Why the web is a shopping winner in tough times

The Transactis Home and Fashion Online Retail Index provides an analysis of home shopping trends, using data from Transactis to look at the activities of home shopping customers in 2009.

Key Findings
  • During the recession the retail sector suffered as consumers tightened the purse strings, but online retail has been booming
  • In 2009 internet shopping spend was up 12% and the number of online shoppers increased
  • In 2008 38% of home shoppers made their purchases online. In 2009 this proportion soared to 47% and annual web spend per person increased from £351 to £376
  • Younger profiles are more active online – they showed the greatest increase in total web spend (up 27%), average web spend per person (up 35%), average web transactions per person (up 33%) and total web transactions (up 25%), making it the most active group online
  • Surprisingly, though, the 18 to 24-year-old age group is the only one to demonstrate a drop in the number of online shoppers in 2009
  • In contrast, the over 75s represent the greatest increase in the number of online buyers – up 10% in 2009. Nevertheless, only 7% of home shopping spend by the over 75s is conducted online
  • The greatest growth in online shopping activity is coming from people aged between 35 and 54.
  • In terms of categories, household goods represented the greatest increase in online spend in 2009 (up 24%); gifts and gadgets was the only category to show negative growth (down 2%); adult fashion saw increased internet spend from all groups
  • With such dramatic changes in customer shopping habits retailers must be on the ball with tracking the behaviour of individuals
  • It is crucial for retailers to understand how each individual behaves online as well as offline and one of the best resources for this can be pooled transactional data
IntroductionThe retail industry is a complicated industry to track and measure in today’s world. Internet shopping has boomed and enabled catalogue and online retailers to take share away from the high street. But it’s not simply a case of high street versus home shopping.The recession saw consumers’ shopping habits change dramatically as purse strings were tightened and there are signs that many shoppers intend to stick to their new found thriftiness. There was a general move downmarket from premium retailers to value retailers, particularly in the grocery sector, According to TNS[1], Co-op and Tesco watched their market shares erode and then flatline in the early part of 2009 as consumers looked to cheaper alternatives such as Morrisons and ASDA, or moved even further downmarket to the likes of Lidl and Aldi. Online stores, which are often able to offer products at a lower cost than their high street equivalents, have certainly benefited from this move towards better value. Recent figures from the IMRG Capgemini e-Retail Sales Index[2] show that online retailers are continuing to draw in consumers, with 15% more spent in March compared to last year. An estimated £4.5 billion was spent online in the month, compared to £3.9 billion in 2009.At the beginning of last year, NMA’s online shopping survey revealed that 36% of consumers planned to shop more online than on the high street in 2009. And, a report from Retail Decisions in January this year revealed that online sales had surged to £49.8bn in 2009 – up 21% - and 33 million Britons had made purchases online.Internet shopping is now readily available for the majority of the population. According to figures from the Office of National Statistics (ONS) 70% of UK households now have internet access[3] compared to 57% just four years ago. This, along with the recession squeezing consumer pockets, has led to an increase in online shopping.In contrast, sales volumes on the high street have dropped according to the Confederation of British Industry’s latest quarterly Distributive Trades Survey[4], which found that although 30% of retailers said that the volume of sales rose during the first two weeks in May, 47% said they fell, giving a balance of -18%.So, there seems to have been a gradual shift from the high street to the internet. Nevertheless, home shopping is nothing new and mail order has been around since the 19th century. JD Williams was founded in 1875 and starting selling products direct to customers through the post in 1882. In 1932, Littlewoods launched its first catalogue and even today, catalogues are still produced in large quantities.Many online retailers have printed catalogues running alongside their online offering, such as Tesco Direct. And many that started off as mail order catalogues, such as Littlewoods, Next Direct and Freemans, continue to provide catalogues despite now having an online presence.This is because some home shopping firms have recognised the benefit of using multiple channels. Many shoppers see items in shops or catalogues and then go online to buy them – perhaps because they prefer the ease of ordering over the internet, or because they can get a better price. Others might use catalogues or websites to browse for items such as clothes, but then prefer to make their purchase in a shop where they can try them on.So, tracking consumers’ decision making process is not as simple as whether they use one channel or another, but, by looking at sales volumes we can certainly see which channels home shoppers are tending towards when making purchases, and how this has changed during the recession.Across its member base, Transactis represents 178 retailers dealing with 38.5 million customers in the UK home shopping sector. The company wanted to use recent sales statistics to track the changes in customer behaviour that might reflect an inevitable shift towards digital.In order to do this, Transactis has created its annual Home and Fashion Online Retail Index which looks at online spend among different age groups and different retail sectors under the home and fashion banner. The index, which includes purchases of children’s merchandise, fashion items, home interior products, household goods, gadgets and certain other products bought through catalogues and websites, paints an accurate picture of the changing behaviour of home shopping customers. To create the index, Transactis used 2008 as the base period with every market activity figure for that year represented in the index by a score of 100 – thus allowing the index to show percentage gains up and down for various age groups and sectors.[1] TNS Worldpanel Grocery market share data, 12 weeks ending November 1, 2009 vs 2008[2] IMRG Capgemini e-Retail Sales Index, March 2010[3] ONS Statistical Bulletin: Internet Access Households and Individuals, 28 Aug 2009[4] CBI Quarterly Distributive Trades Survey, 27 May 2010The researchOverall, the Transactis Home and Fashion Online Retail Index spend in the home shopping sector was down slightly in 2009, proving that the high street was not the only retail sector to be hit by the recession. However, when the figures for web spend are isolated we find a more complex picture.Despite retail woes suffered by firms in the grip of recession, online shopping has thrived. Of the total home shoppers in 2008 38% shopped on the web. In 2009 the percentage of those who are web shoppers soared to 47%.The recession led consumers to become more careful with their money and this almost certainly accounts for an overall drop in home shopping, but where have the new online customers come from? The figures suggest a significant number of catalogue buyers may have migrated online. There would also have been an inevitable shift from the high street to the internet. E-retailers frequently offer better prices than competitors with a physical presence on the high street. Furthermore, by shopping online consumers make savings on fuel, parking or public transport.Reflecting the drop in the overall number of home shoppers, total spend for mail order and online combined has dropped by 10%, Transactis figures show. However, looking at the amount spent by individuals the annual average spend per person increased from £335 to £370, which has softened the impact of an overall decline in the number of home shoppers.This may largely be down to online spend. The Transactis Home and Fashion Online Retail Index shows that total web spend was up 12% in 2009 compared to 2008. In contrast, the number of total web transactions was up 8% and total web buyers rose by 4%. However, with the increase in web buyers came an increase in total web spend thanks to a rise in average annual spend per person from £351 to £376.So, despite the drop in total buyers, those who are still spending through home shopping channels in 2009 are, in fact, spending more than they were in 2008 – and the highest spenders are doing their buying online.To give a more complete picture of online spend in the last two year the figures were broken down into age profiles. As expected younger profiles are more active online while older people are less active – only 7% of home shopping spend by the over 75s is conducted online. Nevertheless, this is the group with the largest increase in the number of web buyers – up 10% in 2009 compared to the year before. On the other hand, average web spend person for this category went down by 5% and average web transactions were down 4%. The over 75s are likely to be very careful with their money since they are living off pensions and probably shop around more in order to get the best deals. While many in this age group are moving online, a majority still use mail order, and when web spend and catalogue spend are combined for this group we see the average spend per person and average order value going up between 2008 and 2009.In contrast, the 18 to 24-year-old age bracket is the only one to have decreased in numbers when it comes to web buyers with a 6% drop – which may simply be due to the high rate of unemployment in this group curtailing disposable income for some. However, this group also showed the greatest increase in total web spend (up 27%), average web spend per person (up 35%), average web transactions per person (up 33%) and total web transactions (up 25%), making it the most active group of buyers online.The largest group of online consumers is made up of 35 to 44-year-olds who accounted for 29% of all web spend in 2009 (slightly down from 30% in 2008). Average web transactions per person for this group are down by 3%, but average order value per person is up by 5% and total web spend by 7%.The greatest growth in online shopping activity is coming from people aged between 35 and 54. In 2008 amongst 35 to 44-years old 52% of home shopping activity was web-based, and amongst 45 to 54-year-olds the figure was 40%. In 2009 this increased to 66% and 52% respectively. In comparison web-based shopping activity amongst 18 to 24-year-olds increased only slightly from 68% to 70%.25 to 34-year-olds represent the biggest web spenders with the highest average web spend per person at £513, closely followed by 18 to 24-year-olds at £490. In contrast, the over 75s spend just £151 per person on average.Between 2008 and 2009 the 65 to 74-year-old age bracket remained static in terms of total buyers. However, in contrast, total web spend shot up by 9%, as average order value and and the number of transactions both increased for this group even though the number of shoppers remained the same. This age group represents those going into retirement. Some may be downsizing and releasing equity in their properties, while others who are starting to draw a pension may opt for an initial lump sum payment upon retirement. Therefore, a number of consumers in this group may have a seen a boost in disposable income, which may have helped to ease the effects of recession and encourage spending.Similarly, total web spend for empty-nesters (represented by the 55 to 64-year-old age bracket) increased by 11%, despite average transactions per person remaining static. This was because there was also an 8% increase in the number of online shoppers in this demographic, and the figures show that this group was spending more online in 2009 than in 2008. This is not particularly surprising since consumers in this profile group tend to have high disposable incomes as a result of children leaving home and mortgages being paid off.

The Transactis Home and Fashion Online Retail Index

But, where was this spend being distributed? In order to get an idea of the winners and losers in home shopping Transactis split the annual spend figures into sectors. Since the home shopping retailers that Transactis represents are predominantly based in the home and fashion sectors that is where our analysis will be concentrated, since smaller categories cannot be considered representative of the nation as a whole.The first interesting observation to be made is that 18-to 24 year olds account for the greatest increases in spend in 2009 in all categories – yet this was the only group to experience negative growth in the number of online shoppers between 2008 and 2009. Those in this age group that are still shopping online are clearly spending more than they were in 2008.Reflecting the rise in total web spend between 2008 and 2009 children’s merchandise was up by 6%, adult fashion by 9%, home interiors by 14% and young fashion by 15% with household goods showing the greatest increase of 24%. The only category to show negative growth was gifts and gadgets, which was down 2%.The greatest increase the Transactis Home and Fashion Online Index showed in internet spend is found in the household goods category. This was up 24%. All age groups increased spend on household goods in 2009 except for the over 75s who showed an 11% drop. Household goods were most popular with 55 to 64-year-olds when bought online with a 42% increase between 2008 and 2009. This is clearly where empty nesters are deciding to spend their newly found disposable income.Young fashion saw the second greatest increase in total online spend (15%) between 2008 and 2009, according to the index. 18 to 24-year-olds increased spend in this category by 34% while the only consumers not to increase online spend were 65-74 year-olds whose spend remained static.Adult fashion enjoyed increased internet spend in 2009 from all age groups – the greatest increases coming from 18 to 24-year-olds (up 21%) followed by the over 75s (up 18%).Although spend on children’s merchandise showed an overall increase, some age groups reduced spend in this category. 35 to 44-year-olds spent 4% less online in 2009 than they did in 2008 while spend for the 55 to 64-year-old age bracket was down by 1% and for the 65 to 74-year-old group was down by 9%. However, a 44% increase in spend by 18 to 24 year-olds as well as increases in all other age groups ensured that this category enjoyed overall growth of 9%.Gifts and gadgets was the only category to witness a drop in online spend in 2009. Although spend by 18 to 24-year-olds was up by 35%, it remained static with 25 to 34-year-olds and 45 to 54 year-olds. All other age group spent less with greatest drop being 65 to 74-year-olds at 13% year on year in 2009.In the home interiors category, although overall online spend was up by 14%, the over 75s showed a dramatic decrease of 48% in online spend in 2009. This category was most popular with 18-24 year-olds with the index showing a 47% uplift spend in the category for this group.

Index figures for each product category broken down by age group:

Implications for catalogue and online retailersSo, what does this all mean for home shopping firms? Based on the figures, businesses could mistakenly think that traditional mail order shopping is dead and that all investments should go into the web channel.But when age profiles and shopping categories are studied in more detail it is easy to see that some customers still prefer to use traditional mail order. This is particularly the case with older generations. Only 7% of home shoppers aged over 75 choose to use the internet in contrast with 25 to 34-year-olds, of whom 74% choose online over traditional mail order. However, the 9% of over 75s who do use the internet should not be ignored. On the same note, it should not be assumed that all 25 to 34-year-olds will be using the internet for home shopping.Therefore, not only should different age profiles be contacted in different ways but individuals within an age group need to be treated specifically according to their behaviour.Many home shopping retailers that switch off what they perceive to be expensive and outdated catalogues and other direct mail communications have to go back as they realise the importance of combining channels. Informed use of multiple channels is key in today’s retail environment, and one particular Transactis client – a home and fashion retailer – has found through its own research that customers who receive a catalogue as well as trading online are actually 40% more valuable.With the decision-making process that leads to a purchase much more complex thanks to the advent of the digital age, it is rare that a customer will use just one channel when choosing what to buy and how to buy it. Rather, a mix of channels is employed and this is naturally the best way to communicate. What’s more, the consumer should see the retail brand as a single entity with multiple contact points.Some customers are more likely to visit a website following an email communication, while others are more likely to be encouraged by a piece of direct mail to pick up the phone and place an order. Yet others may find an SMS message a more convenient reminder that will lead them to access the internet from their mobile phone.The range of possible media combinations is almost endless. Research we commissioned a couple of years ago aimed to find out which media combinations produce the best response uplifts. Based on a solus direct mail piece with a postal response mechanism, uplift was found to be greatest when a freephone number was also added as a response method. This was closely followed by email, then by a personalised URL. Website, phone and SMS were all found to be less effective but still produced significant uplift. This demonstrates the extent to which a multichannel approach can increase the likelihood of a purchase.The important thing for retailers to remember is that understanding the customer is vital. Retailers should be trying to match their customers’ needs and preferences with the right channels rather than forcing customer behaviour. It is no good forcing more digital communications onto someone who is more likely to respond through direct mail or a printed catalogue. For instance, pushing middle-age customers (the safe bets in mail order) online without a clear strategy could be problematic.There has clearly been an increase in web buyers across all age groups and proportionally the greatest increase has been with the over 75s (10%) followed by 55 to 64-year-olds (8%) and then 45 to 54-year-olds (7%). There is clearly a growing need to address digital communications and online shopping for these age groups. Nonetheless, it is too easy to assume that these older consumers are happier with traditional channels. While this may still be the case the figures show that this is changing and retailers who do not address this now will be caught out in the future.At the same time, home shopping businesses that operate purely online could be missing a trick with these older middle-aged customers. Another mistake pure etailers can make is to assume that older customers are relatively low value and therefore less worth bothering with. However, those living within the means of their pensions are more likely to shop around for the best bargains and are therefore spreading spend over multiple retailers.The solution to dealing with this issue – for older consumers or for younger demographics – is to find out exactly what these consumers want to buy, when they want to buy, and how they want to buy. That way offers and incentives can be provided to suit their needs and prevent them from having to shop around for a better deal. Tracking and understanding consumer behaviour is a vital part of this process – the more a company knows about individual customers, the more it can tailor communications and strike the right chord with each.Single Customer ViewFor catalogue and online retailers, effective customer management boils down to having effective strategies for acquisition, retention and managing value in place and this requires a 360 degree view of customer behaviour.Different customers behave differently online – someone who has browsed through a catalogue and then logged on to make a purchase behaves differently to someone who has gone straight to the website without knowing what they are going to buy. Individuals also behave differently online than they do offline. Some may find themselves spending more online as it is easy to click a button, but they may shop in a more organised and careful fashion if they are using a catalogue. Some may spend more frequently online but when shopping through a catalogue they may place a bulk order but less often. Others may buy one type of product online and another through a catalogue.Retailers need to use their own data to understand the different behaviours in order to understand how customers interact with their business. This involves bringing all data within the organisation together to form a central resource that can provide a single customer view.To extend this capability even further organisations can pool their transactional data so that each member of the pool has access to the data owned by other members. This means that a consumer’s behaviour can be tracked across multiple retailers. Each retailer can analyse frequency of spend, value, the type of products being bought, and share of wallet in order to target customers with relevant incentives and communicate via relevant channels. If a retailer notices that a customer who only spends with them once or twice a year is buying similar products from another retailer, they can adjust their communications accordingly in order to encourage the customer to buy more from them.ConclusionOnline shopping is inevitably growing and doing so quickly. The recession has clearly had an impact on customer spending habits encouraging them to seek out cheaper deals – something many online retailers have been able to offer in tough financial times.With such dramatic change in customer shopping habits retailers must be on the ball with tracking the behaviour of individuals. Transactis’ Home and Fashion Online Retail Index clearly illustrates the dangers of making assumptions about retailers based on age groups. It is vitally important for retailers to understand how each individual behaves online as well as offline and one of the best resources for this can be pooled transactional data.By bringing together multiple data sets from different members of the pool a comprehensive picture of each consumer can be realised. This not only helps retailers target individuals with relevant offers, but can help them create profiles of the best customers and then search for look-alikes within the pool.The recession has clearly driven a major change in customer shopping habits but retailers should remain on their toes as it is difficult to predict whether these changes are long-term or whether an improving economy will lead to further developments in the home shopping sector. Consequently retailers need to continually track changes in customer behaviour in order to adjust retention and acquisition strategies. At the end of the day, the more you know about a customer, the better decisions you can make.

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