Global Marketing Monitor: Weekly Market Trends (Aug 22, 2020)

Key data takeaways from this week’s note:
  • U.K. e-commerce accounted for 28% of retail sales in July 2020. On a comparable basis, e-commerce in China would have exceeded 32% but would have been below 20% for the U.S.
  • The global luxury industry declined by approximately 40% during the second quarter of 2020.
  • In the U.S., during July, internet-connected device-based viewing (primarily streaming video services including Netflix, YouTube, Hulu, Amazon Prime Video, etc.) grew by 32% to account for 21% of all TV viewing across all audiences.

We monitor earnings results from public companies and economic releases from countries around the world with a focus on consumer trends, advertising and digital transformation to gain a view on key trends impacting the world’s largest marketers. In this note we summarize insights observed over the past week.

This week we review new retail sales data for the U.K. as well as e-commerce trends there, in the U.S., in China and trends for several of the world’s largest retailers. Our review of the world’s largest luxury companies showed meaningfully negative sales trends, by contrast, but highlighted the expansion of omnichannel marketing and retail activities. Finally, we review key U.S. TV viewing trends that also offer read-throughs on a global basis, given the degree of maturity of streaming services in a particular market. 

U.K. retail sales ex-fuel rose 2.7% in July. U.K. retail sales were released on Friday for the month of July and, on a non-seasonally adjusted basis, results featured flat year-over-year figures if we include automotive fuel, or 2.7% growth excluding it. Larger businesses grew faster than smaller ones in every category except non-store retailing (mostly catalogs and pure-play e-commerce).

Predominantly food stores (43% of retail ex-fuel) grew 2.0% with the dominant large ones growing by 2.7%, but small ones declining 2.4%. Textile, clothing and footwear stores (9.5% of all retail) fell by 25%, as large ones declined 24% while small ones declined 33%.

Household goods stores (8.9% of sales) saw revenues grow by 11%. Within this category, furniture and lighting stores (3.6% of all sales) grew by 14%, appliance stores (1.7% of sales) grew by 11% and hardware stores (3.5% of sales) grew by a similar amount. Among other specialist stores, pharmaceutical, medical, cosmetic and toilet goods stores (2.1% of total sales) grew by 9.2%. Non-store retailing (17% of all retailing) posted the strongest results among major categories, growing by 34%, with large non-store retail (9.9% of retail sales) growing 26% but small non-store retail (6.8% of all retail) growing by 48%.

E-commerce continued to expand rapidly, rising by 54% in the U.K. during July and accounting for 28% of sales. Internet sales, which have a significant overlap with non-store retailing – 48% of all internet sales are from non-store retailers, while 80% of all non-store retailing is from internet sales – grew even faster than non-store retailers, as all kinds of retailers continue to expand their e-commerce capabilities. Across the economy, e-commerce grew by 54% to account for 28% of all retail sales (excluding fuel). Growth was similar to the 55% pace of growth observed during the entire second quarter, suggesting that elevated levels of growth for e-commerce are likely to persist beyond the duration of the pandemic.

While July’s share of retail associated with e-commerce was lower than April’s 33% share peak, it was well above the 19% level observed in July 2019. Growth for food stores, which saw 11% of sales from internet channels, was most significant, rising by 109%. Household goods stores, which generated 22% of revenue from internet channels, grew these sales by 83%.

U.K. e-commerce’s share of retail activity is more similar to China than to the U.S., but growth is faster than either of those two markets. In the U.K., overall e-commerce activity as a percentage of total retail sales is closer to Chinese levels than U.S. levels, although growth in the U.S. and U.K. is faster than growth in China.

In China, July e-commerce sales as a percentage of total retail on excluding fuel sales, but including automotive sales was 32% in July 2020 versus 24% in July 2019. Presumably these shares would be slightly higher if online auto sales were excluded as they are in the U.K. As reported (including automotive sales) e-commerce expanded in China by 19% during July, only slightly slower than the 22% pace of growth observed during the second quarter.

Individual companies based in China and focused on e-commerce outperformed the national average during the second quarter, including Alibaba, Pinduoduo and JD.com, all of which reported second quarter earnings this week. China-related commerce revenues at Alibaba rose by 34% while total revenues rose by 67% at Pinduoduo, and JD.com saw a 33% gain in its retail business’ sales.

These companies, each of which accelerated in the second quarter as China emerged from the worst of the pandemic, combined to account for more than 8 trillion RMB in gross merchandise volume globally (mostly originating in China), or well above $1 trillion USD last year.

In the U.S., e-commerce as percentage of comparably defined retail sales (ex-automotive and fuel sales) was only 20% in the second quarter of 2020 versus 14% in the second quarter of 2019. While U.S. data is only available on a quarterly basis, e-commerce’s share would not likely have been higher during the month of July.

U.S. e-commerce rose by 47% on a comparable basis to data tracked in the U.K., or 44% including auto sales. In achieving this market share during the second quarter, e-commerce rose by 44% on a non-adjusted (for seasonal variations) basis across all e-commerce categories tracked by the U.S. Census Bureau; the figure would have been 47% if automotive products were excluded as they are in the U.K. This was significantly ahead of the 15% growth rate observed during the first quarter.

Remarkably, this was the fastest annual growth rate since the fourth quarter of 2000 when e-commerce accounted for only one percentage point of total retail. As a percentage of all retail activity including automotive and fuel sales, during the second quarter of 2020, e-commerce accounted for 15% of sales during the quarter including gasoline sales versus 10% in the second quarter of 2019 for a 500bps gain in share year-over-year. In absolute figures, spending amounted to $201 billion.

All sub-categories expanded share of sales via e-commerce and non-pure-plays drove most of the industry’s growth in the quarter. The data also showed that motor vehicles and parts sold via e-commerce accounted for 3.6% of category sales during the most recent quarter, up from 3.1% a year ago, and represented 5.3% of all e-commerce sales. Furniture, building materials and electronics rose from 9.9% of related category sales to 17%, nearly doubling year-over-year. Combined, these products accounted for 16% of all e-commerce. Clothing sales via e-commerce rose by even more proportionally, rising from 21% of category sales to 52% of category sales, while general merchandise’s share of sales via e-commerce rose from 5.3% to 9.7%.

Food and beverage, still relatively under-penetrated by e-commerce, nearly tripled in absolute numbers and rose from 1.2% to 3.3% of category sales. Meanwhile, health and personal care sales rose from 1.5% to 3.2%. Sporting goods, hobbies and musical instruments also rose substantially, growing to account for 18% of sales from 7.6% in the year-ago period. Finally, non-store-based e-commerce sales (i.e.: pure-play e-commerce) accounted for 69% of all non-store sales. As a percentage of all e-commerce, non-store e-commerce accounted for only 54% of e-commerce versus 60% of all e-commerce in the year-ago period as omnichannel retailers gained share of e-commerce during the quarter.

For reference, during 2019, total retail sales in China amounted to 42 trillion RMB during 2019. Excluding automobile and fuel sales, the figure would be 36 trillion RMB, or just over $5 trillion USD and £4 trillion in sterling.  U.K. retail sales, ex-autos and fuel, amounted to just under £400 billion, or just over $500 billion USD and approximately 3.5 trillion RMB. U.S. retail sales, ex-autos and fuel, amounted to $3.7 trillion USD, or 25 trillion RMB or just under £3 trillion sterling.

The largest U.S. retailers saw significant expansion of sales through traditional and digital channels during the most recent quarter. U.S.-based retailers experienced similarly rapid growth in e-commerce activity during their most recent reporting periods and four of the largest among them, including Walmart, Target, Home Depot and Lowes, reported during the past week. Revenue acceleration was significant for all of them across all sales channels. Most growth was due to significantly higher “tickets” (sales per purchase event). Commentary was made across the sector about growth in new forms of fulfillment highlighting omnichannel strategies involving online shopping and in-person activities.

Looking at e-commerce specifically, this channel appears positioned to expand on its current share of sales as new consumer habits are taking root and as retailers are finding ways to realize financial benefits (i.e.: because fewer labor-hours are required to sell to consumers who shop in new ways). Across all of its forms, e-commerce now accounts for more than a solid double-digit share of revenues for the general merchandisers.

The presence of stimulus checks for most U.S. consumers last quarter, and the degree to which those payments contributed to sales paired with a potential absence of those checks this quarter, remains as a source of uncertainty around current quarter growth. Another factor impacting the most recent and current quarters relates to supply chain issues. Problems evidently continue for many manufacturers but are normalizing. Among the categories referenced by these retailers, a significant improvement in apparel was noted. Hardlines and other big-ticket items also generally saw rapid growth.

Luxury companies fell by 40% year-over-year during the second quarter despite expansion of omnichannel strategies. The omnichannel retailing strategies were echoed by the luxury-focused companies that reported during the quarter as well. As one of the world’s largest owners of higher end luxury personal care products, Estee Lauder reported earnings results this week. With those results, we can estimate that total revenues for a composite of companies and business units, including LVMH, Richemont, L’Oréal (for its Luxe division), Kering, Hermes, Capri Holdings and Burberry, fell by approximately 40% year-over-year during the calendar second quarter. By contrast, the group declined by only 14% in the first quarter.

Asia, and especially China, fared much better than average global declines, and e-commerce expanded significantly for everyone. Travel retail – sales made in airports – was particularly weak, except in China, dragging results for the group.

U.S. TV consumption fell by 1% during July 2020. Looking at media, among the key trends we analyzed this week was new U.S. TV viewing data made available from July. Among global markets, the United States has the most developed streaming video services sector in terms of its absolute size. It is also the home of the world’s most important companies in this space whose access to capital markets are, for practical purposes, nearly unlimited.

For these reasons trends in the U.S. can serve as a useful reference point for the future trajectory of video-related content and advertising businesses for much of the world. Total use of TV was relatively stable during July at 41.7 billion person-hours during July 2020. Total consumption was down only 1%, not dissimilar from June’s flat trend but well below the double-digit growth rates of the March to May period, and above the low-single digit declines of most of 2018 and 2019.

Internet-connected device-based viewing rose 32% in July 2020. Internet-connected device-based viewing – most of which relates to viewing of streaming services via AVOD or SVOD-related content – decelerated again but still grew rapidly, rising by 32% to account for 21% of all TV viewing by person-hours versus 16% in July 2019.

For younger audiences, viewing shares were even more heavily skewed toward internet-connected devices, as 37% of all viewing by people under the age of 34 occurred in this manner during the month. During the week, Nielsen provided additional data in its quarterly Total Audience report covering the period between April and June of this year. Relative to the July data we analyzed, an important incremental insight is that during the second quarter, Netflix accounted for 34% of streaming video viewing, while YouTube represented 20%, Hulu 11%, Amazon 8% and Disney+ 4%.

For reference, during the fourth quarter of 2019, as a share of all viewing of streaming content on TVs, Netflix accounted for 31%, YouTube 21%, Hulu 12% and Amazon 8%.

Prime time adults 18-49 ad-supported TV viewing continues to account for a very small share of total TV viewing. Within traditional TV viewing, a noteworthy data point is that prime time adults 18-49 viewing of ad-supported TV fell again, this month by 17%. Equally noteworthy, however, is that such viewing accounted for only 3.3% of all TV and 5.7% of ad-supported broadcast and cable TV viewing as measured in person hours. This highlights the substantial scale of other forms of ad-supported TV viewing.