Online retail revenue declines for 26th consecutive month amidst promising traffic index

The Interactive Media in Retail Group (IMRG) Online Retail Index, which analysed the online sales performance of 200 UK businesses, has revealed that online retail revenue fell 1.2 per cent year on year in June.

This marks the 26th month in a row that growth has been negative or flat. IMRG disclosed that from a month-on-month perspective, the overall online market revenue climbed by 1.4 per cent in June, which is in line with the projected growth as summer approaches.

Despite the fall in revenue, the website traffic measure increased by 1.9 per cent year on year, following a seven-month fall. This was even more optimistic when compared to May, with traffic growing by 5.4 per cent. This indicates increased client demand, possibly as a result of communal festivals such as Father's Day and Pride.

Increased website traffic could be attributed to this year's favourable weather conditions. In 2023, consistently warm weather didn't arrive until June, and when it did, it was the hottest June on record. This had a significant impact on demand in several categories, such as clothes, which, while still down 2.3 per cent year on year, experienced some good weeks. Furthermore, footwear increased by 0.7 per cent year on year. However, traffic performance does not always equate to revenue performance.

"Following the pandemic boom, when lockdowns drove huge surges in online purchases and it appeared possible that its penetration into retail overall had rocketed forward several years, the market has actually been in decline ever since," said Andy Mulcahy, Strategy and Insight Director at IMRG.

However, Mulcahy expressed optimism about the future, noting that the downward trend is starting to reverse, potentially in time for the crucial retail period of Black Friday and Christmas.

He added: "Provided, of course, the looming mortgage crisis doesn't blow everything off target again."

In another development, the E-commerce Delivery Benchmark Report 2023, commissioned in collaboration with economics consultant Retail Economics, discovered that 80 per cent of retailers planned to raise product prices, with 40 per cent citing rising costs as the major difficulty this year.

Furthermore, non-food retail sales in the United Kingdom are expected to reach GBP 249 billion in 2023. This represents a 2.6 per cent growth in value terms. UK retail sales volumes are expected to shrink 4.9 per cent in 2023 compared to last year.

This points to the fact that buyers are simply having to pay more in order to obtain less for their money. This is with the retail inflation forecast reaching 7.5 per cent in the coming year.

However, the British Retail Consortium (BRC) just recorded a 12.5 per cent increase in overall UK footfall in January (YoY). This was 2.6 percentage points lower than in December, although it was higher than the three-month average of 10.3 per cent.

Cost pressures and altering buying habits are major concerns for retail companies, the report pointed out. Retail companies are facing high input and operating expenses, and with margins under pressure, some of these costs are likely to be passed on to consumers, especially as retailers look for ways to save money and protect margins. As a result, 74 per cent of UK consumers want to adjust their spending habits and reduce their expenditure in order to cope with the crisis.

Forecast for non-food retail sales and the influence on inflation: Many shops are enthusiastic about trading prospects in 2023, with more businesses seeing the economy positively than negatively, and only 20 per cent expecting reduced consumer demand in the coming year.

Consumer sentiment and economic estimates usually contradict retailers' expectations for the coming year, the report emphasised 80 per cent of small business retailers polled expect order volumes to be the same or higher (59%), with a third expecting order volumes to be 10% higher or higher.

According to the report, the cost of delivery is likely to be the most important conversion factor influencing retailers in 2023. However, the operating cost challenges that firms are facing may make this a difficult challenge. More than a quarter of retail businesses expect to raise the cost of delivery for their consumers this year, while only 18 per cent say they will not raise the price of products, delivery, or returns.

Furthermore, the report showed that many buyers are concerned about the environment, with 79 per cent saying they would explore green delivery choices when purchasing online. Consumer opinions of "second hand" goods are also evolving, and retailers are responding to rising consumer demand for cost-effective and environmentally friendly alternatives to buying brand new. Over a quarter of customers intend to buy used or use online resale marketplaces more frequently in the coming year.

According to the study, 61 per cent of consumers still aim to tighten or limit discretionary expenditure in the coming year, with 35 per cent planning to switch to cheaper brands when purchasing clothing. As consumers seek value, they may become more channel-agnostic, hopping between physical and online stores to obtain the best offers. This could hasten the transition to a hybrid retail future that combines the best of physical and internet retail.