The UK retail industry is expected to lose £8bn in profits by 2025 after the COVID-19 pandemic accelerated the shift to online shopping.
Over a third of all sales will be online over the next four years, according to a report by Alvarez & Marsal Inc. and Retail Economics, the highest percentage across Europe.
Europe’s e-commerce landscape is undergoing significant structural change, exacerbated by prolonged restrictions on socialising and enforced closures of shops, researchers said.
“For many businesses striving to remain relevant and survive the disruption, their transition will likely mean a challenging readjustment as business models are aligned with the ‘new normal’,” they noted.
“Profitability will come under intense pressure as operating models that are disproportionately weighted towards physical channels struggle to rebalance costs as online accounts for a growing proportion of sales.”
However, categories such as furniture, flooring and jewellery, which rely on the ‘touch and feel’ experience in-store and more complicated delivery, are more likely to see customers reverting back to old habits.
For those that will have to boost their online presence, supply chain optimisation becomes increasingly important for maximising profitability, the study said, as they will have to deal with lower margins and heightened competition.
To protect profits, retailers will have to use data and technology to predict demand and make management processes more efficient as well as re-engineering packaging in a more sustainable way.
They will also receive higher numbers of returns compared to the brick-and-mortar shops, which may be challenging.
Next PLC (LON:NXT) has tackled this issue by sending them to its own shops, making the process cheaper.
Others have partnered with fulfilment companies to manage the so-called ‘reverse logistics’: Clipper Logistics PLC (LON:CLG) is already working with ASOS PLC (LON:ASC) and boohoo Group PLC (LON:BOO) across the UK, Germany and Poland.
“Consumers and retailers have been adapting to the migration to online for many years now, but the recent shift in behaviour as a result of the global pandemic means that we are entering a new phase across Europe of truly omnichannel customer expectations,” researchers added.
“Critical to survival is ensuring customer relevance, satisfying changing customer needs, offering outstanding and competitive service, all while managing the impacts of increased online penetration on profit margins.”