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Stats: Online Shopping More-Or-Less Steady During Current US Financial Crisis

Please note the following analyses are extremely short-term, looking back at just the last few weeks. This post was written 9/25/08.

Anecdotally, many retailers report weak web sales over the last two weeks, and attribute the decline to the crises in the US financial markets.

The big question: have online sales tanked?

We don't think so.

There is weakness, yes. But, for now at least, there is no sign of an across-the-board deep downtown. Some retailers are down, but others are up.

Let's look at some data.

Here are daily sales data since August from one large RKG client.

The green line indicates paid-search driven web sales. The spikes and valleys are the day-of-week effect. The red line indicates the advertising-to-sales ratio. The red line is basically flat. This indicates this retailer hasn't changed the aggressiveness of their ad spend.

The purple arrow denotes 9/7, the date of the Fannie Mae / Freddie Mac bailout.

While the roots of the turmoil date back to at least to 1999 with Gramm-Leach-Bliley, we'll mark 9/7 as the beginning of the broad media coverage of current financial crisis. Certainly since 9/7, the dismal headlines have come with increasing frequency: Merrill sells to BOA (9/14), Lehman files bankruptcy (9/15), Fed invests $80b to bailout AIG (9/17), Paulson requests $700b for bailout (9/19), and JPMorgan buys WaMu (9/26).

That client's sales didn't head south after the Freddie/Fannie news coverage. Perhaps sales were down a bit, but the prior graph shows no glaring decline.

Let's look at another large client.

This retailer experiences a larger day-of-week effect, but again, for this client, September sales look essentially like August sales.

Those two clients might not be representative. The next chart aggregates all RKG clients, all PPC-driven sales, across all search engines. For context, our client base includes more than 100 retailers, predominantly B2C, with an aggregate annual PPC spend of roughly $100m.

The graph looks pretty similar before and after September 7th. (The noticeable uptick was a client who ran a significant promotion, selling $2.6m that one day).

Aggregating sales across all RKG clients in effect weights larger retailers more heavily. The prior graph could hide widespread suffering among smaller retailers.

To remove size effects, for the next graph we divided each client's daily sales by their own largest single sales day during the period. This normalizes each client's daily sales to a fraction between 0 and 1. We then averaged these normalized figures by day across all clients. The resulting graph counts each client equally, regardless of absolute sales volume.

The normalization smoothes the trend. Again, there is no indication of any significant sales drop over the last two weeks. September looks like August.

Let's turn from retailer revenues to search engine revenues. Over the last few weeks, what are the search engines experiencing? Are retailers cutting spending on paid search clicks?

No. Aggregated across all RKG clients, ad spend is essentially steady since August, with Google again showing slight gains.

What about click-through-rates?

On average, CTRs have declined modestly since August for Google and Yahoo. Microsoft shows greater decline.

Aggregate conversion rates also show a slight downward trend.

Similar story for average order value: some recent erosion. Again, that big one-day promotion shows as a spike.

Beyond sums and averages, what is each retailer experiencing?

To describe the range of individual differences, for each RKG client we calculated the percentage change in PPC-driven sales during the week of 9/1 versus PPC-driven sales during the week of 9/15.

Here's a histogram.

Putting it another way, comparing the week of 9/15 to the week of 9/1, 56% of RKG clients suffered a sales decline. 44% enjoyed a sales increase.

Yes, more RKG clients were down than up following the Freddie/Fannie news.

But, 56% vs. 44% is pretty close to an even split. And despite the crisis, a third of our clients saw sales up by low double digits. Which is pretty normal, given seasonality, and given the ordinary spikiness of sales at the week-to-week resolution.


What does this all mean?

Thus far, on average, over the short-term, online sales are holding more or less steady. Ad spend levels are holding. Conversion and average order show slight weakness. Some retailers are down, but also some are up.

Hopefully, decisive action from Washington will calm the markets and avoid further turmoil. Like everyone, we continue to watch and hope.

Wall Street

Please note these analyses and charts are all extremely short-term, looking at just the last few weeks. On the longer time horizon, we did observe online sales generally slowing heading into this summer. More on that in a followup post.

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