E-Commerce’s Accelerated Pandemic Growth

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

E-Commerce’s Accelerated Pandemic Growth

The Accelerated Rise of Online Shopping

The shift towards online shopping is tangible and visible. We see closures of ‘typical’ high-street retail businesses and we read and hear about the success of e-commerce businesses like Amazon and Boohoo.

In table 1 below we look at how online shopping is grabbing an increasing share of UK retail sales and how percentage share gains have accelerated through the Pandemic (share gains also referred to as ’the rate of penetration’).

Table 1: Online Share of UK Retail Sales

Source: ONS, as of 05/04/2021

Table 1 presents us with some interesting facts to interpret. Pre pandemic, a very steady upward move online is evident. Probably something we are aware of but not able to pinpoint and quantify. In this context a chart is useful. It helps us to grasp and put into context something we can sense: The small variations in the trend line are seasonal effects, Easter, Black Friday, Christmas etc. We could smooth this line but wanted to show them because they sometimes grab the headlines. Looked at this way they are not meaningful.

In 2011 internet sales accounted for approximately 7.5% of all UK retail sales, but by end 2019 they had almost tripled to over 20%. This happened over the course of 8 years and equate to a penetration rate of roughly 1.5% per annum.

However, we can get blind-sided by percentages. In monetary terms a 1.5% increase on a base number that is larger each year means the monetary value of online sales is growing more significantly than we perhaps gather from the small percentage annual changes. For example, 1.5% of £1 billion is £15m of extra sales whereas 1.5% growth on £3 billion is £45m of extra sales.

Once the pandemic hit early last year, we see a more dramatic shift. This is evident by looking at the broken line in Chart 1. In March 2020, the level was 22% but 3 months later it shot up to 31.2%.

Carving 10% of sales gains away from traditional retails sales channels in such a short time is, to say the least, unusual. But given the situation unfolding not difficult to fathom. The impact of lockdown and the speed of response by e-commerce providers was spectacular to witness.

We also note though that as lockdown 1 eased online sales pull back, but also picking back up again as lockdown 2 recommences.

Digging Beneath the Headlines

The Office for National Statistics (ONS) is always a good and reliable source for micro data. They produce reams of statistics. On closer inspection the largest increase in online sales was food stores. This is not that surprising but the quantum, doubling of online sales, by August 2020 is phenomenal.

And at the Corporate Level

The e-commerce phenomenon is of course not confined to the UK. Getting comparable international data is challenging but not wholly necessary because businesses like Amazon provide a useful snapshot of what is happening globally.

According to their recent accounts reported sales over the last two calendar quarters exceeded $100bn. This is 44% more than the same period one year ago. They also forecast revenues of $110 to $116 billion over the second quarter of 2021 underway. The numbers demonstrate the dramatic shift in consumer behaviour that the pandemic has caused allowing online-based business to thrive

The pandemic has also been positive for Boohoo, the online clothing store. They recently reported sales of £1.7 billion, more than 40% growth from the previous 12 month period. They are also forecasting sales to increase a further 25% in the year to end February 2022.

Amazon and Boohoo offer tangible evidence that online sales continue to flourish and that reopening of the UK economy will not undermine the long-term trend favouring online.

Concluding Thoughts

A clear pattern toward online shopping has been boosted in an extraordinary way by the Pandemic

As economies reopen a ‘high street’ bounce is inevitable but this will not reverse the trend favouring a growing desire for the convenience offered by online shopping.

There have been some clear winners from this shift in behaviour; Amazon and Boohoo predict increased revenues even as the high street reopens.

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