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“Complicated macro environment” and wary consumers drive down online spend in September

Image: Fotolia

Image: Fotolia

The online retail market continued to see negative-on-negative Year-on-Year (YoY) growth in September, with UK sales down 3.3%. 

So finds the latest IMRG Capgemini Online Retail Index, which tracks online sales for 200 retailers. Though this represented a slight improvement on August’s -4.1% result, the performance was not significantly different to that recorded for the past four consecutive months. It also compared to September 2021 growth of +6.8% YoY. 

On the whole, September was a complicated month for gauging customer confidence. The UK had 10 days of national mourning following the death of the Queen on 8 September, which happened on the same day the energy cap freeze was announced. This was followed by the Government’s mini-budget of wide-ranging tax cuts a few weeks later. 

How that balances against declines in the pound and rising interest and mortgage rates will become more evident over the coming period, but at least immediately the Month-on-Month growth between August and September came in where it should (up +5.4%) for this time of year. 

While this could be seen as a positive indicator moving into peak trading – as could the £5 rise in the average basket value (ABV) – the conversion rate remains down on last year and unresponsive to retailer activity. 

In terms of online categories, clothing was the only one to see positive growth in September, rising from +2.8% in August to +4.3%; this didn’t reflect in all its sub-categories, however, with menswear still struggling at -3% (though up from -7.1% in August). Elsewhere, electricals (-8.2%) remained consistent – recording a difference of only 0.7 percentage points against August; and gifts fell -9.3%. The heaviest declines in September were for beer, wines and spirits (-27.3%) and garden (-19.3%).

Even though September presented many macro variables, the Year-to-Date (Jan-Sep 2022 vs Jan-Sep 2021) figure remained fairly flat at -12.9%, which was only a +1.1% improvement from August.

Andy Mulcahy, Strategy and Insight Director, IMRG comments: “September featured such economic turbulence that it’s very difficult to understand whether shopper confidence has risen, fallen or stayed the same. However, one definite positive was a spike in online spend toward the end of the month when retailers promote their ‘100 days till Christmas’ campaigns. The spend was +17% higher in week four – the second highest rate of the past four years for that period. That at least suggests customer interest and responsiveness; we can’t know how the turbulence will unfold over the next few key months for retailers, but if that spike had not occurred this year, it would have been very concerning.”

Simon Binge, Commerce Senior Manager, Customer Transformation at Capgemini adds: “Despite an eventful month of disruption for UK shoppers, the online retail market performed largely in line with the previous four months, with an average -3.3% YoY sales decline for July to September.  Whilst overall spend displays a small decline YoY, if we explore this a little deeper we can see evidence of shoppers trading down, with the mid-market retail sector being the clear beneficiary. The premium market sector saw a YoY revenue decline of -15.1% for September, but the mid-market sector was relatively flat (-0.2% YoY), building on a similar story from previous months (+0.1% August, +3.5% July). Whether the premium sector can entice shoppers back during the next few months of expected promotional activity or the mid-market sector continues to win the battle for the wallet remains to be seen.”

Consumer feelings

Separate research from Barclaycard adds more detail to the picture, suggesting that spending on essential items grew 3.3% compared to the same period in 2021 – the smallest rise this year. This muted growth was largely due to supermarkets only seeing a small uplift (2.8%), as well as food and drink specialist stores falling back into decline (-3.7%) after a 0.6% growth in August – a sign that consumers are being more selective about the essential purchases they make.

Additionally, more than two thirds (67%) of UK shoppers say they are looking for ways to reduce the cost of their weekly shop. Of these shoppers, 43% are paying closer attention to the prices of items they buy regularly, 40% are cutting down on luxuries or one-off treats for themselves, and 36% are purchasing own-brand or value ranges in supermarkets.

Spend on fuel saw its smallest uplift (11.1%) since March 2021 (a drop of -12.9%), likely owing to the average price of fuel falling gradually in recent months, as well as drivers reducing the use of their own cars. To save on petrol and diesel costs, 13% have started to walk or cycle to work, while a similar proportion (12%) are using public transport more often.

As the colder weather started to set in and energy prices continued to escalate, average spending on utility bills was up 48.0% in September, higher than the growth seen in August (45.2%) and July (43.9%). The energy price increases in October are leading nine in 10 (91%) Brits to feel concerned about rising household bills, while an additional 65% are finding ways to save energy at home to combat higher utility bills.

Spending on non-essential items grew 1.0% year-on-year, significantly less than last month (3.6%), and a new low since February 2021 (-17.5%) when the second Covid-19 lockdown measures were still in place. This is likely due to a combination of inflationary pressures alongside the boost in spending seen last year when restrictions lifted.

Clothing retailers, after falling into decline in August (-1.9%), saw an even sharper drop in September (-4.1%). Restaurant spend fell -12.2% – further than last month’s drop of -11.4% – while bars, pubs and clubs slipped into the red (-0.4%) for the first time since March 2021.

This comes as over half of consumers (53%) say they are planning to cut down on discretionary spending so they can afford their energy bills throughout the autumn and winter, with the majority of Brits in this group cutting back on eating out at restaurants (60%), buying new clothes and accessories (59%), and drinking in pubs, bars & nightclubs (47%).

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