Online Shift to Cut U.K. Retailer Profits by $11 Billion

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U.K. retail profits are forecast to shrink by 8 billion pounds ($11 billion) by 2025 as the pandemic accelerates a shift to e-commerce, a report published Wednesday warned.

The study by Alvarez & Marsal Inc. and Retail Economics highlights the challenge facing an industry that was hit severely by lockdowns to fight the coronavirus. Stores selling apparel, homeware and electrical goods will experience a “permanent step-change” in consumer behavior, with European shoppers expected to shift about 20% of their spending in these categories to online operators.

“As digital becomes more critical across every stage of the customer journey, retailers face a make-or-break moment to prevent profits from spiraling downwards,” said Erin Brookes, head of Alvarez & Marsal’s European retail practice in London. “There is no going back.”

The warning is a blow to a sector that only began welcoming back customers in April. Online spending surged during the pandemic restrictions and now accounts for almost 30% of total U.K. retail sales.

Online Shift to Cut U.K. Retailer Profits by $11 Billion

The volume of online returns is likely to erode profits further, the study argued. It estimated that U.K. consumers aged between 18 and 24 return about 16% of products purchased online, compared with 7.5% for consumers aged 65 years and older.

Not all retailers face major upheaval, however. Furniture and jewelry stores will probably return to pre-pandemic conditions, given the preference for “touch and feel” browsing, according to the report, which was based on an analysis of private and public European retailers as well as a consumer survey conducted in the second half of April.

©2021 Bloomberg L.P.

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