming out of the UK compared to other markets.” While the success stories of the first ecommerce bubble were born in the US, UK retailers are now holding their own in the ecommerce innovation stakes.
Forster at Debenhams says after opening up its site to international customers from 80 countries, it is now looking at creating an international site, and would replatform the main UK site at the same time.
Aurora Fashions launched its first international website in October for the German market, which was designed to cater for local preferences. It is also a step forward for Aurora in that German consumers can buy from all three of Aurora’s brands on one site. And, tying together the two themes of internationalisation and range extension, Aurora is also open to recruiting other fashion brands to sell through the site, which the retailer says could help all parties involved to benefit from strength through aggregation and shared traffic.
On the market
Another emerging trend is the growth of online marketplaces, for those with strong online brands opening their sites for other retailers to use as a channel to market. EBay pioneered this, and Amazon professionalised it with its Marketplace; but the UK’s own retail stars are wising up to this strategy. Asos has already successfully launched its own marketplace, and Tesco has plans to do the same. Other retailers are flexing their brands online, extending into new product areas through white label deals.
Smith says: “Amazon built a really strong client base of consumers, and then through Marketplace extended the range of products available. If you are a Tesco or an Argos, with a brand relationship with customers, why shouldn’t they do that?”
This trend works both ways, as Smith believes there is demand from small sellers who want to trade through them. “We are going to see marketplaces expanding as it’s the only way the smaller guys will have any share of voice. It is difficult to be picked out on Google unless you are very niche.”
Argos has said its eBay channel – which it uses to clear stock – is both profitable and drives high volumes. Marketplaces blur the lines of who is an ecommerce friend or foe.
What lies ahead?
Predictions for Christmas trading are more easy to come by than for 2012 as a whole. Almost everyone agrees that the 2011 peak season will be another bumper year for online sales, but that it may only beat last year’s figure with growth in low single digits.
This should not be seen as a problem, not least because with more click-and-collect services offered this year, it’s likely that a greater proportion of sales directly influenced by online will be attributed to stores.
When it comes to next year, the continuing uncertain environment makes it hard to call. At the same time, there could be some bright sparks for ecommerce. Ashton points out that the Olympics could actually be good for online sales. All those consumers who missed out on tickets will be watching events at home, potentially causing falls in store footfall in the same way as was seen during the World Cup last year.
2012 will almost certainly be another record year for online retailing. But where as two to three years ago retailers could take rising online sales for granted, increasingly they must work hard to keep moving with the rising tide.
Average online sales through mobile in May- July 2011
Average web traffic from mobile in May-July 2011
September year-on-year growth for high street retailers’ online sales
September year-on- year growth for clothing sales online
September year-on-year growth for home and garden sales online