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The rise of online spending in UK retail

Full report: The Digital Tipping Point: 2019 Retail Report

The rise of online spending in UK retail

Online spending in the UK retail industry

Digital transformation led to the emergence of more sophisticated multichannel propositions, supported by higher penetration of smartphone ownership and online shopping, ultra-convenient home deliveries and more efficient click-and-collect.

The composition of retail spending shifted rapidly online. In the past decade, the value of online retail has risen four-fold, worth an estimated £70 billion in 2018 and accounting for just under £1 in every £5 spent. For some sectors such as clothing, this proportion rises to over a third, which is particular pertinent in some town centres where clothing occupants comprise over 40% of the physical presence.

“As physical and digital realms merged, the experience economy rose to prominence, as consumers reassessed the economic value they attached to material possession as households in the West arguably approached the point of ‘peak stuff’.”

Forward-thinking omnichannel retailers and the emergence of pure online players offering strong online propositions exploited these trends, while benefitting from collecting vast amounts of consumer data. Efforts by retailers late to the party that mimicked the mechanics of offering an online proposition frequently proved dilutive, as additional infrastructure and investment were deployed to service the same customer and the same order.

Figure 1 - Online UK retail sales increase between 2009 - 2019

Online Retail Sales in the UK

Source: Retail Economics

But crucially, the fast-paced adoption of consumer technologies presented shoppers with an array of digital touchpoints which fundamentally altered the way they interacted in physical locations. A linear customer journey that had existed for decades quickly dissolved and reformed to a more complex structure. Shoppers now expect to be able to seamlessly transition between channels, redefining the boundaries between physical, digital and on the move.

Watch our video on UK online retail sales in 2020

Online Retail in 2020

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This work forms part of a wider piece of research and is a downloadable in pdf format

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Megatrends influencing the impact of online consumer behaviour

Customers tend to switch between different buying journeys often without a clear direction or end point. These journeys are multi-dimensional, littered with digital touchpoints, heavily consumer-centric, but remain rooted in experiences gained in physical locations.

Naturally, consumer behaviour is different across age groups, product categories, household incomes and other variables, and the merging of physical and digital realms unveils a complex web of consumer preferences – all of which impact retail property in profound ways.

Our research condenses these insights into three distinct ‘megatrends’:

Megatrend 1

  • Gen Z and Millennials value the role of physical retail locations more than older generations
  • The greatest divergence across age groups arises for flagship destinations
  • Yet, 63% of shoppers suggest that high streets have become less attractive places to visit in recent years, meaning its future should not be taken for granted

Megatrend 2

  • As the value attached to material possessions diminishes, people expect to be entertained, educated and showered with accurate, easily digestible information, surrounded by inspiring environments that offer escapism
  • Gen Z ranks the importance of experience-focused, flagship destinations three times higher than those aged 65 and over when it comes to purchasing products
  • Shoppers in the 16-34 category expect to visit flagship locations 10% more in the next five years

Megatrend 3

  • Our research shows that two thirds of Millennials have looked at products in-store with the intention of purchasing the item online later on – the highest proportion of any age group
  • A staggering 83% of shoppers aged between 18 and 44 use their mobile devices in-stores, demonstrating that Gen Z and Millennials find simultaneously transitioning between the digital and physical environments second nature
  • Those not born in the digital age have rapidly increased their internet usage over the past decade as per ONS data, showing that in Q1 of 2019, 83% of 65-74 year-olds regularly use the internet, compared to half in Q1 of 2011

 

Internet users

Source: Retail Economics

 

How has the industry reacted to changes in the retail property market

It is evident from our research that the rise of online shopping habits significantly impact the way physical stores are used and this ultimately will cause retailers and brands to react in order to remain relevant.  This work looks at how retailers are reacting to these trends and what they need to do to weather structural changes in the sector. 

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Found this short article interesting?

This work was conducted by Retail Economics in partnership with Alvarez & Marsal. It looks at the role of physical retail space in the UK and the various factors that have shaped the direction of retail property in the past - and those for in the future. The research includes a consumer panel survey and focusses on how shopping habits impact stores (present and future) and the likely scenarios that retailers will adopt in order to cope with the structural changes occurring. 
 

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