It will be a “more, more, more” holiday season for digital channels, devices and assistants in retail:
- More Americans will do their holiday grocery shopping online this year. Grocery e-commerce sales will be boosted by Walmart and Kroger rolling out more collection points and Amazon will enjoy an uplift from its Whole Foods Market acquisition.
- More consumers will use smart speakers such as the Amazon Echo, Google Home and Apple HomePod to make purchases this year. Google Home owners in the US can already use their devices to shop from Target.
- E-commerce will be a more important channel over the holidays than it is during the rest of the year. We expect 14.0%–14.5% of US retail sales to be made online in the fourth quarter of 2017. In the UK, we expect e-commerce to capture 17.5%–18.0% of all retail sales in the holiday quarter. E-commerce’s share of sales will be significantly higher in nonfood categories such as apparel and electronics.
Executive Summary: “More, More, More”
In the US and Europe, this holiday season will see digital channels capture more spending, digital devices play a greater role in the shopping process and digital assistants help more shoppers:
- More Americans will do their holiday grocery shopping online. E-commerce grocery sales will be boosted by Walmart and Kroger continuing to roll out collection points and Amazon will see a lift from its Whole Foods Market acquisition.
- More consumers will use smart speakers such as the Amazon Echo, Google Home and Apple HomePod to make purchases this year.
- Chatbots will provide customer-service support to a growing number of shoppers.
- E-commerce will be a more important channel than is sometimes recognized. The online channel gains share of all retail sales in the holiday period, and we expect 14%–14.5% of US retail sales to be made online in the fourth quarter of 2017. In the UK, we expect e-commerce to capture 17.5%–18% of all retail sales in the holiday quarter. E-commerce’s share of sales will be significantly higher in nonfood categories such as apparel and electronics.
- Mobile shopping will be more mobile than ever as greater numbers of consumers shop via smartphone and “sofa surfing” on tablet devices stagnates.
- More gifts will be bought from third-party sellers on marketplace websites this year than in any previous year, helped by the growth of third-party listings on sites such as Walmart.com and Amazon.com.
Readers may also be interested in our other holiday 2017 reports, including:
- How the US Shops: Where Consumers Will Be Shopping This Holiday Season—and Why
- US Holiday Outlook 2017
- UK Christmas 2017 Retail Outlook: Solid Growth Expected to Take Holiday Spending to £79 Billion
Our Six Key Digital Retail Trends for Holiday 2017
1. More Groceries Will Be Bought Online than Ever Before
More Americans will do their holiday grocery shopping online this year than ever before. Online grocery sales will see a boost as Walmart and Kroger continue to roll out collection points and as Amazon sees a lift from its Whole Foods Market acquisition.
The US remains a nascent market for online grocery retailing—e-grocery is much less developed in the US than in European countries such as the UK and France. But US online grocery is set to balloon this holiday season. Based on company statements and the rapid acceleration of collection points by Walmart and Kroger, we think it is reasonable to expect US online grocery sales to grow by 50% or more year over year this holiday season.
Walmart has stated that its customers will be able to pick up their online grocery orders at 1,100 locations by the end of this year; that number will nearly double in 2018. Both Walmart and Kroger had more than doubled their collection point numbers year over year by the end of the first half of their current fiscal years.
- Walmart grew its total e-commerce sales by 62% in the first half of its fiscal 2018 year and it expects e-commerce growth to be around 40% for the full year. This total includes nongrocery categories and the benefit of its acquisitions, notably of Jet.com.
- Kroger reported that digital revenues were up 126% in its most recent quarter (ended August 12), driven by its ClickList grocery collection service.
Amazon’s acquisition of Whole Foods looks to be adding further impetus to e-commerce channel growth. Amazon sold an estimated $1.6 million of Whole Foods store-brand products in the first month after taking over the chain, according to e-commerce data firm One Click Retail.
However, some online grocery growth at the abovementioned retailers appears to be coming from incumbent e-grocery retailers. On its first-half 2017 earnings call (latest), Ahold Delhaize management remarked that its long-standing home-delivery service, Peapod, was growing only “in the high single digits,” below its aim of double-digit growth.
2. More Consumers Will Be Buying via Voice Commerce
More consumers will use smart speakers such as the Amazon Echo, Google Home and Apple HomePod to make purchases this holiday season.
Voice commerce will be a fast-growing, though still niche, segment of e-commerce this holiday season. The launch of Apple’s HomePod in December 2017 will add further momentum to the channel. So, too, will retailer tie-ups such as the one announced in October between Google and Target that enables Google Home owners in the US to shop from Target via their smart speaker.
Voice commerce provides shoppers with yet another route into online shopping, whether for research or purchase, adding to the “spaghetti bowl” that the online shopping journey now resembles. While it adds complexity, we do not see voice commerce as impacting the overall shopping landscape in the near term, as the lack of visuals will almost certainly limit its status as part of the shopping journey.
In the US, the Amazon Echo remains the leader in smart speakers, per a Cowen and Company survey cited by QZ.com. One in seven US consumers owned an Echo device as of July 2017 and one in 17 owned a Google Home device.
We see the Echo supporting Amazon’s penetration of the grocery market this holiday season. Its Echo subsite clearly encourages customers to use Echo devices to reorder those fast-moving consumer goods (FMCGs) that they purchase frequently. At the time of writing, for example, the subsite was offering a $10 credit to US shoppers who ask Echo devices to reorder products such as coffee, pet food, laundry care and personal care products that they have previously purchased on Amazon. These kinds of branded, packaged FMCGs that consumers purchase repeatedly offer an excellent match with voice shopping, as shoppers do not need to see the products before buying—only specify their favorite brand.
3. More People Will Be Having Conversations with Chatbots
Chatbots will provide customer-service support to a growing number of shoppers this holiday season.
Consumers will not just be talking to smart speakers such as Amazon’s Echo this holiday season. They will also be having conversations with other forms of automated assistants, most notably chatbots.
Facebook Messenger began allowing businesses to run chatbots on the platform in 2016, and a number of brands and retailers deployed chatbots on Messenger ahead of the 2016 holiday period, including Burberry, Sephora, Estée Lauder’s No. 6 Mortimer Street London beauty store format, and Europe’s TK Maxx, according to Women’s Wear Daily and RetailDive.com. Macy’s, H&M, The North Face and ASOS were among those offering chatbots on their own sites or apps by the end of 2016, per a number of media reports.
We expect even more retailers to use chatbots to support their service offering ahead of this year’s peak demand. For example, British online pure-play retailer Shop Direct is working with IBM to develop an artificial intelligence–powered chatbot that can detect a customer’s mood based on the words the customer uses and the tone of his or her messages. The service is expected to be launched in time for the 2017 holiday trading period.
Supporting perceptions of greater adoption of chatbots is a 2017 survey of 500 top North American retailers by research firm BRP, which found that 14% of them have already adopted artificial intelligence–powered chatbots and digital assistants, while a further 32% plan to introduce the technology in the next three years.
Consumers look to be interested in this technology, too. In the UK, a 2017 survey by chatbot provider Ubisend found that although 75% of Brits had not yet spoken to a chatbot, some 57% knew what they were and 35% would like to see more companies deploying them.
The same survey found that what UK consumers most want help with from chatbots is basic, functional queries, as we chart below.
4. E-Commerce Will Be Much More than “Just 10%” of Retail
E-commerce will be a more important channel over the holidays than is sometimes recognized. The channel gains share of all retail sales in the holiday period, and we expect 14%–14.5% of US retail sales to be made online in the fourth quarter of 2017. In the UK, we expect e-commerce to capture 17.5%–18% of all retail sales in the holiday quarter. E-commerce’s share will be significantly higher in nonfood categories such as apparel and electronics.
“E-commerce is still only 10% of retail sales” is a comment that we hear frequently in the US. It is typically stated in order to underline the fact that physical stores continue to be important—a conclusion that we agree with. However, there are a number of problems with this representation of e-commerce.
One factor that conceals the importance of e-commerce is that its total share of retail is depressed by very low e-commerce penetration in the grocery category, which makes up a substantial share of all retail sales. The online channel’s share of sales is higher in nonfood categories than the overall retail figure suggests—and nonfood items make up the bulk of holiday gift purchases.
We provide more meaningful indications of e-commerce’s share of retail in total and by selected segments below. The charted figures are for calendar year 2017 as a whole and, as mentioned earlier, e-commerce gains share of retail sales in the holiday quarter.
- We expect 14%–14.5% of all US retail sales to be made online in the fourth quarter of 2017.
- In the UK, we expect e-commerce to capture 17.5%–18% of all retail sales in the holiday quarter.
Below, we show the extent to which e-commerce’s share of all retail sales increases substantially over the holiday period. In the US, the final quarter of the year typically sees the online channel overindex by around one-fifth relative to the calendar-year average.
One final factor to note is that in the US, the widely cited Census Bureau data, such as those charted in the graph directly above, underrepresent e-commerce’s true share of total US retail sales. This is because the top-line e-commerce data published by the Census Bureau include motor vehicles and parts dealers, which are not conventionally considered retail and which have a very low e-commerce penetration rate. In addition, in its raw data, the Census Bureau benchmarks e-commerce as a share of all retail including gas stations, even though gasoline cannot be sold online.
For all these reasons, e-commerce will be a more meaningful channel for major gifting categories such as apparel and electronics this holiday season than commentators sometimes recognize.
5. Smartphones—Not Tablets—Will Drive More Mobile Shopping
Mobile shopping will be more mobile than ever as smartphone shopping powers ahead and “sofa surfing” on tablet devices stagnates.
The first wave of mobile shopping was not truly mobile: a substantial proportion of browsing and buying characterized as mobile commerce was undertaken on tablet devices such as iPads—and consumers rarely took those devices out of their homes. However, the significance of tablets in retail is waning as shopping via smartphones continues to power ahead. This trend will make mobile commerce even more mobile this holiday season.
As we chart below, smartphones—and notably smartphone apps—now dominate in terms of the time consumers spend on digital media. For consumers ages 18–24, the share of time spent on smartphone apps is even higher than that shown in the graph below, at 66%.
In terms of shopping, various sources confirm that smartphones—not tablets—are now driving the growth of mobile commerce. In the US, Monetate has reported that tablets’ share of online traffic has been flat while smartphones’ share has continued to grow. Meanwhile, in the UK, the IMRG Capgemini e-Retail Sales Index has shown that tablets have been losing share of mobile sales to smartphones.
Why does this matter? We think it is significant for two reasons: First, it shows that mobile shopping is now genuinely mobile. Smartphones’ recent leapfrogging of tablets tells us that shoppers have shaken off concerns about security and screen size and are now truly mobile, browsing and buying via their smartphones anywhere and anytime. Second, conversion rates—i.e., the proportion of visits that result in a purchase—are much lower on smartphones than on other devices. We think this is partly because many consumers use their smartphones for “downtime browsing.” In other words, they often kill time by window shopping via their smartphones, with little intention to purchase. But it does imply that retailers must work harder to convert visits to purchases among smartphone shoppers.
Finally, one positive note is that busy mothers are likely to push up smartphone conversion rates in the US this holiday season: according to Monetate data from August 2017, moms are 58% more likely than any other US demographic to make purchases using a smartphone.
6. More Gifts Will Be Bought Online from Third-Party Sellers
More gifts than ever before will be bought from third-party sellers on marketplace websites this year, helped by the growth of third-party listings on sites such as Walmart.com and Amazon.com.
Walmart versus Amazon is the biggest retail battle of our times, and one part of that battle is the ramping up of their respective marketplaces, which provide forums for third-party sellers online.
Walmart has been growing the number of sellers and SKUs on its sites very rapidly, and its acquisition of marketplace site Jet.com in September 2016 has supported this expansion. In its second-quarter 2018 earnings results (latest), Walmart noted that it now offers more than 67 million SKUs online. That number is up from 35 million SKUs at the end of fiscal 2017 and 15 million SKUs at the end of its second quarter 2017.
Worldwide, Amazon’s site now sells more units by third-party sellers than by Amazon itself, as we chart below.
Retailers must be ready to serve shoppers whenever and wherever they want to browse and buy this holiday season. Retailers seeking to be best in class should:
- Make it as easy as possible for shoppers to browse and buy across devices, from smartphones to smart speakers.
- Answer customers’ questions via one-to-one messaging, which can include deploying chatbots to answer routine queries at scale.
- Provide as much choice as they can in shopping and fulfillment options, whether that means hosting third-party sellers on their sites or offering click-and-collect options to grocery shoppers.