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The Evolution of Online Retail in the UK

Full report: The Digital Tipping Point: 2019 Retail Report

The Evolution of Online Retail in the UK

Factors affecting online retail sales in the UK 

The last ten years has seen the destruction of analogue consumerism, fuelled by the rapid and ongoing transition to online, the growing importance of experiences and heightened consumer expectations. The power dynamic is shifting from the retailer to the consumer, and this digital disruption will only gain momentum in the next ten years as digital natives form the majority of the adult population. 

“Online will account for more than 50% of all retail sales by 2028

We forecast that online will account for more than 50% of all retail sales by 2028, and our research identifies 10 principle reasons why this might be. This article covers four of those reasons which details past and present factors that have shaped the development of online: 

1. The customer journey evolution

Digital technology has irreversibly changed our relationship with shopping. The explosion of consumer choice has influenced how shoppers research, communicate, consume content, seek information and purchase products. 

 

Figure 2: The retail customer journey

Source: Retail Economics 

 

The smartphone continues to be a major driving force behind this influence. The first iPhone launched in 2008, and now consumers spend 62% of their online time on mobile devices. 

Almost half of consumers suggested that smartphones are the most important device to connect to the internet, rising to 72% for those aged 16-34. These shifts in behaviour and preference have torn apart the analogue customer journey and replaced it with an almost endless array of digital and physical alternatives. 

New technology has enabled smoother and speedier transactions, but consumer preferences have become more fragmented with increasing options. One reason for this fragmentation is that consumers are exposed to more influences for inspiration, such as social media, influencers, celebrity endorsement and online communities. For Gen Zs and Millennials, this occurs most frequently on smartphones. 

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2. The evolution of online spend

Online retail spending increased more than four-fold from £13.8 billion in 2008 to over £70 billion in 2018, as online accessibility and retailers’ propositions improved.

Figure 5: Online retail has risen four-fold in the last 10 years to £70 billion

Source: Retail Economics

3. Importance of age for category penetration

Significant differences are arising within consumer age groups and genders, with differences depending on life stage, life events, socioeconomic background and region.

Figure 7: % of sales online by age group

 

4. Increased pace and spend of online

62% of younger consumers shop online at least every fortnight compared with 29% of those aged 65 and over. Unsurprisingly, there was a correlation between younger consumers purchasing more frequently, which diminished across older age groups. 

Figure 8: Frequency of online shopping by age

Source: Retail Economics

These trends raise challenging questions about the cost of fulfilment and the cost per acquisition of customers. 
 

Figure 10: What are the three most important factors when you shop online

Source: Retail Economics

 

The growth of online in the next decade

The four reasons above mainly deal with past and current factors contributing to the rise of online, however when looking at current and future trends, it is clear that technology, shopper demographics and continuing structural shifts within the industry will propel online even further. 

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This work was conducted by Retail Economics in partnership with Womble Bond Dickinson. It looks at the development of technology within the UK retail industry and the rise of the online channel, accounting for past, present and future factors. The research forecasts that the ‘digital tipping point’ where online with surpass in-store spend will be around 2028 (based on given assumptions).  Topics covered: the evolving customer journey, online penetration, shopper demographics, delivery developments, store roles, digital technology, AI and future risks.
 

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