A “complicated macro environment” is certainly one way to put it. Definitely the most polite assessment of the current economic climate in the UK and one which analysts from IMRG and CapGemini are stressing is at the root of why ecommerce sales have fallen another 3.3% in September. The death of Queen Elizabeth II, which masked the energy price cap announcement, and then the mini-budget and the ensuring financial chaos are, they say, why sales are dropping.
Separate research from both Barclaycard and American Express points to more systemic issues with cost of living that stretch further into economy than retail and which are having a much more profound impact on how people shop, however. Either way, all the (many) research reports out this week about consumer behaviour, retail and ecommerce make grim reading.
In fact, the world of retail is changing rapidly as consumers change what they do, shifting drastically what they see as priorities for spending, while retailers change what they do to match and to try and do so cost effectively. Back in the pandemic the phrase “never has retail undergone such seismic and rapid change” was banded about quite regularly. That may now be wrong: now is a time of even greater change.
Looking first how consumers are spending their money, IMRG/CapGemini suggests 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.
Clothing was the only sector to see positive growth in September, rising from +2.8% in August to +4.3%. However, menswear struggled 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.
Gifts have plummeted, dropping by 9.3% – not good news as the peak season for Christmas shopping is now underway.
This is all forcing consumers to change what they do and how they do it. According to American Express, more than three quarters (77%) of British consumers are increasingly focused on value for money, with 71% saying they proactively look for sale items when shopping.
Almost a quarter of shoppers (23%) are seeking out the best deals rather than sticking with their usual retailers. Additionally, over half (52%) of consumers say they are more likely to shop with a retailer that has a loyalty scheme, and 61% believe retailers can do more when it comes to rewarding them for their custom; indicating loyalty schemes are becoming a key differentiator for consumers.
Barclaycard, meanwhile, finds that 51%) are planning to spend more evenings at home over the coming months; opting to play board games (25%), stream films and box-sets (20%), and play video games (19%) rather than go out. A boon for media companies and takeaway sellers, a disaster for other retailers.
This has led to an uptick in the use of apps for shopping. Two other studies – from data.ai and Criteo – find that shopping apps are increasingly becoming the preferred channel for these home-body shoppers to discover and purchase.
According to data.ai’s data, some 450 billion shopping app visits will be made this quarter globally – although the data doesn’t cover China – up 22% on last year. With China factored in, that figure leaps to 850 billion visits.
This backed up by Criteo, which finds that 81% of UK consumers will shop for presents online this year, the majority using apps to find things.
The speed and convenience is one driver for this, but the real reason is that they are looking for bargains and special offers.
Retailers are having to amend how they operate to meet both these demands and to help manage their own finances. As many as a quarter of IR’s Top500 brands are now changing for returns, for example.
Criminals too are also changing their behaviour. Payment fraud online is rapidly increasing, fuelled in part by more people shopping online, but also because more people are looking at ways to ‘save’ money. BNPL is proving particularly risky, the late payment nature of the service making it ripe for chargeback exploitation.
But it is in the world of returns fraud where things have really heated up. Here criminals have got on board with the idea of SaaS and are offering Refund Fraud as a Service on the dark web. Here ‘professional social engineers’ will, for a cut, carry out return fraud for shoppers. This is already costing the global retail industry some $25bn a year. Now that’s a complicated macro environment if ever I saw one.
