UK online retail sales growth hit an all-time low of just +3.6% year-on-year (YoY) in December, as the industry experienced a tough Christmas trading period to end a challenging second half of the year, according to the Capgemini IMRG eRetail Sales Index.
After online retail defied the downturn on the high street to record +16% (YoY) growth in the first six months of the year, a series of lacklustre performances contributed to a lowly +8.4% (YoY) growth for the second half of 2018.
Figure 1 - YoY growth rates during 2018
Such was the impact of feel-good events like the Royal Wedding and FIFA World Cup, not to mention the glorious weather, that online retail sales across the whole of 2018 (+11.8% YoY) were in-fact still up on the start-of-the-year forecast of 9%.
However, the poor performance across H2 and December in particular, is evidence of low shopper confidence in the current climate. December’s growth rate of +3.6% (YoY) was by some distance the lowest seen across the whole of 2018, and continued a declining trend – falling below the final quarter (+6.8%), second half (+8.4%) and 12 month (+11.8%) averages respectively.
Figure 2 - Oct-Dec YoY performance since 2016
According to the index, online spending in December decreased -15% month-on-month (MoM) to November – a bigger decrease than the -11% MoM witnessed last year. Category results also echoed this poor performance, with gifts experiencing a -31.1% (YoY) decrease compared to last year, and electricals down by -21.7% (YoY); a record low for this product category. As a reflection of the continuing uncertainty, Capgemini and IMRG have forecast that online retail growth will fall to +9% YoY in 2019.
Andy Mulcahy, strategy and insight director, IMRG: “The first half of 2018 was actually very strong for online retailers – it resisted and arguably benefitted from the tough climate that impacted trade for store retail. It is only the second half of the year where the suppressed confidence and spend, evident in so many other sectors, has spread to online retail; the macro-economic situation must be exerting pressure here, particularly with Brexit now entering its crunch period in Q1 2019.
“If there had not been so much uncertainty and shopper confidence had not been so negatively impacted toward the end of the year, it seems a reasonable bet that online retail sales growth could have been much stronger than 11.8% for 2018. If Brexit can be resolved so that a course, whatever that may be, is agreed and pursued, it may help to build shopper confidence again with online likely to be the main beneficiary from a retail perspective.
“However, if 2019 proves to be a year of continuing uncertainty, with repeated delays and political instability causing market disruption, it may prove to be a tough year for many businesses to navigate – as we found out in late 2018, online is not immune from that.”
Bhavesh Unadkat, principal consultant in retail customer engagement, Capgemini: “A sharp drop in online retail spending in December brings the rollercoaster of a year to a close, with the industry unable to recover performance in the vital festive period following a disappointing November.
“There is a clear correlation between consumer confidence and consumer spending throughout the year. Conversion rates were actually high in December despite the poor performance, however the lower order value indicates that consumers were tightening the purse strings by taking advantage of promotions rather than purchasing more. This allowed discounters to take the share in the final month of the year. Retailers will need to think carefully on how to manage pricing strategies to protect share of the wallet in potentially quite uncertain times, and the evolution of the peak events will undoubtably be a focus of next year.”