Online retail shows signs of maturing and a tough 2018 to come

IMRG online fashion e-commrce

UK online retail fell below growth expectations in 2017 with sales up 12.1% year-on-year, compared to a growth of 15.9% in 2016, indicating the market is maturing.

IMRG Capgemini had anticipated a 14% growth for the year but its latest Index shows that during 2017 only March and April showed notably stronger growth than on the prior year (see chart below).

IMRG Online retail
Year-on-year growth 2016 vs 2017

The Index’s strong performance in 2016 had largely been driven by growth through sales on smartphones but this growth slowed in 2017. Sales growth through smartphones averaged 77% each month from July to December 2016. In the same period in 2017 it fell to 50%. Growth through tablets has also stalled (up 0.7% in 2017), and 2018 growth is expected to slow down further for all mobile devices.

This slow-down is in fact consistent with a three-year-bounce pattern of growth identified in the Index. Peaks in growth started in 2010 and repeated in 2013 and 2016 (see chart below). 2010’s high growth rate can be attributed to a host of factors, IMRG Capgemini said,  including improved website load speeds, user experiences, and connectivity. 2013 was when tablets started to account for a significant share of online retail, and 2016 was driven by the boom in shopping via smartphone smartphones.

IMRG

While this pattern means 2018 will be a relatively tough year, we are on course for a “new stimulus to be entering or proliferating the market” during 2019, explained Bhavesh Unadkat, principal consulant in retail customer engagement at Capgemini.

“2018 will be ultra competitive with continued uncertainty, retailers will therefore need to be focused on their plans to both survive and grow. One opportunity for growth and differentiation will come from emerging technology as we saw as a focus in 2017 – voice and social commerce, connected devices and AI all drove interest and investment and will continue to do so – the big challenge will remain as how to drive value and industrialising this capability,” he said.

“A second opportunity will be deepening relationships with customers and taking an insight driven approach to omni-channel retail – one which arguably remains a gap for many retailers across channels.  Many have got it right across certain channels, however not across the whole customer experience across all channels. Finally, there is sometimes so much focus on technology and innovation we can forget retail basics – ensuring the product mix is right, availability is on point, the shop front is one to be proud of, and ensuring the team are well equipped to give customers the best service can be just as important.  2018 will be volatile but very exciting as we see the great retail industry again raise the bar!,” Unadkat added.

IMRG managing director Justin Opie said macro-economic issues also contributed to the sharper than expected slow-down in growth this year and will continue into 2018. “A decline in the rate of online sales growth in 2017 was forecast, though it turned out to be sharper than expected. The macro economic factors – rising inflation, low wage growth, rise in the interest rate etc – are likely to have been influential and the first half of 2018 may be challenging too; discounting in the lead-up to Black Friday started deep into October in 2017 and have been widely available ever since.

“It may be that retailers will now find themselves caught in a cycle of discounting, which also happened in 2011 and 2015 and will probably extend long after the January sales, as the trading climate is tough at the moment. That said, 2018 does look set to be a transformational year for retail – with an increasing use of AI services anticipated plus the rise of ‘browserless commerce’ (through devices such as voice assistants). It may be that we see shopper behaviour shift significantly over the coming period,” Opie said.