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What Does The 2017 Election Result Mean For Online Retail?


By: Charles Scherer

As you’ll no doubt have heard ad nauseam, the election did not go to plan for the prime minister. The expected landslide victory did not materialise.

Where there might have been a little more certainty in political proceedings, we have a hung parliament, a loose ‘confidence and supply’ agreement in the offing that will stop short of a coalition, and quite possibly less certainty than we started with.

So, what does this mean for online retail?

‘Nobody knows’ is the unsatisfying answer that could be the most accurate. But I’m prepared to entertain some ideas. In the spirit of IMRG’s neutrality, here are some opposing positions.

On the one hand...

We might see very little change at all, certainly in the short-term. We saw in the April delivery Index (reporting March) that domestic order volumes, on the whole, remained largely unaffected by the spectre and triggering of Article 50 (see figure 2 below for trend line), and that average order values continued to improve.

Figure 1: Average order value, IMRG MetaPack UK Delivery Index, March 2017

Figure 2: IMRG MetaPack UK Delivery Index, volume comparison

Is it, therefore, a reasonable surmise that the public is becoming accustomed to modest political upheaval? From June 2016, when the public voted for Brexit, to now, when the public effectively voted ‘neither’ in the general election, nothing has been particularly predicable. Events have had a habit of defying prediction.

People may be becoming desensitised to the unlikely and the uncertain. The state of flux might even become the new normal. If people were to hold off from making purchases every time there was a major political event, they’d never buy.

Shoppers’ stiff upper lips may win the day.

Consider also that there’s a mismatch between what a political junky considers a momentous occurrence, and what the average citizen will react to. If you seriously follow politics, the election result is a paradigm-shifting event which holds weeks and months of fascination. Many will have just raised an interested eyebrow and moved on. Most shoppers fit the latter description.

On the other hand...

It won’t have escaped your notice that when the election result was announced, the value of sterling dived.

Figure 3: Sterling value drop following the UK general election result

As I write, it’s still around £1.27 against the dollar. Until it recovers, we might expect a leap in cross-border orders as the cost to shoppers in other markets is more attractive.

Shoppers from overseas are astute when it comes to cross-border shopping. The IMRG Metapack UK Delivery Index showed that, in June 2016, after the Brexit referendum and another sterling drop, average order values cross-border leapt up 13%. In July, after a month of post-referendum trading, average order value was up over £5 for orders from the EU – as, though the cost of products became cheaper for these shoppers, they may have been filling their baskets with multiple items.

Figure 4: Average order value, IMRG MetaPack UK Delivery Index, July 2016

It would be a surprise if the same didn’t occur now. The pound is weak, so expect overseas shoppers to take advantage of that.

Next, even if only in the short term, shopper confidence could be taking a hit. Taking a lesson from the Brexit referendum again, we know that shoppers can and do respond with caution to major political events.

There was a knock to confidence after the referendum vote. In the month following, there was very little growth, at a time when we usually see a small peak in online purchases. As inflation bites, costs to domestic shoppers may need to be hiked up – which is likely to be a major factor impacting confidence.

IMRG MetaPack UK Delivery Index, July 2016, volume index

 

And then to the Brexit question a year later. We know it’s happening, because Article 50 has been triggered. But we still know little about how it will look. The prime minister doesn’t have the strengthened commons majority that she expected would make the negotiations easier.

We don’t know what the cost of leaving will be. We don’t know whether the UK will still be in the single market. Every question has the potential, when answered, to affect the economy negatively, and to inspire further shopper apprehension.

There may be another prime minister soon. There may be even another general election. There could be even more fallout to come. So the election could mean a series of upheavals that weaken the pound and shopper confidence.

 

Views from IMRG members

Paul Galpin, Managing Director, P2P Mailing:

“Business likes certainty. Planning and projections are difficult without stability and an election that was intended to deliver clarity has only succeeded in raising more questions.  But there are opportunities in the current climate, particularly for those eCommerce businesses with an international customer base.

“A minority government and a confused Brexit picture have resulted in a market that is anything but strong and stable. Perhaps the outcome will be a revised and softer Brexit strategy than that which would have otherwise been pursued. In the meantime, today’s relatively weak pound means shoppers from abroad are looking to pick-up bargains from UK sellers.

“eCommerce remains a massive sector globally – and cross-border eCommerce is growing at a staggering rate. A report from Accenture states that cross-border online shopping will see compound annual growth of 27.4 percent over the next five years, double the rate of worldwide B2C shopping as a whole. The market is expected to balloon in size to $1 trillion in 2020 from $230 billion in 2014.

“Those businesses with strategies in place to attract cross-border sales – and to deliver smoothly to international destinations – may well find the current confused state of play beneficial as shoppers abroad look to take advantage of a depressed pound.

“Politics is always cyclical and market uncertainties will undoubtedly evaporate over time. How much time is still open to debate – but many UK eCommerce businesses are not waiting and wondering.”

 

Sebastian Steinhauser, CEO, Parcelly:

“Will the new government row back and reverse the Brexit decision? We highly doubt it will and we’re OK with that - whatever the outcome, we will be working towards turning it into a positive shift.

“At Parcelly, we believe there is a silver lining to every cloud and we thrive on channelling uncertainty into an opportunity for success.

“In online retail and logistics terms, it is almost certain that cross-border delivery charges will continue to be a subject for the Brexit negotiations with the EU. However, we must not rush to conclusions as there are no signs that the domestic and cross-border ecommerce growth will be affected under a new government.

“Whilst parliament is forming, it is crucial to start preparing for the incur of increased charges and what impact this could have on the traffic direction and volume of parcels delivered. One way of preparing for the unknown is by potentially cutting down on costs that won’t be missed. We’d expect retailers to drive for greater efficiency in their processes, so as to ready themselves for whatever may come.”

 

By: Charles Scherer - Deputy Editor at IMRG

 

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