Adobe Digital Insights Digital Dollar Q2 2018

DIGITAL DOLLAR: RETAIL AND ECONOMICS UPDATE 2018Q2
Executive Summary
Leveraging Adobe Analytics Cloud data, the Digital Dollar Report for the second quarter of 2018 focuses on
e-commerce trends in the U.S. and the U.K. as well as within U.S. regions. Like the ADI Holiday, Digital Econ-
omy Project, and retail reports, this report uses aggregate and anonoymized data from the Adobe Analytics
Cloud to develop insights on online retail and economic trends. Releases feature updates on general trends
in e-commerce and predictions and summaries of quarterly online retail, updates on pricing via the Digital
Price Index, and features focusing on product insights and trends.
Section 1: E-commerce Trends
• Fast growth in the U.S. online sector continues: Q2 2018 records $115B in online retail in the U.S., up 14.5%
year-over-year and Q3 2018 expected to reach nearly $120B in online retail in the U.S., up 15.9%
• In the U.K., 2018Q1 and Q2 featured strong growth at 9.6% and 10.9%, respectively. Each quarter in the first
half of the year was over £14B. Q3 in 2018 is projected to be a fast-paced 14.7% in the U.K.
• Prime Day is poised to be a boon to all e-commerce and not just Amazon, as 2017 data showed large retail-
ers received a 35% boost in revenue from Prime Day
Section 2: E-Commerce growth and physical retail store closings
• E-commerce growth initally appears correlated with physical retail store closings but controlling for eco-
nomic conditions reveals that the story is more complicated
Section 3: ONLINE GROCERY UPDATE
• Amazon’s aquisition of Whole Foods appears to be driving down online grocery prices
• U.K. shoppers are more comfortable shopping online for groceries than their U.S. counterparts
Section 4: Digital Price index Update
• The Adobe DPI records faster inflation online than the Bureau of Labor Statistics Consumer Price Index as
inflation hits apparel and auto parts

The Digital Dollar leverages Adobe Sensei to identify retail insights from trillions of data points that flow
through Adobe Analytics. Adobe’s retail report, the most comprehensive set of insights and predictions of its
kind in the industry, is based on an analysis of more than one trillion aggregated and anonymized visits to
over 4,500 retail sites in the U.S. and the U.K. and 55 million SKUs. Adobe Analytics measures online transac-
tions at 80 of the largest 100 U.S. web retailers.
All use of the data, insights, and assets from this presentation are property of Adobe but can be used with
appropriate citations. Please cite data, insights, or assets from this report and any derivatives as “Adobe
Digital Insights analysis of Adobe Analytics data”.
The Digital Price Index price changes are measured using the Fisher Ideal Price Index model. Our special
thanks to Pete Klenow at Stanford University and Austan Goolsbee at the University of Chicago for their con-
tinued advice and guidance on the Digital Economy Project and Digital Price Index.

A strong start to the year for online retailers continues into the second quarter of the year as e-commerce in
the U.S. tops $115 billion, reflecting 14.5% growth year-over-year. Buoyed by continued favorable economic
conditions including a low unemployment rate, job growth, and strong consumer confidence, U.S. e-com-
merce came in $3 million over ADI’s prediction in Digital Dollar Q1.

Memorial Day in 2018 nearly beat the $2 billion mark, coming in at $1.92 billion, reflecting a rapid 18.9%
growth in revenue relative to the same holiday in 2017. Unlike Q1’s top grossing holiday – Presidents Day –
Memorial Day sales buoyed sales on the day’s surrounding Memorial Day Monday, particularly the Tuesday
after Memorial Day.

In the U.K., online shoppers have pushed e-commerce over 14 billion pounds for two quarters in a row – the
first time either quarter in the year has crossed the £14 billion mark. Both Q1 and Q2 showed strong growth
– 9.6% in Q1 and 10.9% in Q2. Slower growth in the U.K. relative to the U.S. suggests a more mature e-com-
merce market abroad, as shoppers in the U.K. spend relatively more online than their U.S. counterparts. In Q2
in the U.K., growth accelerated over Q1, indicative of an accelerating year.

Daily revenue trends in the U.S. and the U.K. reveal different patterns when it comes to online shopping. In
both countries, revenue generally peaks on Mondays and continues to lower until it reaches its lowest level
on Saturdays. In the U.S., online dollars are generally spread throughout the quarter, save for the near-$2
billion level of spending on Memorial Day itself. In the U.K., Bank Holidays and other events tend to act no
differently than a typical Monday but holidays and key events – such as Good Friday and this year’s Royal
Wedding – show the lowest levels of online revenue.

In both the U.S. and the U.K, ADI predicts that Q3 will be the fastest-growing quarter. In the U.S., that means
15.9% year-over-year growth and nearly $120B in online revenue while in the U.K., those figures are 14.7%
growth and nearly £15B. Typically, Q3 has been a slower-growing quarter, but this year’s prediction suggests
that shoppers and retailers are focusing in on summer as a shopping season. In the U.S., sales in the third
quarter will be driven by back-to-school shopping and a strong Labor Day.

In the U.K., shoppers are more mobile-oriented than in the U.S., and they have been for some time. In De-
cember 2016, visits to U.K. retailers from smartphones surpassed visits from desktops. In the U.S., visits to
retail websites from smartphones just surpassed visits from desktops last quarter, in June of 2018.
For retailers with a presence in both the U.S. and the U.K., a mobile-first strategy will continue to be import-
ant, particularly as smartphone visits continue to rise.

Do consumers shop differently for their mothers versus their fathers? We leveraged our daily revenue model
to compare how shoppers prepare for these holidays. We find that consumers are spending more on their
mother’s in the days leading up to the holidays than on their fathers. We assume all children love their moth-
ers as much as their fathers, so this larger increase in revenue for Mother’s Day can be attributed to more
expensive gifts, such as jewelry.
Although consumers spend more on their mother’s in the days leading up to the holiday, we see that there
is a larger dip in sales on Father’s Day compared to Mother’s Day. In other words, consumers are shopping
more on Mother’s Day compared to Father’s day. We assume this difference is closely linked to the first in-
sight – consumers spend money on physical gifts for their mothers, but spend more money on experiences
on Father’s day.

Both U.S. retailers and consumers are rallying around big holidays. It’s not just the Black Friday weekend any-
more. Memorial Day, Presidents Day, MLK Jr. Day, and Labor Day are all outgrowing their respective quarters.
Amidst this holiday growth we see the emergence of another trend – artificial holidays. Wayfair, Walmart,
Kohl’s and Amazon are all trying to recreate their own version of a Cyber Monday.
While some are more successful than others, there’s no doubt that Amazon’s Prime Day has the biggest
effect on the market. Amazon Prime Day has such a big impact on the market that we can directly observe a
“halo effect” on all the other online retailers.
Amazon is not the retailer who benefits from their holiday. The big juggernauts, retailers who raked in more
than $1B in online sales in 2017, saw a significant lift in sales on Prime Day 2017. Additionally, the more niche
retailers with less than $5M yearly online revenue also saw a bit of a lift from this “holiday.”

ADI predicts that Labor Day 2018 will be the first day in 2018 where online revenue breaks the $2 billion mark
in the U.S. and the first day ever outside of the holiday season to break $2 billion. The holiday is growing at a
rapid 18.9% growth, making it one of the year’s fastest growing shopping days along with Memorial Day and
Thanksgiving Day. As retailers and consumers continue to coalesce around key shopping days, Labor Day is
emerging as the anchor point for Q3 and a key day for retailers and consumers.

E-commerce in the U.S. is driven by key shopping holidays throughout the year – Memorial Day, Labor Day,
Cyber Monday, and Black Friday. However, our model is starting to show other holidays emerge as high rev-
enue days for retailers, for example 4th of July. Interestingly, most shopping holidays in the U.S. fall on Mon-
days, but 4th of July is a key day in Q3 despite the holiday falling on a Wednesday. Independence day drove
$1.38B this year, and showed a 10% lift over the average Wednesday in Q3.
On the fun side, July 4th is the holiday that drives
the most hotdog sales. During the week leading up
to this holiday, there were more hotdog sales than
on the weeks leading up to Memorial Day and Labor
Day combined. Independence day week sold 4 times
more hotdogs than an average week in 2017.

While e-commerce revenue in the U.K. isn’t quite the same as the U.S. when it comes to shopping on key
days, U.K. retailers will benefit at the end of Q3 and the beginning of Q4 from Buy British Day. Buy British Day,
started in 2014 to encourage U.K. shoppers to purchase British-made goods, will push revenue up 12% over
an average Wednesday this year. Moreover, Buy British Day will feature more in-country visits to U.K. retail-
ers. More than 9 out of 10, or 91%, of visits to U.K. retailers will come from U.K. shoppers, compared to 82%
on a typical day.

Many have speculated that increased e-commerce in the U.S. has directly led to physical retail store closings.
To better understand the dynamics at play between e-commerce growth and physical retail store closings,
ADI compared e-commerce growth with changes in the physical retail store landscape by comparing ADI
data on e-commerce growth by U.S. designated market area (DMA) with net physical store changes (using
quarterly data from the U.S. Bureau of Labor Statistics Quarterly Census of Employment and Wages or BLS
QCEW).
E-commerce growth was negatively correlated with physical store openings at a level of -0.22 between
2015Q1 and 2017Q4. This indicates a relationship, though its far from a strong correlation. When ADI included
other data in a model to control for, among other things, population growth, the unemployment rate, and
household median income, e-commerce growth was not statistically significant.
It’s clear that e-commerce growth is playing a role in how retailers make decisions about physical store loca-
tions, though from this short analysis, it’s clear that the relationship is far from direct and linear; other, larger
economic trends are making siting decisions for retailers more difficult in a context of e-commerce growth.

Back-to-school shopping is the time of year when parents stock up on school supplies for their kids, when
college students get ready for their dorm life, and most of all when everybody takes advantage of the great
back-to-school sales.
We analyzed when the spending picks up in Q3 in anticipation of the first day of school, and we recognized
July 23rd as the beginning of this shopping season. We are seeing that online back to school shopping season
is becoming longer every year – in fact, we predict back to school shopping will start a week earlier in 2018
compared to 2017. Attributed to the longer season, our model predicts that online back to school shopping
will drive over $50B for the first time in the US. Although consumers are starting to shop earlier, retailers see
back to school shopping sales end right after Labor Day every year.
When it comes to what consumers are
purchasing during this period our large
dataset revealed some interesting insights.
In addition to usual school supplies – eras-
ers, glue, backpacks – we saw that a third
of the yearly hand sanitizer sales happen
in July-August. Parents are stocking up to
keep their children’s hands clean.

After Amazon’s acquisition of Whole Foods, prices have dropped faster than the previous year. Looking at
the 11 months between July of 2017 (when Amazon announced its intent to purchase Whole Foods) and
the month of June, we see that prices have fallen faster online (now at -0.3% cumulatively since July) vs the
same period one year prior (where prices rose 0.6%). While not conclusive, this suggests that Amazon’s en-
trance into the online grocery space has had a downward effect on grocery prices as other retailers move to
compete.

U.K. shoppers finally have a respite in 2018 from steeply rising grocery prices. Following nearly a year and a
half of steadily increasing food prices online and offline, grocery prices are starting to fall. The Adobe Digital
Price Index shows a 1.3% in online food prices year-over-year in June following four straight months of defla-
tion in the category.

Inflation is on the rise in the U.S. as the most recent Digital Price Index shows. In June, cumulative inflation
across the Adobe DPI categories (weighted by the Bureau of Labor Statistics Consumer Price Index relative
weights) was 0.6% year-over-year. This compares to -0.1% in the same categories are measured by the BLS
CPI.
Driving online inflation in June was inflation in nonprescription drugs (up 0.4%), furniture and bedding
(0.4%), and tools (0.2%). Year-over-year inflation online is highest in apparel (up 4.0%), auto parts (up 2.7%),
nonprescription drugs (1.8%). Year-over-year deflation is strongest in televisions (-20.9%), computers (-5.9%),
and furniture and bedding (-2.0%).
A full excel file containing the Adobe Digital Price Index data can be found here.

That being said, the US online grocery market is
still in its very early stages, especially when you
compare it to the United Kingdom. More than half
of the UK consumers shop online for groceries in
some way. Only a third of US consumers shop online
for groceries. Out of those, 41% said that they only
purchase the basic grocery necessities online, and
only 23% said that their digital carts stock up most
of their groceries in their house.
Over half of all consumer electronics and small ap-
pliances will be purchased online in the US (Forrest-
er, 2018). The US consumer has shifted to the digital
market for purchasing their electronics. The survey
data suggests that we’ll see groceries headed in the
same direction in the future. The younger genera-
tions are driving the shift towards the more conve-
nient grocery shopping from your couch or on the
go from your mobile phone. U.S. youth are embrac-
ing the digital aisles.
Compare the same stat in the UK, where 40% of the online grocery shoppers purchase most of their
groceries in the digital stores. This might be due to the fact that UK consumers experience fewer difficul-
ties with this process, 27% of consumers surveyed reported no difficulties in online shopping, compared
to the US 16%.

Milk alternatives are more popular online com-
pared to the traditional milk. Soy and almond
alternatives together make up more than 50% of
sales online.
Consumers are picking more and more often the
organic version of a product. The share of groceries
that are organic has seen a significant increase in the
past few years.
Additionally, Vegetarianism is picking up in popular-
ity. Veggie burgers are now three times as popular
this year compared to 4 years ago.

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Adobe Digital Insights Digital Dollar Q2 2018

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