Market Spotlight: The United Kingdom
The UK’s economy is in post-referendum flux, but it remains an expansion-worthy market for cross-border e-commerce.
The UK’s economy and consumer confidence has been reeling since its citizens voted to leave the European Union in June. Has this recent drama ruined the UK’s viability as an expansion-worthy online market for companies based in the U.S., continental Europe and beyond?
Our analysis suggests no. For companies looking to expand their e-commerce offerings, we believe the UK remains one of the most attractive markets for cross-border expansion.
For starters, the UK’s e-commerce market has historically been the strongest in Europe, and is the third-largest in the world. While it’s unclear how the Brexit will impact e-commerce sales in the upcoming years, projections placed online sales to eclipse $132 billion—or nearly 20% of the global e-commerce share—by 2019.
One report predicts that UK consumers will buy 30% more goods and services from international e-retailers this year than in 2015. (Compare that to a 6% increase in revenue from domestic e-retailers during the same time period.) Internet penetration is over 90%; smartphone adoption will eclipse 80% next year.
We chatted with Eric Watson, a Global Online Strategist with our Global Growth team, about the topic.
"Don't let these immediate jitters from the Brexit fallout worry you," Eric advises. "The UK is still an attractive online market. British consumers have money to spend, and maintain their attraction to international brands."
Indeed, the sky isn't falling in the UK, analysts are quick to say. It's clear that the world is still happy to conduct business with the UK, they say, and-unencumbered by EU policies-the UK can soon negotiate its own favourable trade agreements with emerging markets like China and India.
The UK’s current economic slump “is unpleasant, but it is not a systemic financial crisis, and it is not global,” wrote one analyst in The Telegraph. “The warnings of inter-galactic destruction already look like a (Remain) campaign hoax.”
While UK-based businesses may gripe to pollsters about the impact of Brexit, “(w)hen it comes to doing business, their customers so far seem unaffected,” added a recent op-ed in The Spectator. “People are shopping, hiring, borrowing and creating wealth just as they were before.”
The Spectator op-ed continued: “Interest rates remain at the lowest level in 400 years, employment is at a historic high, inflation is benign and export markets are as every bit as open as they were at the beginning of June. As you’d expect: we won’t leave the EU for at least two years, so why should trade suddenly contract now?”
Domestic consumer confidence has certainly withered, but note that the market’s economic growth was slowing before the Brexit vote. (It dropped from around 3% in 2014 to about 2% before the referendum.) Keen to combat the market-wide slump, the Bank of England voted unanimously on Thursday to cut its benchmark interest rate to its lowest point ever.
Optimists believe the UK’s head will remain above water. According to a post-referendum projection recently published by PricewaterhouseCoopers, the UK will “narrowly avoid” a recession in the upcoming years. Consumer spending will slow but not contract in 2017, and business and financial services sector growth will remain positive through 2017.
That's all fine and well for the market during the lead-up to the UK / EU divorce. But what happens after the split, which could come as early as 2018? Will UK consumers still be inclined to purchase goods from cross-border e-commerce sites?
"Don't let fears of a post-Brexit world scare you, either," Eric advises. "The UK is still the world's fifth-largest economy. It's a powerhouse in terms of Internet penetration and many other metrics that companies should consider when looking to expand. UK consumers will still enjoy international goods, and will still have the means to pay a higher premium for them, as may be the case in a post-Brexit world."
Get Social with These Consumers
Social networks are thriving in the UK, representing the perfect, cost-effective gateway for brands to engage these consumers. Facebook has a penetration rate of over 80%; about a quarter of those users are between 25 and 34 years old. As in other developed markets, younger users skew toward networks such as Instagram. The UK is home to more than 14 million Instagram users; 40% are between 16 and 24 years old.
We recently examined our own social media-related metrics, gleaned from operating localised websites for the UK market. We selected one major website, a fashion retailer that has spent considerable time and resources to optimise its site for UK e-shoppers. We spotted an interesting trend.
Firstly, UK Twitter users represent a larger percentage of social traffic than other global markets for this e-retailer. While Twitter accounted for nearly 10% of social traffic for the UK site, the network contributed less than 2% for the retailer's German site, and less than 4% for its Australian site.
“Given the higher smartphone adoption rate in the UK, we found it reasonable to conclude that the amount of potential e-commerce customers using Twitter is higher here,” Eric says.
But don’t put all of your eggs in this basket. As we’ve observed in other global markets, Twitter’s user base is contracting in the UK. The second half of 2015 saw Twitter referral traffic to our e-retailer’s site shrink by a whopping 13%. This jibes with reports that Twitter’s market share in the UK has slipped to just over 8% (down from 16% in mid-2014).
We expect dominant network Facebook to pick up the slack.
Get Smart with Smartphone and Tablets
We also noted the kinds of devices that were used to access our e-retailer's UK website, and were surprised by the amount of sessions generated from tablets. While tablet traffic represented about 18% of all mobile traffic to the retailer's localised Australian and German websites, tablet traffic to its UK site was nearly 30%.
iOS devices represented the largest percentage of UK-based sessions and revenue, and provided high conversion rates, too. (The iOS conversion rate was 4.3%, much higher than the 3% rate for Android devices.) Interestingly, owners of Windows-branded mobile devices seemed to have the highest conversion rates of all mobile users, though they represented a mere 2% of all mobile traffic.
“Retailers in the UK must be extremely aware of the dynamics in the mobile sphere,” Eric points out, “as this segment of shoppers in the UK is one of the fastest-growing and evolving in the world.”
Indeed, UK shoppers spent nearly £14.95 billion through their mobile devices in 2015. That’s up 78% from 2014. In contrast, PC spending grew by only 2%.
M-commerce sales now account for half of all UK e-commerce sales.
Insights and Best Practices
Talk Like a Local: For U.S. brands, localising existing English-language online content for relevance in the UK remains a key first step to engaging these overseas consumers. While British English speakers probably won't completely misunderstand American English website copy, customers have shown a clear preference for sites that are localised to their "flavour" of English.
As the Nielsen Norman Group reported years ago, users pay attention to spelling and verbiage and will quickly abandon sites with such cues that make the site feel “foreign.” Localising words and phrases to resonate with British consumers makes a big difference.
Sell Like a Local: Resonantly engaging with UK consumers doesn’t end with linguistic localizations, however. Companies must connect with local consumers in other ways. Marketing campaigns that leverage local seasonality and holidays can go a long way to maximise this.
"This doesn't mean that companies should focus exclusively on UK holidays," Eric explains. "There are plenty of opportunities to create campaigns that celebrate 'transnational' holidays that affect all markets."
Take holiday shopping events such as Black Friday and Cyber Monday. We’ve seen evidence that these shopping holidays have been readily adopted by UK residents. And its popularity is growing: revenue generated by key UK MotionPoint e-commerce clients on Black Friday and Cyber Monday grew year-over-year in both 2015 and 2014. (Up 28% and 12%, respectively.)
In fact, according to a recent study, European awareness for Black Friday is highest in the UK, where over 80% of shoppers said they were aware of Black Friday. Shared linguistic and cultural traditions have empowered savvy U.S. companies (and international retailers in other English-speaking markets) to capitalise on these sales events in the UK.
Would you like learn how MotionPoint can help you enter the UK online market easily, quickly and affordably? Contact us for more information.