The success of titans like Amazon, eBay and Shopify is a microcosm for the collective growth of ecommerce retailers. It’s no secret that the popularity of online shopping has risen significantly. In fact, Forrester Research found that online retail sales grew at a compound annual rate of 10 percent between 2012 and 2017. Keeping in line with this growth, ecommerce reached unparalleled heights in Q1 2017 making it the highest earning non-holiday quarter in history.
A presentation from comScore Senior Vice President of Marketing & Insights, Andrew Lipsman definitely shed light on things. According to Lipsman, “Retail digital commerce in Q1 2017 was the first ever non-holiday quarter to exceed $100 billion (it was $100.1 billion) and now accounts for nearly 1 in every 5 discretionary dollars spent by consumers.” What’s even more impressive is the fact that Q4 2016 totaled $109.3 billion, which means two back-to-back $100 billion+ quarters. Apparel and accessories online spend grew at an astonishing rate – a faster rate than total online retail for 11 of the past 13 quarters. The reason for this growth boils down to two key factors.
Consumer sentiment of the economy is a key indicator of overall sales figures. The correlation is undeniable, and how receptive people are to buying will inevitably determine which direction retail digital commerce takes. Fortunately, “Consumer sentiment of the economy over the last two quarters was its most positive since before the recession, with the highest level of respondents selecting ‘Excellent/Good’” – NOT unemployment/jobs, financial markets, or real estate/home values.
This development is no doubt encouraging for online retailers and a sign of a flourishing economy. Although it’s likely to cool off a bit in Q2 and Q3, 2017 holiday sales are poised to increase by roughly 3.8 percent from 2016. Ecommerce, in particular, has positioned itself for considerable growth, and sales are projected to grow 15 percent in 2017, which is 2 percent more than the 13 percent growth that occurred between 2015 and 2016.
Mobile is Transforming the Ecommerce Landscape
The other major factor that has contributed to ecommerce growth is the widespread use of mobile devices. More specifically, there has been a surge in mobile shopping, which now accounts for 2 out of 3 digital shopping minutes. This steady growth in mobile shopping has continued over the past five years. In fact, revenue went from a meager $11.6 billion in 2012 all the way to $31 billion in 2015. But that’s just the tip of the iceberg. Q1 2017 witnessed an all-time high of 22 percent of digital commerce dollars. This increase is largely due to higher value transactions and – to a lesser degree – increased buyers and transactions per buyer.
Mobile usage hit its “tipping point” in 2015 where the number of mobile-only users eclipsed desktop-only users in the U.S. and several other countries. This event proves that mobile is now the preferred means of browsing the Internet, and it should come as no surprise that mobile shopping has increased as well.
It also happens to be a trend that’s guaranteed to continue. Recent research indicates that the number of active mobile devices is somewhere between 7.19 billion and 7.22 billion, meaning the number of mobile devices exceeds the human population. As mobile usage continues to grow, so should mobile shopping and ecommerce sales. Therefore, mobile app development is a critical component of any effective digital strategy.
Mobile Apps Drive Purchases
Mobile apps are a critical touch point for driving shopping and buying. Initiatives toward an effective app strategy can prove fruitful for retail and apparel brands. Targeting consumers on the devices they so frequently use is a given, but there is a caveat. It can be incredibly difficult for smaller brands to gain any real traction, and getting into the app store top 10 is very hard. The problem is that failing to reach one of these coveted spots dilutes the impact of a mobile app strategy.
The apps with prime app store real estate (e.g. getting into the top 10) receive a disproportionate amount of time from users. In fact, consumers spend 40 – 70 percent of their time on these mobile apps, which means some pretty measly leftovers for all of the others. Major players like Nordstrom and Macy’s take the lion’s share, while lesser-known brands may simply be ignored. Therefore, the opportunity is limited for most retailers to get their apps downloaded and used. To gain any traction, a brand must take significant measures to ensure that their target demographic uses their app — easier said than done, but what a brand’s prerogative should be.
Free Shipping is a Key Motivator
Consumers have shown beyond a shadow of a doubt that they consider free shipping to be an enticing offer. The following statistics show the precise impact that free shipping have had:
- More than 60 percent of all ecommerce transactions in Q1 2017 had free shipping
- 55 percent of people indicate free shipping as the most important factor when online shopping
- Nearly 3 in 5 consumers are at least somewhat likely to abandon their shopping cart if they discover they have to pay shipping costs at the time of purchase
The simple fact that roughly 60 percent of consumers are inclined to abandon their shopping cart upon discovering shipping costs speaks to impact that free shipping can have. A study from Stamps.com also found that free shipping was the most effective promotional tool during holiday sales. It outweighed several other traditional promo strategies such as two-for-one deals, a free gift with a purchase and even saving money on a purchase. If free shipping is something you haven’t yet considered, it’s well worth some experimentation.
Amazon Presents Challenges
Amazon is an unstoppable juggernaut that currently accounts for 43 percent of U.S. online sales. So of course it’s going to drive immense competition and create challenges for smaller brands. A big part of Amazon’s stranglehold has simply been its ability to scale and tap into a myriad of markets. One of the more recent examples is their acquisition of Whole Foods Market, which has resulted in several other competitors like Instacart, Peapod and even Google Express feeling the aftershocks of the merger. When it comes to apparel, Amazon is quickly becoming a top contender. It’s even expected to generate $62 billion in annual apparel sales by 2021, which will dwarf top competitors TJ Maxx and Macy’s who are both predicted to generate less than $30 billion each.
Shaping Your Digital Strategy
An innovative and a robust digital strategy will be essential for brands to stand out and claim their piece of the pie. But which specific steps do retailers need to take?
The consumer mobile experience should be a top priority as continued growth is projected in all categories of this area (smartphone, tablet, mobile, web, app, and so on). Retailers should invest time and money into optimizing mobile and staying at the forefront of the competition.
A mobile-first advertising strategy is equally important, as three-quarters of Americans now use smartphones. The Wall Street Journal reports, “More than half of all digital advertising is now mobile: Marketers spent $36.6 billion on mobile ads in 2016 – a whopping 77 percent increase from the year before.” To thrive, it’s important to drive traffic on mobile-first advertising platforms where audiences are spending a disproportionate amount of time compared to advertising rates.
Free shipping is obviously another way to capitalize on the burgeoning ecommerce market. Research proves that this tactic elicits a positive response and greatly increases the odds of shoppers finalizing their purchase while minimizing shopping cart abandonment. Incorporating free shipping into a company’s digital strategy can pay dividends long-term.
Keep in mind that this doesn’t necessarily have to entail free shipping on every single purchase. For instance, major brands like Apple have used policies where consumers receive free shipping only after reaching a minimum order of $50. Other brands primarily focus on this promotion during seasonal events and the holidays.
Finally, it’s smart to experiment with new emerging platforms (e.g. specialty apps and natural language processing (NLP) interfaces). As AI becomes more pervasive, NLP will become a growing necessity in order to improve functionality and enhance the experience of online shoppers. Riding the wave of innovation and tapping into emerging markets is especially vital in the more saturated industries like retail and apparel.
Q1 2017 data is tangible proof of the growth that’s happening in ecommerce. The fact that Q1 was just a shade off of Q4 2016 where holiday sales notoriously bolster the economy shows just how far it has come. If you follow retail ecommerce sales over the past decade, it’s clear that this growth is sustainable and should continue for the foreseeable future.
The primary reasons for this trend are improved customer sentiment of the economy and the increase in mobile usage. To capitalize on this trend, retailers need to understand the most effective ways in which to reach their demographic through mobile and have an innovation-centric mindset.