The Election's Effect on E-Commerce

In the months leading up to the presidential election, individuals worldwide held their breath at what promised to be a historic event. Political programs shot up the ratings chart as Americans tuned in to hear the latest poll numbers and pundit commentary, front lawns became littered with political signage, and Tina Fey put Saturday Night Live back on the cultural map with her famous impersonation. Regardless of what side of the party line you fall on, the anticipation was great.

The anticipation seemed all the more intense given our current economic situation so we wondered how this election sentiment has been affecting consumer behavior and in which direction it's been moving online retail.

Prior to the election, economic conditions set the shopping climate for consumers. Our unemployment rate was on the rise, consumer prices fell at a record pace, food costs were up, and new-home building slumped to fresh lows. The status of the economic downturn excerpted consumer confidence which dropped 38.1% last month, the worst decline ever for the consumer confidence index.1 Good news came in the form of oil prices dropping 22% per barrel from September to October,2 a typical pre-election sign according to David Blue, executive director of the International for Ecological Agriculture.3 A six-day run beginning October 28 also left the major indexes up by at least 17.7%.4

Aside from economic conditions affecting the retail industry as a whole, the fact that 2008 is an election year also affects the outlook. Using Hitwise market share data for online shopping and classified sites, we mapped 2008 data (blue trend line) against 2007 data (yellow trend line). In the months leading up to the election we saw substantial year over year growth in the market share of online shopping and classified sites. Market share, as is typical throughout the year, peaked on weekends and were stronger and generally in line with the same days in 2007.

While consumers were shopping online for the holidays earlier than usual this year, the days leading up to the election, we started to see the gain we had over last year's online shopping market share (the gap between 2008's and 2007's trend lines) narrow. Online retail market share even fell below last year's norm, declining to 9.23% -- a record low for 2008 to-date -- on the day of our election. While it has been noted that consumers historically tend to hold back on purchases shortly prior to election day,5 these figures tell us that this year's economic uncertainty caused consumers to shop even less than expected on those few days. According to Bill Martin, co-founder of ShopperTrak, "people [were] kind of waiting -- they're not certain over what's going to happen, whether they [would] see more of the same economic program or if we're going to see some change with new leadership."5

Using Google Insights for Search below, we mapped the search interest level in retail (as observed as a relative percentage on the y-axis) in the days before and after the 2008 election (blue trend line) against the same days for the 2004 election (green dotted trend line). We noticed much lower levels of search interest beginning as early as the Friday night before this year's election whereas the search interest did not decline until the Sunday prior to the election in 2004. In general, however, presidential elections take an entire day away from consumer shopping as everyone heads to the polls on Tuesday and watches the live election coverage afterward. This year was no exception -- similar to the 2004 election, there was minimal retail search activity on election day.

On Tuesday night we witnessed Obama's historic victory as he became our president-elect, but in the wake of post-election Wednesday, our nation found itself in what has been deemed by some "a collective political equivalent of December 26"6 as we faced our economic reality again. That day the DOW shed nearly 500 points and consumers were not inclined to do as much holiday shopping or research online as in non-election years. As William Rutherford, president of Rutherford Investment Management explains, "yesterday there was a certain euphoria about the election, but today they are focusing on the market fundamentals, and they don't look so good."7

While both retail search interest and online retail traffic share (refer to Hitwise chart above) recovered to typical levels over the weekend as consumers resumed shopping, that is not to say that all returns to normal. Given the renewed worries about the struggling economy, it will be increasingly crucial for retailers to stay current and continue to adapt to the fast changes in today's online retail landscape. We saw many good examples during the election season: J. Crew was able to anticipate consumer interest and use the online channel to effectively respond to Michelle Obama's appearance on The Tonight Show with Jay Leno (in which she wore the retailer's ensemble) by quickly creating a specific Michelle Obama J. Crew search ad and a Michelle Obama J. Crew page on their e-commerce site. Bluefly created a Fashion Decision '08 site to poll users on different candidates' fashion choices and in turn create buzz around their brand and site, and Gap created a new 'Vote For' T-shirt and launched an entire campaign to market their new product. So whether your top holiday goals are to drive online conversions or in-store sales, take advantage of the flexibility and immediacy of online to be innovative with your advertising, from changing your ad text, to strategic keyword buys, to adjusting your bids and even landing pages.

References:

[1] 2008 Market Harmonics, Consumer Confidence Index, 11/1/08.
[2] U.S. Department of Labor
[3] New York Times, Ken Belson, A Post-Election Bump at the Pump?, 11/6/08.
[4] The Wall Street Journal, David Gaffen, What to Do When Everything Rallies, 11/5/08.

[5] The Wall Street Journal, Halloween Shopping Helps Nudge October Sales Up 0.7%, 11/4/08.

[6] New York Times, Tara Parker-Hope Quoting Robert Thompson, The Post-Election Blues, 11/5/08.
[7] CNN Money, Alexandra Twin, Dow Sheds 486 Points, 11/5/08.

Posted by Julia Tang and Eric Lopez, the Google Retail Team