Comment: How did the online retail sector perform in Q1?

The first quarter (Q1) of 2016 has come and gone – and the good news for online retailers is we didn’t see a repeat of what happened last year.

In Q1 2015 we recorded a full quarter of single-digit growth for the first time in the history of the index. If you include December 2014, when growth was just +4.6% – the lowest December rate so far – there were actually four consecutive months of single-digit growth.

It had many retailers scratching their heads as the year was so slow to start from a sales perspective – it couldn’t just be related to Black Friday, could it?

Well, probably not exclusively. We looked into what could be going on and identified five potentially contributing factors (see ‘What caused the online sales growth slowdown in Q1?’) – of which, the fallout from Black Friday in 2014 was one.

With two ‘new format Black Fridays’ now behind us, it can be easy to overlook just how disruptive to established shopping patterns Black Friday 2014 was. Not only did it pull a huge volume of sales from December into November, there is also evidence from our index that December is determining in terms of Q1 growth.

If you look at the below table, you’ll see that the month-on-month growth rates for Q1 over the past five years remained on trend – even through the downturn in Q1 2015 – so the growth rate in December seems to be key to Q1 performance.

Signs of improvement

Across all devices, Q1 2016 didn’t feature a repeat of the downturn we recorded in 2015 – with January (+14%) and February (+16%) coming in above our start-of-year forecast and March (+11%) in line with it. Growth for Q1 as a whole was +13.7%.

Looking at mobile devices (smartphones and tablets) specifically, overall sales growth slowed to +31.2% year-on-year in Q1 2016, sliding from +37.9% in the same period last year and +61.6% in Q1 2014.

Although this indicates a downturn in performance for mobile devices, it masks two very interesting and clear trends that are feeding that slowdown.

On the one hand tablet growth has been slowing sharply recently – it was up just +10.5% in Q1 2016, which is the first time sales via this platform have recorded a lower rate of growth than overall e-retail sales in a single quarter.

The likely reason for this is smartphones are now becoming a significant sales device in online retail – not just in relation to browsing and researching etc, but for actually completing purchases – and it appears the slowing tablet growth is the result of shoppers using smartphones in situations where they would previously have used a tablet (ie on the sofa).

Over the same period, annual growth in sales via smartphones doubled – from +48% in Q1 2015 to +96% in Q1 this year.

Discounting scaling back?

Throughout 2015 we frequently recorded a drop in average basket values (ABVs) which (with apologies for bringing it up again, but it’s a tricky issue to avoid these days) may also have been related to Black Friday 2014 and its impact on the shopper mindset – the duration and scale of discounting campaigns in general were above where many retailers would have liked them to be.

However, there are signs these may have been scaled back now to an extent – which is reflected in the Q1 2016 overall ABV rising +5% on the same period last year, reaching the highest rate for this period since Q1 2012.

Does this mean we are seeing a reversal of the ABV trend seen in 2015? Early days still, but just maybe.

Sector performance

The top-performing sectors in terms of year-on-year growth during Q1 2016 were accessories, home, menswear, footwear and home & garden. Garden and beer, wine & spirits were the only two recording an annual decline in sales compared with Q1 2015.

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