Webinar Transcription Kuntal Warwick: Welcome to CITC’s “Conversations from the Field – UK.” As business is now in full swing here in California, and economies open up gradually around the world, we dive into opportunities of ecommerce entry into international markets. Today we will be looking at the UK and we’re talking to Andy Mulcahy, strategy and insight director at IMRG. He’ll tell us about the ecommerce landscape in the UK, and sales and trends, as well as buying behavior that you can expect especially in the wake of COVID-19 shutdowns. Okay, Andy, welcome. Thank you for being here. Andy Mulcahy: Yes, thank you. So just to introduce myself, I’m Andy Mulcahy, strategy and insight director at IMRG. So IMRG is the trade association for online retail in the UK. So we measure online sales for online only and multi-channel retailers, and we benchmark their performance so they can see where they’re doing well and where they’re not doing well. And we do that with lots of metrics so we do it across websites as well. We know things like the checkout abandonment rate or the add to basket rate and things like that. So that enables us to give them benchmarks to say this is where you’re good or where you’re not good, but then we can also build studies on the back of that and say the good performing sites for this metric are structured like this and include this functionality, and the other ones are kind of structured like this. So it enables analysts and ecommerce teams to go and experiment with those areas and look for ways to improve. And then just on a sort of personal note, my background, if you like, I started out working with Cisco products for a while and then I sort of found a way into retail and I’ve been at IMRG for 10 years. My role really is to bring our insights to the market. But for here, if we come to the next slide, I can get into the UK market and as I say, we measure online sales and this is showing you online sales growth for UK websites for 2009 to 2019. So that is the year-on-year growth for online sales. This is an index that we do with Capgemini in the UK in this study and the orange bar there is 2019. So there was a slightly negative spin I have to put on on things here, 2019 was the lowest growth that we’ve seen, it was up 6.7%. And if you look at the blue bars there, it is actually quite a lot lower than we’ve seen in other years and does kind of go up and down a little bit. But 2018 I think was the year that we saw a bit of change for the UK market and I’ll explain why in just a second onto the next slide. So 2019 then, this first one if I just take the first line which was 2019 growth, so that is each month of the year in 2019 what the online sales growth was. Now if I was to show you the line for 2018, it was one of those kind of years of two halves, if you like, where the first half was actually really quite strong, and then the second half, there was quite a lot of bad stuff that happened. That sort of really knocked the confidence of UK shoppers. And one of the sort of big things that happened, if you like, was in the UK, you’ve got to understand that the way retail is structured is it’s traditionally been about high streets, local high streets where people go out to the shops and then online has been a very, very big challenge to that, obviously, and the high street hasn’t really adapted, to be honest. And then consequently, a lot of retailers have struggled to adapt to that, the ones that have shops. And in 2018, there was a few big names that went bust and the really big one was House of Fraser, which was a department store. And then sort of midway through 2018 it went bust. There were a lot of bad news stories that came out where people had bought something and then they couldn’t pick it up, and they were unable to get a refund. And this was in the media quite a lot so people got those stories. And then because there was so many bad stories about companies looking to close stores or reducing the number of staff they have, it kind of spooked people a bit about buying from them. So bad news about the company in the media means maybe I shouldn’t buy from them in case there’s a problem getting my order. It’s in the second half of 2018 that the line really came down a lot. And then you can see in 2019 there, it was really bumbling along for really most of early and late summer. It was really quite low growth and that was the point at which it should have been, but it should have been going up really. And November, so Black Friday is just a massive, massive deal in the UK, it’s the biggest thing that happens all year. And Black Friday in 2019 was a very, very strong one. You know, if you look at that line though, it didn’t really suggest it would be, it suggested it would be flat, but people just went absolutely crazy for it this year. So what they did is it artificially inflated, how good things were and how strong the demand was. So if it wasn’t for a really strong Black Friday, 2019 probably would have been even worse. Now if we look at the 2020 growth which is the orange line here, you can see the first two months of the year and you have to remember this, before COVID hit, well, before it was seen as a significant kind of thing that was going to impact our lives, it was completely flat, so January, February, we just haven’t seen that before. And then March was actually negative. And then you see what’s happened with COVID, where April and May, the strongest we’ve seen in 10 years, and then the strongest we’ve seen in 12 years. So it’s completely skewed the sort of trend lines if you like. So moving on to the next slide, I can show you what kind of the issues are if you like. Our impact in UK, retail have this issue hexagon with some of the issues put around it. Now, you don’t tend to get very far into a UK presentation about getting the B-word in there. I’m sure you’re familiar with it. Went on for a very long time with Brexit thing. And whether you’re a fan of it or whether you’re not is sort of besides the point, the thing was it dragged on and on and on, and companies were, therefore, unable to understand where they should put their investment in case the legislation changed. So it definitely held that up and probably stopped some of those companies from being able to really get their propositions into flight and shape. The second thing that I would bring up there was the House of Fraser example that I gave you, so the shopper confidence. So the shopper confidence kind of dropped, and then that inevitably leads to the third thing, which is extreme discount. And so discount has been a thing we’ve had for a number of years, but the last two years really has been pretty consistent. And the UK shopper kind of understands really, that you can hold out for a discount, and you’ll force retailers to drop into it because it’s the thing that they kind of have to do. So that’s problematic and then moving into the fourth thing that we have here, spend on other areas. So there’s quite a lot of speculation, I suppose, that people are not spending as much on retail stuff anymore, and instead they want experiences. I imagine this is something that gets talked about in the U.S. as well. I’ve yet to really see the kind of quantifiable data that says this is definitely happening. But it is nevertheless, a possibility that we have to recognize. And then the fifth thing there is the lack of new technology. So if I was to map on to the first graph that I showed you, which was the year-on-year growth for the last 11 years, if I mapped on the growth through smartphones and tablets so that the number of sales that are being made through smartphone and through tablet devices, you would see that when that goes up, it produces a boost to the overall growth and the reason is that it brings in new contexts for people to shop. So when people started using the tablet quite a lot for conversion, you see a boost in overall growth because people started to use it in the evening whereas before it was kind of midday at around 7:00 where the peaks were online traffic. The tablet bought in the 9:00 to 10:00 peak because people were in front of the TV with the tablet. So it’s a new shopping context hence more sales. And then the smartphone did a similar thing because it bought in the morning commute and more or less any time of day really because your smartphone is always on you. Now what we are waiting for is the next device to do that and your money would have been on the voice assistant, but it really hasn’t done a great deal. A lot of people in the UK have an Amazon or Google device, but it hasn’t really found its use in retail yet. And then the final one, and this really is last but not least, the environment, and I can’t really underplay how big of a deal this is in UK business really. This really stemmed from late 2017, there was a program called “Blue Planet II” I think made over TV shows, but there was a big thing about plastic being dumped in oceans basically and it’s really a visible thing that kind of spurred quite a big move. And the papers, right, right-wing, left-wing papers all sort of got on the back of that and said, you know, “Retail, this is outrageous. Why are you dumping this stuff around the place?” So then there was this big move towards improving environmental performance. Now, it’s been slow progress because I just don’t think that the businesses are structured to really solve this problem quickly, but the pressure is definitely on. So if you’re looking to come into the UK market, it’s a very big consideration if you can make that a good thing. So that’s kind of the UK market insight. It’s a bit negative, but you know, the growth line did flatline but I think the thing is, it’s going through a period of reinvention, you know, retail isn’t gonna go away, it’s an incredibly important part of our lives. And the way it will come back is online, the High Street is in peril, absolute peril, and it has been for a long time and so online is really the opportunity. So to look at what COVID has done, this is the weekly growth. So year on year growth by week for the year so far, so the end of January to the end of May. And as you can see, most of the year, you have a growth phase. So that’s for clothing, footwear, electrical health and beauty, and home, so they are different categories. And as you can see, the usual sort of ranges plus 20% or minus 20%, up or down, you know, week by week, you can get sort of fluctuations. But then when COVID hit, so you get into the sort of middle of March and look what happens with those lines. Footwear and clothing just fell through the floor and home, electrical, health, and beauty, if I put beers and wines and spirits on there as well, garden on its own is completely off that chart, completely off that chart. So very, very strong demand in those categories that people just weren’t ready for, and clothing and footwear had a tired time. So now what we’re kind of waiting for really is for that demand to settle down back into some kind of sensible pattern, and it hasn’t done yet. But the high street in the UK reopened on Monday, the 15th of June, so we’re waiting to see what impact that’s gonna have now that people are kind of out and about and the world is a little bit normal again. Well, they have to queue for an hour to get in a shop, if that sounds like a good idea for you. And then the final bit of information I wanted to show you here on the next slide is just some year on year, so year-to-date stuff for some of these categories. So beauty is up 42%, that’s the kind of regular frequent top-up purchase that people need to make. And obviously, if you can’t go in a shop to buy that, you have to do online massive growth. Garden, because people are locked down, it was very, very sunny in spring in the UK. We had the sunniest spring ever. Basically, it just was sunny for three months. And then beers, wines and spirits, you know, we’ve got to do something at home after all. But the real losers are clothing and footwear and this is such a big part of online retail in this country. Clothing, so many retailers sell clothing and it’s just having a hard time again because people haven’t really been going out. So how that demand sort of realigns is the sort of a big question. And that’s what I wanted to show you. So, you know, don’t be too disheartened about the UK market. It’s in a bad way but COVID has done something very strange to it and it had to reinvent itself and I think maybe this is the start of it. Kuntal Warwick: Thank you. We’ll leave your information up for just a few seconds, and then we’ll get into some question and answer. So okay, well, Andy, thank you very much. That was really interesting. And I think, you know, why don’t we get into some Q&A here. So obviously, the big elephant is Brexit, right? And so what impact, I mean, you mentioned a little bit of it, but what impact do you see that having as, you know, this sort of repositioning, and realignment begins to happen moving forward? And do you see COVID kind of overtaking Brexit as sort of the barometer by which everything is being measured in terms of online sales? Andy Mulcahy: So COVID had the more notable impact, and it has shown that, it is blowing demand all over the place. And I think we’re still waiting to see how that will settle down, or will it settle down or will people carry on buying home and garden and beers, wines, and spirits and things online to a massively enhanced degree than they were before. Grocery as well, very, very big growth online for Grocery. Will behavior now just go over to that, you know, so people who perhaps weren’t buying online before were forced to do it, and now are they gonna keep doing it is a very big question. The Brexit thing, you can’t get really a more sort of boring, drawn-out event in history than Brexit, you know. It’s a very significant thing, but it’s so boring. And it drags on for years, just political arguments and it’s such a political issue that, you know, every politician says, “Oh, we’re giving you certainty, you know, this kind of thing,” but they never really quite seem to do it. And then we were supposed to be all done and dusted by the end of this year, but then this has happened and now there’s some doubt as to whether that might be happening. So, I mean, from a U.S. perspective, it’s potentially a positive thing. It means that you don’t know how it will play out, but it probably means that we’re less reliant on Europe and looking more to other markets in the U.S. massive market, obviously, we have a very good relationship, long-standing business relationship. So, you know, possibly lots of opportunities opening up then. Kuntal Warwick: Great. Okay, thank you. And so just to get an idea of just the buying habits, I mean, we know that, you know, you’ve shown very clearly how COVID has impacted, you know, the different segments, some of the major segments. But beyond that, just want to get an idea of the buying habits and purchasing behavior across demographics, right. And how do people typically make those purchases? So what channels are consumers typically using? So can you give us an idea of just, you know, the kind of patterns and trends you’re seeing, just maybe over the course of the last two or three years of who’s buying what and what channels they’re using? Andy Mulcahy: Yeah. So the main demographic split that you would see is the most obvious that you would think really, which is the younger demographics are, you know, more comfortable with technology, more comfortable with the fact that data is tracked on you than the older ones are. But then the COVID thing has come in and that’s forced people to, you know, have Zoom calls and things a lot. People had no idea what Zoom was before and then they’re sort of being forced into it. So I wonder what impact that might have on those demographics, but generally speaking up to now, that is a split that you would have seen, and then it manifests itself in lots of different ways. So what propensity do they have for using various social networks. The younger demographic would be using Instagram and things like that, yet your older ones would just be discovering Facebook and Twitter, it’s a clear thing that you see with a lot of people. In terms of the sort of channels that they use, it’s kind of a mixed bag really. I mean, if you look at the split of revenue that retailers get buying marketing channel, the sort of big ones are, you know, search, it’s Google, that’s where a lot of stuff comes from. And then there’s others that do quite well. Email is a reasonable portion, it still does pretty well in this country. Paid social is effective, but social on its own is still that thing that no one quite understands what they’re getting through. They know they have to do it, they know it’s really important. But when they look at the actual ROI, then it becomes a little bit more sort of clouded. Kuntal Warwick: So there hasn’t been a direct connection made between ROI on social as maybe other traditional channels like whether it’s billboards or signage or television, radio if you’ve got the budget for it? Andy Mulcahy: Yeah, that’s right. I mean, it’s a last-click attribution model that we would track which is very flawed, but, you know, that’s the most logical way we can aggregate information. So if someone came from a social platform and they arrived on the site, did they go on to buy something? And that as a method doesn’t seem to deliver a lot of value. Now it might be that they see something on social and then they come through a different channel, and they buy it, in which case, it’s had a very important influence on the sale. But for the sort of flawed way that we have to track it in order for it to be consistent, you know, it’s never been very strong. Kuntal Warwick: Okay. Give us a little idea about what California businesses should know about B2C marketing in the UK. How do you recommend that they utilize social media to reach their UK audiences or are there other channels that you think work better? And yeah, what are your thoughts on how businesses can reach UK audiences? Obviously, it depends on, you know, what their product or their services, but just in general, if you could give us some, some pointers, that would be great. Andy Mulcahy: Anybody can make social work, you know. There are examples of companies who do quite well at that. It all comes down to a matter of where you put your focus. So if you’re looking to market and you think, “Okay, we’re gonna go quite heavy on email, and we’re gonna have really great campaigns and push it through that way,” then that’s probably where you’ll get you’re up with. But then the social bit doesn’t get as much attention, probably doesn’t perform very well. But there are certainly companies who do well with social because they put the time and effort and the focus on it. You know, if you don’t put the time and focus and the effort on it and you don’t plan it really well, then you know, that’s what you’re gonna get. People in the UK, you know, social media is very popular and it’s the ones that you, you know, it’s all the American ones really that are popular here. It’s Facebook and Twitter and Instagram, Snapchat, you know, these are the ones that people use so they’ll be very familiar to you. Kuntal Warwick: And so related to that then in terms of online marketplaces, you know, are there ecommerce marketplaces that have more traction, and particularly ones that are more UK or Europe-based? Andy Mulcahy: Yeah. So, you know, the big ones that would be, again, very familiar to you are the big ones in the UK so Amazon and eBay. But there are a couple of UK ones that would be of note to you depending on what you’re selling. Not on the highstreet.com would be probably the most prominent one I’d suggest and the sort of stuff that goes on that marketplace is how it sounds really, it’s supposed to be things that are a bit different and they tend to specialize in sort of personalized things. So it’s primarily a gifting marketplace. So if you’re looking for something for your mom’s 60th birthday, then that’s kind of what they’re there for, you know. They’ll do you a nice personalized frame so you can put that picture of the family in it, that’s kind of what they specialize in. And the other one that I’d suggest is Etsy, E-T-S-Y, which is a handmade marketplace. So if you’re a manufacturer, or even if you’re just an individual home making your own bits and bobs, that’s where people go to look for interesting, unique hand-styled products. Kuntal Warwick: Great. Yeah. Etsy is very well known in the U.S., you know. A number of merchants are already on there, but good to know that it has good traction and visibility in the UK as well. So, you know, Britain is a diverse and very well integrated country, what should businesses avoid or do or not do when we think in terms of cultural strategy and localization? Andy Mulcahy: Yeah. So I mean that, you know, the localization that applies is, you know, the same for any country really, you really have to do your research more than I can say in a few sentences here. We like paying on credit cards, that’s something that’s very, very popular in this country. PayPal is also fairly popular. Klarna is gaining in traction. I’m not sure there’d be anything that would really surprise you payments-wise. Delivery is its own beast really, we have a very strong preference, sorry, for home delivery. We use something called click and collect which I don’t think is a term that you necessarily have too much in the U.S. but it just means ordering something online, picking it up in a store. That’s something that’s been reasonably popular. That’s been stopped for the last few months, obviously, and I wonder what its future is, but then they have these things called locker shops, parcel shops. So what that means is if you go to a local newsagent or a petrol station or something like that, you can arrange to have your parcel delivered there so you go and collect it. The infrastructure is actually very good. There’s 40,000, I think, collect plus points across the country alone so it’s very comprehensive. I just wonder if people really understand that they can do that and you can return goods through them as well. We love to return, in this country is about 25% of stuff that we buy goes back. And I suppose the main thing to know about the country really is that we have a sort of an expectation that the customer is the center of everything. And it feeds through everything, you know. And healthcare, healthcare is free. If you need to go to the hospital and you’re the patient that’s a very important thing. It’s not a business, not a business thing. The police are there to serve you, you know, they’re not there to protect, they’re supposed to serve the public. And this kind of feeds through into our expectations with retailers, you know, we should actually 100% be everything that they care about. So that is a culture that they all really, really focus on, is it’s completely all about the customer. I’m not saying that they will get it right, but we’re people who love to moan, we love complaining about everything so, you know, social media or phoning people up and just having a go at them. That’s something you must expect to happen, that you will need to have a strong customer service response because people will complain about stuff in this country. Kuntal Warwick: Okay, very good. Well, so you touched on one thing, which is shipping and fulfillment. Who are some of the major carriers that people typically use when they’re, you know, delivering through ecommerce? So, you know, who are the popular carriers that people use, trusted carriers? Andy Mulcahy: Royal Mail is by far the biggest survey with a formal postal operator and they’ve obviously moved into parcels because they have this nationwide infrastructure. So they have a very big portion of the market and they tend to be, you know, but if you’ve got a small item, they tend to be a pretty cost-effective option for that. Hermes is the second biggest carrier, and Yodel is the third biggest but quite a lot smaller than Royal Mail. And then there’s some other slightly more niche operators like DPD, which tends to be more premium service, fast delivery. And then there’s kind of lots of smaller ones. But there’s the other ones that you would be familiar with in the U.S. like DHL, FedEx, etc. you know. UPS does some stuff in this country as well. Kuntal Warwick: If somebody is looking at let’s say the UK as a starting point, I know oftentimes the UK has been kind of the gateway to the rest of Europe for particularly a lot of American companies, and let’s say a brand is looking to create a footprint in the UK and then looking to go on to Europe, are there other carriers and fulfillment companies that operate in both areas, or is it really quite separate now at this point? Andy Mulcahy: Every country has its own carriers, really. I’m afraid, you know, when you go to Europe it is 27 different countries in the EU list and they all have their own unique thing. So it is true that traditionally we’ve been seen as that sort of launchpad because of the shared language, it’s an easier thing to do. But in each country, most of them speak different languages and they will have cultural, you know, preferences for how a website would look, what color it would be, where a button would be. The payment methods can really vary. So every market has to be treated like it is an independent market because it absolutely is even within the EU and it’s kind of common framework. Kuntal Warwick: Very good. So the last question I have for you is if you have one takeaway that you can provide to California ecommerce businesses that are looking to enter the UK, what would it be? What’s your one bit of advice that you would leave us with? Andy Mulcahy: I would say the UK market is extremely competitive. It has been for a very long time. It looks like it’s probably gonna be more competitive now because even the companies that weren’t doing online are now being sort of forced into it. And High Street is, I’m afraid, just not gonna survive in its current guise. So we are entering a new phase of retail, I think, so it’s pretty exciting time. But having said that, you know, it’s very competitive, but there’s always space for a niche you know. So if you if you’ve got something that you, it might be that you’ve got a certain product that maybe isn’t very available in the UK, then you know, you can make it work. And, you know, just doing things, if you do something really well, then you can succeed. So it’s definitely a very interesting market, very voracious shoppers in this country, we love retail. But, you know, just make sure that you do your research and you work out what your niche is and how it is that you’re gonna compete in that space because a lot of people are there already. Kuntal Warwick: Excellent. Thank you, Andy. Thank you for being here, and for giving us a little bit of an insight into the ecommerce market in the UK.