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Discounting to compete with online winners Amazon and Tesco is hitting other retailer revenues hard

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Amazon and Tesco now dominate online sales as lockdown lifts and are likely to continue to do so as fewer than a fifth of UK shoppers intend to return to the High Street as lockdown ends, turning to online instead. However, revenues are down across the board even here.

Amazon’s share in the ecommerce market swelled with more than a third (35%) of all online shopping conducted through the marketplace during the lockdown period, reinforcing the company as a big retail winner in the wake of the pandemic. One-in-five (20%) people surveyed by Wunderman Thomson Commerce said their net intention to purchase with Amazon post-COVID-19 will increase, despite 21% of people expressing worry about Amazon’s ever-increasing dominance.

Not the sole retail winner, Tesco led the battle of the supermarkets and saw a significant 23% improvement in net perception; while the net intention to purchase post-COVID-19 rose by 9%. Competitors Sainsbury’s and Morrisons both saw a 12% net rise in positive perception respectively.

Other winners include corner shops with a quarter (27%) net increase in positive public perception as they played a pivotal role in providing essential goods. In comparison, the Government’s net change in perception decreased by 30% while the NHS is up during the COVID-19 outbreak by a significant 62%.

However, this positive perception and shift to online isn’t coming through as revenue. The Wunderman study shows that, while online purchasing accounted for 62% of all shopping during lockdown – up from 43% pre-pandemic – a study by sister company BounceX demonstrated that, despite conversion rates up 11%, revenues actually fell 7%.

At the end of the first week of the High Street reopening (week ending 21 June), shopper traffic rose 19% on the previous week, according to the BRC-ShopperTrak Footfall Monitor, but footfall still remained at record lows, down 57% year-on-year. 

Meanwhile, BounceX’s data showed that online revenues grew 5% week-on-week during the same period (w/c 15 June vs w/c 22 June).

And the problem is discounting remains the only way to get people shopping.

Rob Delijani, Senior Director of Growth Strategy at BounceX EMEA, exploains: “ecommerce has stabilised and overall across website visits, revenues and conversion rates, we see that these are all trending about 10-15% higher than pre-COVID-19.  Yet, at the same time, we’ve seen extensive discounting strategies by retailers continue in June.  While there’s been reports of pent-up demand, with Brits holding back an estimated £60bn of spend during lockdown, online performance remains high, suggesting there might not be a need for the levels of discounting we’ve seen.” 

Changing habits

While discounting to drive conversion is helping online drive sales, if not revenues, there are a range of other changes to shopper habits identified by Wunderman’s COVID, Commerce and the Consumer research.

Familiar factors top the list, with 61% of shoppers saying free delivery is a key purchase driver, with availability (57%) and price (53%) coming in as close second and third choices.

When asked what consumers would like to see change most in their online shopping experience, free returns (28%) topped the list.

One in five (21%) would like more of their products to be digital and instantly downloadable, a noticeable influence of lockdown measures as shoppers have been forced to purchase various goods without leaving home. 

The impact of COVID-19 may also be a tipping point for ethical concerns with nearly three-quarters (73%) wishing that retailers and brands would offer better environmental practices. Over half (55%) of consumers say that a company’s ethics and morals play an important part in their purchase decisions, another element that retailers need to contend with as the ‘new normal’ becomes a reality.

Our view

Retail is understandably in panic mode and, with shoppers still reluctant to head to the shops, online is becoming not only the key sales channel, but the more competitive than ever.

With Amazon and Tesco dominating sales, the tactic of offering discounts to shoppers who arrive at your site makes sense: it clearly drives up conversion. However, it isn’t driving revenues.

Shoppers aren’t going to the high street largely for fear of COVID-19. However, many are also not shopping because of financial worries. Discounting drives some of these to buy, but the reduced revenues aren’t coming close to plugging the gap.

Somewhat counter intuitively, maybe now is the time not to work on discounting, but to invest more in understand consumer behaviour and creating content and marketing to reach out to them with the right offers – such as exclusives, rather than money off.

Research earlier this week by ChannelAdvisor finds that more than half of shoppers say that they’ve found new brands online during lockdown and plan to continue to buy with them online. That rose to 70% among those aged between 26 and 35.

The same study shows that 56% also now plan to do more research online before buying in-store. Some 71% say they’ll research via marketplaces such as Amazon, while the same number will look up items on a retailer’s website, and 64% will use search engines.

Targetting these shoppers through these channels should be a priority for growth online in the current climate and beyond. You can find a host of techniques in this white paper Strategies for Growth.

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