Covid has affected most industries to some extent or another over the past 18 months. But, for the retail sector, it has been one hell of a roller coaster ride.
Even before Covid struck a growing move to online shopping had seen many retail chains struggle to keep physical stores open. Covid brought with it long periods of lockdown restrictions that forced people to turn to online shopping. This has greatly accelerated long term trends and we have lost several well-known brand names from the high street.
But now we are finally approaching an end to lockdown restrictions in the UK, it seems like an appropriate time to take stock of what has happened. So, just how has Covid changed the retail world and how might we separate long-term shifts in consumer behaviour from the relatively short-term impacts of covid?
2020 saw a significant shift online
Before 2020, average weekly retail sales had gradually risen year on year. In recent pre-Covid times, modest, yet healthy, 3% or 4% annual increases were the norm. But when Covid struck, spending slowed considerably and, in the final analysis, sales in 2020 were virtually flat compared to 2019.
But if overall growth stalled during Covid, growth in online sales witnessed a dramatic rise. Even prior to Covid, online retail had been rising (10% growth in 2018/19) and was the main driver of overall sales growth. However, 2020 saw online sales jump by 47% compared to 2019. Despite this, overall retail sales growth was flat which, of course, means that high street sales have fallen.
Nearly one third of UK retail now happens online
Whilst the change over the past 18 months has been dramatic, it is nevertheless a continuation of trends we have been experiencing for years now.
In 2011 only 8% of sales happened online. This number has risen steadily every year since then, such that by 2019 it had reached 19%. If Covid had not hit when it did, we might have expected to see online sales rise from 19% to perhaps around 20% or 21% during 2020 anyway.
However, Covid forced us online. At times, many shops were forced to close and, even when they were able to open, shoppers often remained nervous about returning to the high street. The net effect of this was a jump in online sales from 19% to 28%.
2021 has so far maintained this increase. In the 12-month period leading up to the end of May 2021, 31% of retail sales were made online.
The question now is, how much of this business might return to the high street now that restrictions are lifting?
Certainly, we might expect to see some pick up. With so many people confined indoors for so long, there are many who are looking forward to getting out and about again. But that may only lead to a short-term boost for the high street. Longer term, a significant proportion of business may end up remaining online.
Lockdowns boost online sales
A more detailed look at the trends over past 18 months shows how lockdowns have continued to boost online retail.
During periods of increased lockdown restrictions – the Spring of 2020, November 2020 and January/February 2021, online sales rose to around one-third or more of all retail sales. In periods when restrictions relaxed this proportion fell back down to around 27%.
27% is still higher than the figure of around 19% or 20% we were experiencing prior to Covid but lower than the lockdown peaks.
What this suggests is that, in the longer run, Covid has inspired a step change in our behaviour. Rather than seeing online spend rise from 19% to around 21% (as we might have expected if Covid had not hit), we have seen it jump to a level of around 26% or 27% or more. The lifting of restrictions will see some return to the high street in the second half of 2021 but not back to pre-Covid levels.
Overall, it looks like Covid has accelerated the process of migrating retail online by around three or four years. So, when 2021 is done, we are likely to be looking at a year in which online retail has accounted for around 26% or 27% of all retail sales. 2022 will probably see this figure grow at a more sedate but steady pace to around 28% or 29%.
Non-food retail heads online
Nearly half of online sales are made by businesses with no stores (i.e. pure-play online retailers). These businesses have benefited significantly from the pandemic and will, no doubt, continue to thrive in the post pandemic era.
But what about the more established retail businesses that possess high street stores. Many of these now have online stores as well and several have been able to make up for at least some of the shortfall in high street sales with online orders. However, there has been a significant difference between the trends experienced by food retailers (such as supermarkets) and non-food retailers (such as clothes shops).
The effect on non-food retail
Covid has had an impact on all forms of retail but the effect on non-food retailing has been far more significant.
Of course, the non-food retail sector has been subject to enforced periods of closure at times when Covid cases have surged. So, it is no surprise to see the proportion of online sales increase significantly at such times.
In the first wave lockdown, the proportion of online ordering reached a peak of 44% of all non-food retailer sales in April 2020. It peaked again, partly boosted by Black Friday and partly by increased lockdown restrictions in November 2020, at 38%. As December saw a slight easing in restrictions the proportion of online sales briefly dropped down again. Online sales shot back up to 41% during the January lockdown, reducing again once restrictions eased.
However, although eased restrictions have boosted the proportion of high street sales, it seems that a proportion of business that went online after March 2020 has remained online. Prior to the first lockdown, around 15-16% of non-food retail sales were made online. Since Covid hit, it has never once fallen below 23% in ensuing months, even when lockdown restrictions have eased.
Covid has prompted a lot of people to give online shopping a try and, having tried it, they have taken to it. The net effect looks like a permanent shift in the market from around 15%-16% online sales to around 23%-25% in the medium to longer term (assuming no further lockdowns).
Trends in food retailing have been less volatile
Supermarkets and other food retailers have benefited from being able to remain open during lockdown. This, coupled with the fact that everyone will always need their weekly groceries, has meant that a much larger proportion of sales has remained in store.
The first lockdown, in the spring of 2020, saw a shift to a higher level of online ordering; rising from 6% to around 10-11% in a single month.
This probably reflects a combination of two things. First, that a proportion of the public were very reluctant to venture out when the pandemic began (in some cases because they have or live with someone with a serious health condition). Second, at various times people have been asked to self-isolate due to having a positive test or coming into contact with someone with Covid. In these circumstances the only options are to get someone else to do your grocery shopping, or to order online.
However, following the initial increase in online ordering the proportion of food retailing occurring online has remained remarkably stable at around 11%, ever since April 2020.
Food retailing looks set to remain more high street bound for longer than other forms of retail. Post Covid online ordering is likely to remain higher than before (at around 10%-11%). The longer-term trend is likely to be one of a gradual annual rise in online shopping.
The long term picture
The migration to online retailing looks set to continue. Covid has only really served to accelerate long term trends.
Looking ahead to the coming year, even assuming no further lockdowns, we will be living in a world in which over one-quarter of UK retail sales will happen online. Furthermore, over the next three or four years, this is likely to increase to over one-third.
Retailers will, in future, have to put as much thought and energy into the design of their digital stores as they have historically invested in their physical ones.
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