The lockdown brought on by coronavirus accelerated the adoption and penetration in Ireland of buying online, with Argos, Tesco, and Amazon taking the top three positions.
Over a few months, many shoppers have moved from viewing online buying as a 'convenient' way to an 'essential' way of getting everyday goods. This was very evident in the latest Central Statistics Office figures which show that Irish shoppers doubled their buying online in the first half of the year. The shift in buying habits was most obvious in April when the full effect of the Government's lockdown on shops came into effect, with online sales increasing by 500% compared to the prior year. This trend continued into May but dropped significantly in June as restrictions on people's movements were lifted and shoppers re-engaged with their favourite local shops.
According to the Digital Market Outlook report by international consultancy eCommerce DB, Ireland’s retail online sales was €2.5bn in 2019, up by 17% from the prior year. Wisely, it does not try to second guess the impact of Covid-19 across the various markets for 2020, including Ireland, but it does point to the faster than average growth in Ireland compared to the rest of the world in the adoption of e-commerce, with online retail sales last year rising by 17% compared to 14.7% across Europe and 13% globally.
In the Digital Market Outlook report, there were some surprises in the ranking of the top online retailers in Ireland for last year.
Argos is the biggest player on the Irish market, with sales of €164m in 2019.
Tesco, the largest retailer in the UK and Ireland, is ranked as the second-biggest online retailer in Ireland with sales last year of €152m. Whereas details of the overall size of Tesco’s online sales are very closely guarded, the best current estimates are that it accounts for approximately 5% of total group sales.
Amazon, despite not having a retail warehouse in Ireland, is ranked as the third-largest online retailer in the market with sales of €134m last year. The Amazon warehouse distribution centres in Britain provide any goods bought online here in Ireland.
Fashion items, particularly ladies clothing, accounted for 30% of online sales, with electronic goods accounting for a further 26%. The third-highest selling category was toys and hobby items, with furniture in fourth place at 14% of total sales. Surprisingly, food and drink are ranked fifth, accounting for 10% of the value of online sales.
The top three logistics companies providing the delivery services for online shoppers in Ireland are DPD accounting for 30% of the market, DHL covering a further 21%, and UPS catering for 8% of demand. These are supplemented by An Post, which is increasingly moving into parcel delivery to supplement falling letter post services, and an array of in-house own-delivery services.
The pandemic brought older shoppers online, adding to the pressure on retailers.
Rising volumes has meant the logistics of getting the product delivered to the shopper is a key competitive issue for retailers. Keeping logistics costs low while providing rapid delivery times is always a trade-off, a slippery one at best.
Consumers increasingly have an array of options available at their fingertips. Although expectations of speed have increased over time, cost outweighs speed in terms of delivery features desired by consumers. The most desired delivery feature among shoppers globally is free delivery, followed by free returns. For comparison, 70% of consumers desired free delivery as opposed to 30% desiring either next-day or same-day delivery, according to Euromonitor International’s 2020 Digital Consumer Survey.
The challenge for retailers is that there is a high cost to offering free delivery and returns. In fact, rising delivery and fulfilment costs is a major pain point for retailers today. Skyrocketing demand for e-commerce during the Covid-19 pandemic has further exacerbated this issue.
In some ways, what is known as the last-mile delivery costs are more pronounced for Amazon since it does not have the same physical footprint in Ireland as some competitors. Since Amazon is first and foremost an e-commerce retailer and marketplace, these expensive last-mile operations have put greater pressure on profits. Amazon’s fulfilment expenses represented 25% of its product sales in 2019, up from 15% in 2014, according to the company’s filings.
The rise of e-commerce has also meant an overall increase in return rates, particularly for clothing, home goods, furniture, and other items best experienced in-person. Some customers buy several similar items with the intention of keeping only the one they like best. It means almost 30% of goods sold online are returned for various reasons.
To reduce the logistics costs associated with online sales, retailers are encouraging kerbside collection and locker hub delivery points. Amazon has set up a network of parcel lockers across Europe to enable people to pick up their own orders as it seeks to widen delivery options and cut costs.
The UK is one of the largest markets for online buying, ranked third globally behind China and the US. Hence, the recent survey of online consumers in Europe and what they think will be the impact of Brexit is of interest. The overall comment was that it will lead to slower online delivery from the UK. Delivery management company Whistl conducted the survey to see what international online consumers think about Brexit and its effects on their purchasing behaviour next year. It shows that 34% of German respondents, 27% of French, and 24% of Irish consumers believe that Brexit will lead to slower delivery of products from the UK.
The pandemic has lasted long enough now to have permanently changed behaviour in many ways; online buying appears to be one of these.