Market Insights

How Has Coronavirus Affected the UK Retail Sector?

Coronavirus Effect on UK Retail

The retail sector is an important part of the UK economy, being responsible for around 5% of the country’s GDP, providing work to 9.3% of all employees in the UK, and taking up around a third of household spending. Across the UK, around 300,000 shops employ almost 3 million people with an annual sales volume of around £395 billion.

As most people are aware, the retail sector has been heavily affected by the coronavirus pandemic with some businesses suffering a great deal. Government measures that were introduced to halt the spread of the virus, including the closure of non-essential shops, had a profound impact on this sector of the economy.

While many retail businesses have simply struggled to survive as result, the picture for the sector as a whole seems to be that there has been a shift in the landscape. Periods of decline have caused difficulty. However, to varying degrees, these periods have been followed by recovery. The main issue is that where traditional sales avenues were lost because of government measures, new opportunities opened up. This was particularly true for online retail and changes which people made to their shopping habits during the pandemic are likely to have a big impact in the future.

In fact, the biggest effect of the coronavirus pandemic for the retail sector has been a general shift towards increased levels of online shopping. While this movement was already underway before the pandemic started, the pandemic has speeded it up a great deal. On top of this, many believe that the changes brought about by the pandemic will become permanent and aren’t just temporary changes.

The Shock of Lockdown in Early 2020

As everyone is aware, the coronavirus pandemic caused the government to introduce restrictions to many aspects of life, including the way we could shop. The measurements introduced in early 2020 included the closure of non-essential retail stores on 23rd March. This closure was in force until June 2020 across the UK and kickstarted the challenge that the retail sector faced from coronavirus.

To illustrate the extent to which some businesses were affected, it is worth considering that many retailers went from having millions of pounds in monthly turnovers to having zero income. The lockdown of spring 2020 caused many businesses to struggle to stay afloat. While the furlough scheme did help to relieve some of the pressure, the financial pressure from the loss of sales was one of the major challenges which came about from coronavirus.

As well as the obvious problem of a loss of sales, the lockdown restrictions caused many people to shop online instead.

The Shift Towards Online

A sudden push towards shopping online became a huge challenge for the retail sector. Even more so, when it was beginning to look like more of a practice than just a trend. Much of this shift also seems to be less temporary than many expected, with demand for online shopping still looking to be strong today.

As lockdown restrictions have been eased since the early days of the pandemic and as people have been able to return to shops it seems as though they are less willing to. Many consumers seem to have chosen to stick to online shopping habits.

Rather than non-online retailers being able to taper off towards an online retail scene, the pandemic has pushed it more quickly into existence. This has boosted things for established online retailers but has caused problems for more traditional styles of retail.

Barriers have been broken down with new ways of online shopping having been introduced and sub-sectors of retail that previously had little online presence, making a shift towards it.

to give an indication of the extent to which the uptake of online shopping increased, online sales rose to a record high of 33.9% as a share of all retail spending in the spring of 2020. This was up from around 17.5% on average for the previous year.

Easing and Returning to Lockdown 2020-2021

After the first lockdown of spring 2020, the retail sector has been further affected as lockdown measures have been lifted and then re-enforced.

As lockdowns have been lifted, businesses in the retail sector have looked to see if consumers will return to their old spending habits. While the reopening of shops has seen the return of shoppers, certain trends have become more pronounced as the waves of restrictions have passed.  

Trends in Retail

One trend has been a fall in consumer spending in the retail sector. The year 2020 saw a 1.9% fall in total retail sales volume compared to 2019. This fall in spending has affected some areas more than others with clothing and fuel sales being particularly hard hit. Clothing sales fell by 21.5% in 2020 and fuel sales fell by 22.2% in 2020 as well. While a general fall in spending is a cause for concern, it is expected that this will not be a permanent trend.

The other significant trend, as we already mentioned and the one which is more significant, has been the shift towards online retail. This trend seems to be more entrenched and more significant than the decrease in overall spending.

Again, this trend has impacted some areas more than others. Apparel, homeware, and electricals, for example, have seen the biggest and most permanent shift towards online retail since the start of the pandemic.

The Current Situation

As lockdowns have been reintroduced and then re-lifted over the course of 2020 and 2021, it seems that the lasting effect is that the shift towards online shopping has been solidified.

This can be seen by the fall in the number of people shopping at shops over the summer and autumn of 2021.

According to the Office for National Statistics, the summer and autumn of 2021 saw a decline in the number of people shopping in stores. According to their statistics, shop sales fell by 0.6% in August 2021 and 0.2% in September 2021. These figures can be compared to online sales which, as a proportion of total retail sales, rose from 27.9% to 28.1% between August and September 2021.

Anecdotal evidence suggests that people do not browse in-store as much as they used to and are more inclined to shop in-store quickly and for particular purposes. On top of this, there has been a general fall in the total volume of footfall.

It seems that browsing online is now more popular than browsing in-store. The effects of this trend have been felt more keenly in some retail sub-sectors than they have been in others.

Sub-Sectors Where Online Shopping Has Increased

As ever, food sectors have either not been hit by the loss of sales or have benefited. It is certain other sub-sectors of retail that seem to be seeing the biggest change. In the months of August and September 2021, shop sales of household goods fell by around 10% as an example.

One study by Alvarez and Marsal found that apparel, homeware, and electricals were particularly affected by the shift towards online sales. A consumer survey found that 16% of consumers had made their first online purchase for apparel and homeware items during the pandemic. On top of this, around 20% of consumers stated that they would continue to shop online after the pandemic had finished.

While this is the case, some areas of retail that may have been expected to have declined have not done so. Department stores, for example, saw an increase in sales of 4.3% in August and September 2021. Other areas, such as jewelry and furniture, also seem to be less affected by the shift as well.

How Does This Trend Compare to the Historical Trend?

Over the last decade, there has been a steady and gradual shift towards online retail. In 2010, internet sales accounted for around 7.5% of total retail sales. Prior to the pandemic, in 2019, this had increased to around 17.5% with an annual increase of around 1%.

The pandemic saw an immediate leap to 33% of sales and while this number has dropped since the lifting of the lockdown of spring 2020, it has been yoyoing at a significantly higher level than before.

How Does the UK Compare to Other Countries?

The UK seems to have taken to online shopping to a higher degree than many other countries, consistently ranking as one of the more online friendly countries there is.

One study found that, for Europe, the UK had the third biggest expected permanent shift of household expenditure to online retail. While Italy and Spain were ahead with a 38.4% and 33.2% expected to shift, the UK was not far behind with an expected shift of 29.6%.

The Lasting Impact

The lasting impact of the coronavirus pandemic has, obviously, been the shift towards online retail. The complexity of overcoming the challenge that this presents and the need to do it very quickly is the major challenge facing many sub-sectors of the retail sector at the moment.

Many traditional retail stores which sell their goods in shops face falling profit margins and rising competition. For many, there is a big challenge ahead.  

Alvarez and Marsal, in their study, found that 4 in 10 consumers in the UK will permanently stick to online shopping habits which they have developed during the coronavirus pandemic. Another factor that compounds the issue is that it is younger consumers who more often represent those who plan to permanently shift to online shopping. This further solidifies its permanency.

Where only 17.0% of over 65-year-olds expect to shift fashion spending online permanently after the pandemic finishes, 27.3% of 35 to 44-year-olds expect to make the change permanently.

Some suggest that businesses will have to change their strategy in the changing business landscape. Some suggest that there will be a rise in acquisitions, strategic alliances, and partnerships, on top of a rise in investment in digital and online technology. It is also expected that more attention will be paid to supply chains as opportunities to streamline and better organise operations are sought.  

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