UK retailers could see profits fall by £8bn in the next four years, according to a new report from Alvarez & Marshal in partnership with Retail Economics, a direct result of the ‘seismic shift’ to ecommerce fuelled by the Covid-19 pandemic.
In the report issued by the global services firm, pre-tax profit margins are forecast to fall to 3. 2 per cent by 2025, compared to the projected 3.7 per cent that was expected, had the pandemic not hit and consumer behaviour would have remained unchanged.
The research has identified the apparel, homewares, and electricals business sectors as those which will experience a permanent step-change in consumer behaviour, brought about by increased online engagement.
At the other end of the scale, however, categories for which online experiences are typically less convenient compared to traditional shopping due to a preference for ‘touch and feel’ browsing, will be the most likely to return to pre-pandemic conditions, despite some shift in spending habits.
A table depicting the percentage of consumers expected to permanently shift to online shopping places Toys and Games right in the centre. With 15 per cent of respondents to the research making the digital shift, compared to four per cent in 2020.
Four in ten UK consumers state that their shopping habits will change permanently, marking the highest in Europe, the research states.
Richard Fleming, managing director and head of restructuring Europe, A&M, said: “Covid-19 has wrought irreversible change which has left the future of many retailers hanging in the balance.
“Those businesses that will remain relevant and survive the disruption will be those that are able to realign operating models with the new normal and meet the needs of a post-pandemic consumer – but there will be an inevitable shake out of those that cannot do so before it’s too late.”
The Disney Store has become the most recent retail brand to hit the headlines in the last couple of weeks as the business confirmed that it was in consultation with a group of UK stores about the possibility of closures. A spate of closures across the UK has since sparked rumours that it could be opting for a reworked plan for its bricks and mortar retail, operating just one or two flagship stores in the country.
Disney had previously stated that it would be boosting its digital retail presence in the face of the shift to online shopping and ecommerce, prior even to the onset of the pandemic.
Erin Brookes, managing director and head of retail and consumer, Europe, A&M, added: “As digital becomes more critical across every stage of the customer journey, retailers face a make-or-break moment to prevent profits from spiralling downwards. There is no going back – retailers must acknowledge changing consumer behaviour and respond appropriately.
“Yes, this includes successfully transitioning away from some physical stores and re-imagining the purpose of others, but investing in the building blocks for efficient online operating models such as reverse logistics, strategic partnerships and intelligent data and technology is essential.”