Online Shift to Cut U.K. Retailer Profits by $11 Billion
(Bloomberg) -- 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.
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.
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