The weather may have improved, but people are still shopping online. But what they’re buying and how much they’re spending may surprise you. In a recent podcast, MasterCard Advisors’ SVP Market Insights Sarah Quinlan caught up again with MPD CEO Karen Webster to share all of those details, including the one thing for which the average spend is $2500.
KW: So e-commerce sales have been really setting the world on fire lately – has that held up this summer so far?
SQ: Well, of course they’re going to abate a bit in the summer because many of us actually want to get outside and shop as opposed to sitting at home now that the weather has improved. So, we saw a drop in rates into high single digits in the month of June.
That being said, overall, we are still having strong year-on-year in e-commerce and all categories. It’s a channel-friendly environment, and we’re looking for retailers to understand that e-commerce is used by consumers as an additional channel, not as a substitute channel. It’s really a compliment to the way that they are spending their hard-earned income.
KW: What are you seeing in terms of the categories within e-commerce that are driving spend up or perhaps where there is some slowness this past summer?
SQ: It’s interesting – traditionally, the categories where we’re getting more comfortable are categories like apparel. Twenty-three percent of apparel is actually sold online now, much higher than one might expect. The other category where we see channel share by sector is department stores – 17.4 percent of department store sales are done online. But more interesting is that we’re actually seeing, in that case, a cannibalization – people not enjoying the brick and mortar physical experience in department stores. So in that case e-commerce is more of a substitute, where as with apparel, it’s more of a compliment.
KW: So do you think that has anything to do with shipping and return policies? I know for myself, I’m much more apt to buy something online if returns are easy and free.
SQ: I think it really depends on the consumer. I’m the exact opposite – I only buy things online if I don’t ever have to return! What I will say, though, is where we are seeing increased purchasing online is where the entire experience has been facilitated – in other words, if shoppers could enter in their details easily, get the size and merchandise they wanted, and the delivery timing and place was accessible. So places where there is flexibility in the channel. Another factor that influences sales, which is very important to MasterCard, is whether or not the security of the transaction was there – if people are understanding and feeling comfortable when making a purchase online, and if the merchant has made sure of this.
KW: Let’s talk a bit more about what you just touched on – the idea of cannibalization. There a lot of merchants wanting to avoid brick and mortar retail, yet some e-tailers are establishing physical presence because they want that experience for their consumers. What are you seeing with respect to the shift between brick and mortar to online, and vice versa?
SQ: First of all, we will never fully transition from brick and mortar to e-commerce, so that’s been highly over-stated. When you think about it, 12 percent of total retail spending is gasoline – that we get at the gas station! Another thing that makes up for a huge percentage in double-digits is restaurants. While we can order delivery online, most people prefer that experience of dining out. Also, there is that a social experience in shopping, walking and talking with your family or friends. Brick and mortar will therefore never go away.
The issue is: in which category will it act as a substitute? First and foremost is electronics – that’s a commodity. You can be price-sensitive, and those items don’t actually have to be something you have to try in the store. About 50 percent of electronics are now purchased online, and I expect that number to increase – there will be fewer and fewer places where we actually go look at those types of devices.
That being said, apparel will slightly continue to grow – people still want to touch the fabric and see the color in stores. Online is not quite the same experience, so I think both channels will continue to be popular for that.
What’s fascinating is to watch 12.1 percent of jewelry being purchased online – at higher price points than you think, around $2500 on average. So people are absolutely comfortable buying a diamond, for example, online. That’s something that I think is a surprise to many of us, and that number continues to grow each month.
KW: That boggles my mind. I guess, if I’m thinking about it broadly, consumers are clued into particular brands and reputations of jewelers – perhaps in that case buying online is therefore just easier than buying in the store.
SQ: Yes, absolutely. But you still have to take it with a grain of salt, because over 80 percent of jewelry sales are still being done in independent jeweler stores. So we still feel comfortable with having our own private family jeweler – but it will be interesting to see how that evolves.
That’s especially important going into holiday, because we noticed last year that small business had been out-selling large business by 3-5 percent per month in terms of total retailers with less than $50 million annually. The only month where they really dropped was in December, where consumers actually really embraced online shopping. So the question is will the small independent retailer become e-commerce savvy by this Christmas because that will be extremely important to their overall year.
KW: Let’s talk about omnichannel. It’s a lot harder than it sounds – what are you finding to be some of the things that successful retailers need to be thinking about to deliver the right balance to the consumer and also to their bottom line?
SQ: I think the most important thing is that what people see in the physical store needs to be available online. Certain retailers have taken the opposite strategy, but in terms of the data that we’ve seen, it has not been as successful a strategy as making products available online and give consumers the access to goods that they so desire.
That’s the distinction. Consumers just want to be able to get whatever they see in the store that they may have previously seen in a store window. That’s really what we’re seeing in terms of the data, but a lot of retailers separate online offerings from what’s in-store, operating as different organizations. That’s a strategy that has shown to be not as effective.
KW: I agree, it’s not about multichannel, it’s about omnichannel – a seamless extension across every outlet. It’s hard because a lot of these large retailers have been set up as multiple channels as opposed to a single channel with multiple touch points for the consumer.
SQ: And a lot of the leadership of these larger retail chains have only grown up in brick and mortar stores, so understanding the true investment needed in omnichannel is a challenge. What you have to do is make data-driven decisions off of it – you can then really track who comes to the site, who abandons, what they were looking at, to understand products offered and pricing, and more.
KW: Do you think the struggle has arisen because the retailer just didn’t think that online would be an important channel?
SQ: Absolutely. I just think they underestimated the channel, and that especially post-recession, the power is in the hands of the consumer. We always talked about it, but before, we were really at the whim of the retailer. Now, post-recession, there are more instances where both partners in a family are working, so there’s less time to do everything that needs to be done. We see this surge in online shopping happening at 10 PM at night, after the kids go to bed. Understanding and making certain that the consumer knows what’s new on the site and that it’s easily to manipulate is really key.
The other thing is that the consumer, post the recession, wants to be entertained. Retailers also have to content on their site – it’s not enough to sell things, you also have to entertain and educate. People care about where the fabric comes from for apparel, for example. It’s not just editorial coverage of trends, but also providing information about small business, for example, that has nothing to do with the product being sold – or it’s even as differentiating as posting an unrelated, entertaining article that a customer might want to read. We’re really seeing that retailing is theater.
KW: The end of the summer is drawing near – we’re already seeing back-to-school advertising. What are some of the things that you think that retailers need to be thinking about to have a strong e-commerce presence this holiday season?
SQ: First and foremost, establish it early. Know what the consumer wants to purchase, understand how people spend. Merchants have to understand the whole shopping experience. Also, continuing to emphasize the ease of the site so consumers don’t have to repeatedly enter their payment details, for example.
The third thing is that many retailers haven’t made their applications for mobile look as good as if they were sitting down at a PC. Retailers need to fix this way in advance of the holiday season. Finally, it’s important for them to understand where people are spending – do retailers have the merchandise that people want? These four things are really what they need to do to have a successful holiday.
Senior Vice President of Market Insights, MasterCard Advisors
Sarah Quinlan is a Senior Vice President at MasterCard Advisors, responsible for Market Insights, which produces MasterCard SpendingPulse, a macro-economic indicator. Her team develops products that utilize MasterCard’s aggregated anonymous transaction data to delineate actionable trends. Prior to joining MasterCard Advisors, she was the Founder and CIO of Katen Capital, a global macro hedge fund manager. Previously, she was the Chief Investment Officer and Head of Alternatives for Saad Financial Services, S.A. Prior to joining Saad, she was a portfolio manager at UBS, and at Lloyds TSB focusing on alternative investments. She was co-founder and portfolio manager of TwentyFirst Century Advisors, a small and mid-cap long/short hedge fund which was ranked in the Top 10 of Mar Hedge.
To listen to the full podcast, click here.