1 April 2021

Retailers have shown incredible ingenuity in the pandemic – and we’re better off for it

By Jack Barnett

While households across the country are looking forward to welcoming family and friends back into their gardens, and many are rushing to resume outdoor sport, businesses – specifically, non-essential retailers with a significant real estate footprint – are still waiting to open their doors to customers once again.

Despite the severe disruption caused by restrictions on economic activity to curb the spread of coronavirus, the retail industry has continuously improved its ability to operate effectively as the pandemic has worn on.

Latest figures published by the ONS show the volume and value of retail sales rose 2.1% and 2.2% respectively over the last month, recovering from an 8.2% and 7.8% fall in January. Within this publication, the ONS highlighted that the proportion of retail spending conducted online reached 36.1%, the highest on record and up from pre-pandemic levels of 20%.

This figure highlights the ingenuity of retailers. They have responded to the pandemic’s impact on their operations by rapidly scaling e-commerce offerings to ensure they can still reach consumers even amid mass store closures.

Greater spending on goods pares back retailers’ losses

The UK economy is hugely dependent on the performance of its services industry. Part of the reason why the country’s economy underwent such a severe contraction in April 2020 (the month after the first lockdown restrictions were imposed) can be attributed to the enforced closures of sectors that facilitate social activities. The reduction in output at these firms represented a high weighting in the UK’s aggregate output, meaning the fall in GDP was greater relative to other developed countries.

These businesses have experienced the sharpest end of income hits during the pandemic and are most likely to be harbouring fears over insolvency in the long run.

However, retailers have benefited from a shift in consumer behaviour toward spending more on goods and less on services. Their losses, although still enormous, have in part been pared back because consumer goods can still be purchased even amid Covid prevention measures.

The key change on the supply side the pandemic has engineered is how retailers distribute goods to customers. Instead of relying on physical stores, most if not all of consumer goods retailers now rely on sales through e-commerce channels as their main revenue source.

Customers have also been quick to adopt digital means to purchase goods in response to the UK high street being shut down. Strong demand for goods has been supported by enforced reductions in household expenditure on things such as transport and recreation. This has prompted consumers to seek out more novel and luxury products, providing a windfall for more artisan and independent retailers.

Food retailers finally embrace e-commerce

In the long run, some sectors of the retail industry are more likely than others to undergo a permanent shift toward greater use of e-commerce channels among their customers.

Footfall at physical clothing stores could rebound sharply and recover to pre-pandemic levels, in part driven by consumers wanting to try items on before purchasing them.

Conversely, e-commerce seems to set to contribute a relatively higher proportion of food retailers’ income in the future due to consumers continuing to do their weekly shop online to capitalise on greater convenience and lower cost.

Shift to online shopping typifies transition toward greener economy

Despite e-commerce providing a safety net for some sectors of the UK’s retail industry, there are issues that come with greater digitisation.

Concerns over whether increased use of e-commerce will dampen employment prospects are valid. This is particularly salient for young people given that a large proportion of this age group rely on the retail industry to provide them with an income.

However, the trend toward online shopping typifies the transition other industries need to undergo to help transform the UK into a greener country.

Reducing reliance on physical stores to distribute goods to consumers is an example of how industries can cut their carbon emissions by taking advantage of improvements in technology. By doing this, firms can reduce their private costs, provide a less costly means for consumers to spend their money and cut costs imposed on society through using less pollutive-intensive production processes.

Non-essential retailers are rightly champing at the bit to see customers back in the aisles. However, in the long run, a higher proportion of them may be less reliant on physical stores for their bottom line compared to before the onset of Covid.

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Jack Barnett is a Senior Account Executive at Instinctif Partners.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.