Data released today by Juni, the financial platform built for digital commerce, reveals that British online retailers spent 19% more on ads, inventory, and software in Q2 2023 compared to Q2 2022. Growth has been driven by investment in inventory which accounted for 21% of online retailers’ overall budget in Q2 2023 vs 6.3% a year ago – a significant 15% YoY rise. Spending on inventory has increased to fight against inflation and is likely preparation for the peak shopping season in Q4 this year.
Online retailers are prudent with inventory investments
Businesses continued to prioritise inventory this quarter. Inventory spend made up 21% of overall spend in Q2 2023 and 18% in Q1 2023 respectively vs. 6.3% in Q2 2022. Despite fears of a forthcoming recession, online retailers are being prudent by hedging against inflation – likely buying stock now before it gets more expensive – ahead of key retail moments in Q4 such as Black Friday and Christmas. As a result, this focus on inventory has seen advertising spend fall.
“Despite a potential recession looming over the UK, online retailers are making significant investments in both inventory and software as well as diversifying their advertising spend for continued growth,” said Samir El-Sabini, CEO and co-founder of Juni. “With long supply lead times, even more so for ecommerce businesses who also distribute through wholesale, we know that they need to plan ahead. Ecommerce businesses are likely stockpiling now before critical retail moments like Black Friday and Christmas to ensure they can meet demand. This means capital is locked up in inventory, creating liquidity constraints. Despite this, our data indicates that online retailers in the UK remain confident in this tough climate.”
Advertising dominates ecommerce spend but falls year-on-year as inflation bites
Advertising still dominates ecommerce businesses spend in the UK with 41% of total spend. However, this has fallen by 29% year-on-year from 69.8% in Q2 2022.
Money that has not been invested in ads has been directed towards inventory, which accounted for 21% of online retailers’ overall budget in Q2 2022 vs 6.3% a year ago.
Looking quarter versus quarter, average ad spend contracted by 2.68% from an atypical Q1 2023 where customers spent big on ads, likely driven by the need to sell stock not sold in Q4 2022 due to market contraction.
Overall, British online retailers keep spending big on ads, with numbers even slightly above the ones seen in Q4 last year, typically the most active quarter.
Meta is king, but TikTok and Google rises as ecommerce businesses diversify ad spend
UK online retailers are increasingly diversifying their ad spend. In Q2 2022, Meta and Google commanded 87.3% of total ad spend. In Q2 2023, this has fallen to 83.7% as rival platforms, particularly mobile-first ones such as Snapchat and TikTok, grab market share.
Microsoft’s ad share grew from 0.3% in Q2 2022 to 1.5% in Q2 2022. This was likely driven by the buzz around OpenAI’s ChatGPT powering Bing. Recently, this buzz has cooled a little with Microsoft’s share falling by 0.6% from 2.1% in Q1 2023.
The ad share of mobile-first platforms has risen as consumers tend to use such platforms more during the summer period. TikTok’s ad share amongst UK online retailers jumped by a massive 50% from 3.78% in Q1 2023 to 5.67% in Q2 2023. While Snapchat’s ad share has remained largely flat year-on-year (0.55% in Q2 2022 vs. 0.52% in Q2 2023), it has recovered from a sharp drop to 0.17% in Q4 2022.
Software investments rose, businesses remain hopeful
Investment in software increased by 60% in Q2 2023 compared to Q2 2022. Top performing platforms included LinkedIn, Shopify, and Klaviyo as businesses prioritise sales and marketing automation tools ahead of the busy Q4 period.
Juni’s Q2/23 Digital Commerce Spend Report is available to download here.
