UK’s e-commerce sector investment bucks European trends as Google catches Meta for ad spend

E-commerce companies across Europe are backing themselves with increased investment across inventory and ad spend despite variable economic conditions.

Amid high inflation and macroeconomic uncertainty, UK e-commerce companies increased their overall business investment during Q1 2023 by 43%.

According to data from Juni, a financial management platform for ecommerce businesses, advertising accounted for 45% of total spend, inventory 19% and tax 9.12% - suggesting that underlying business confidence within the ecommerce industry may be growing.

UK vs Europe

Several findings within the data suggest that UK-based ecommerce companies are less affected by current market conditions when compared to the rest of Europe. February of this year, notably the shortest month, saw Juni’s customers within the UK record their highest ever card spend, increasing it by 42.69%.

The most significant contributor to this increase was a 197% boom in investment in inventory from Q4 2022 to Q1 2023, now accounting for 19% of overall spend for UK online retailers. Interestingly, for retailers across the rest of Europe, inventory spend decreased by 2.9% and only accounts for 4% of their total expenditure.

This suggests that UK digital commerce companies are preparing for a potential increase in demand later this year - an optimistic view towards the direction of consumer sentiment.

A notable reduction however was in software investment, reducing by 11% amongst UK online retailers in Q1 2023 compared to Q4 2022 with European companies being even more stringent, cutting back 58% of their software expenditure.

Samir El-Sabini, Co-founder and CEO at Juni, said it was a welcome surprise to see UK retailers’ confidence appear to increase but is somewhat bothered by the decrease in software investment.

“Whether it’s UK retailers taking advantage of bulk pricing or planning for a significant increase in sales, it’s encouraging to see the sector backing itself with increasing inventory spend,” he said.

“The reduction in software spend is mildly concerning. E-commerce companies should be continually investing in new, software-enabled capabilities to better support their customers and their businesses.”

Google catching Facebook in the ads game

Historically, advertising spend amongst online retailers falls in Q1 compared to Q4, as Black Friday and Christmas are often peak investment periods. However, ad spend saw modest gains in Q1 of this year, increasing 6.9% in the UK and 20% across the rest of Europe.

UK companies placed over half (53%) of their ad spend into Facebook, a 6% decrease on Q4 2022, and 32% into Google - a 7% quarterly increase. Across the EU, Google took 60% of e-commerce ad spend while Facebook only claimed 31%.

This puts an end to Meta and Facebook’s 12 month reign at the top of the European ad spend table, with Google Ads now accounting for 50.9% of all spend on ad platforms. A significant increase also came for Microsoft Advertising - owners of global AI sensation ChatGPT - growing from 0.4% in Q4 2022 to 2.1% in Q1 2023.

El-Sabini said of these changes: “While a 6.9% increase in ad spend may not seem significant, UK retailers would typically spend substantially less in Q1 than in Q4.

“This suggests a high level of confidence amongst British companies - especially online retailers and fashion stores - that they can weather the macroeconomic challenges and continue to grow their businesses. Overall, the UK e-commerce sector seems optimistic about the future and is actively investing in its growth.”

This suggested optimism is further supported by growth in total card spend per business increasing 17.3% this quarter compared to last and 22.6% year on year, signalling a belief among ecommerce retailers in continued growth for the year ahead.