The rise of social e-commerce

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Social media marketing is nothing new. Retail brands have long used social media ‘influencers’ and celebrities to increase brand awareness and drive sales. However, until very recently, retailers would have to direct customers to outside of these applications to make sales – breaking the customer journey.

Last week, Instagram launched a new functionality in the UK which allows users to buy items directly through the app. The technology has already been trialled in the US and now was resealed in several other countries – in the UK, it has already been adopted by high-street giant Marks & Spencer and fashion brands Topshop, New Look and River Island. With over 500 million people using Instagram each day worldwide, this new functionality has the potential to transform the online retail marketplace.

What will the rise of social e-commerce mean for the retail sector?

For retailers who effectively use these platforms, social media provides an excellent opportunity to engage with a much wider audience than would otherwise be possible – there are over 34 million active social media users in the UK. This is particularly important for millennials, who 95% of whom follow brands through social channels.

As with online shopping before it, social media e-commerce offers customers even greater convenience by allowing them to shop without even stepping outside of the applications they are most likely already browsing – giving brands with an existing strong presence on social media a head start. The move is likely to boost small businesses in particular, as 37% of UK small companies say they built their business using Instagram.

However, social media e-commerce is not an automatic win for retailers, which may explain why only 8% of UK brands have so far jumped at the opportunity to use it.

For brands that successfully increase their sales directly through social media, the data generated as a result could prove to be another opportunity in itself. Nissim Lehyani, CEO and co-founder of e-commerce platform Easy Social Shop, argues that, as a result of social commerce, “customer data is plentiful, and with the right tools, companies can analyse their online customers’ behaviour and use that information to improve social marketing strategies to complete sales via social media.”

By moving their sales to social media, brands will also have to successfully navigate the notoriously opaque and fast-changing algorithms which dictate which posts are seen. On channels such as Instagram, posts are widely visible for as little as 2 minutes, meaning brands will struggle to achieve longevity.

Concerns have also been raised over the issue of data ownership. Stephen Wolfe Pereira, CMO of Quantcast, argues that in instances of sales made through social media, it is so far unclear if retailers are able to fully control their customer’s data, and therefore could lose out on invaluable behavioural insights.

A move towards social commerce could further threaten the UK’s already struggling high-street stores, upon which the majority of retailers rely.

We have long known that digitisation is key to unlocking value from assets in an increasingly competitive sector. Retail investors must now consider not just whether a brand is optimised for online commerce, but how well it will fare under the rise of voice e-commerce and, now, social e-commerce. Optimising for these new ways of shopping will be key in ensuring returns – but not all retail brands will necessarily suit this new environment.

Assets most likely to adapt well to the world of social e-commerce are those with a young customer base, an existing digital presence and products that can hold customers’ attention in an attention deficit era. Investors should take note.

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