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Life after Covid: Prospects for online retailing, physical stores, and how we pay

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VoucherCodes.co.uk has partnered with the Centre for Retail Research (CRR) to review the impact of the Covid-19 pandemic in the UK.

This report examines the immediate impact of Covid-19 on online and offline (physical store) retailing, as well as how we pay for goods. It also looks forward to the longer-term implications as the UK comes out of the pandemic in 2021 and 2022. Our predictions are made based on the UK meeting each of the criteria of the Covid-19 response Spring 2021 roadmap out of lockdown, including the formal end of most Covid-19 restrictions in England on 19th July 2021.

When we discuss retail or retailers in this report, we are referring to online, store-based and multichannel businesses that sell directly to consumers.

Online retailing

The impact of Covid-19 on online retailing

The Covid-19 pandemic, and resulting three nationwide lockdowns that took place throughout 2020 and early 2021, caused a huge surge in profits for online retailers. Non-food online retailers benefitted the most from lockdowns, when non-essential retail stores were forced to close and consumers could only buy certain products online. Despite supermarkets being classified as essential stores during all three lockdowns and being allowed to remain open, online food retailers still also benefited greatly from the pandemic. This is because of widespread safety concerns around visiting supermarkets and being around other people who could have Covid. During the first lockdown, panic buying was rife across the UK, meaning that even more people turned to shopping online to ensure they could purchase essential items.

Early on in the pandemic, there were fears that online retailers would struggle to cope with this sudden, huge increase in demand - which in part lead to mass panic buying of items such as toilet roll and pasta during the first lockdown in March 2020. However, as people got used to the new ‘normal’ of lockdown, this soon eased and retailers coped incredibly well with the new levels of demand.

Consumers also adapted well to this new change, with many people shopping online for the first time during lockdown. In fact, during lockdown 5.3% of online shoppers and 16.7% of online grocery shoppers were doing so for the first time.

New regulations put in place to ensure consumer safety and help those in most need also helped ease anxieties around online shopping. Online grocery retailers led the charge, reserving delivery slots for vulnerable customers, health workers, and other key workers. New doorstep delivery and social distancing measures were put in place for deliveries, including contact-free delivery and the replacement of signatures with photos of delivered packages to minimise the risk of spreading Covid. These measures were quickly adopted by all online retailers.

Parcel delivered
Image sourced from Getty

How do people think non-essential retail stores reopening will affect their online spending?

As the UK continues to hit it’s 2021 Covid-19 roadmap targets and Britain gets back to a more normal way of life, the majority of people in the UK estimate that their reliance on online shopping will fall in 2021 and 2022. Since the reopening of non-essential retail stores on 12th April 2021, 60.5% of consumers say they think they will spend less online than they did during lockdown. Just under a quarter (23%) say they will spend as much online as they did during periods of lockdown, and a smaller 16.5% say they will spend more.

Figure 1: Consumer predictions for how their online shopping habits will change after lockdown ends

Chart of consumer predictions

On average, women expect to spend less online than during lockdown than men (63.9% of women compared to 57% of men). Online shopping behaviour post-lockdown also varies between generations, with younger people, aged 18-24 and 25-49 expecting to spend less online after lockdown (62.3% and 62.9% respectively). This contrasts with older generations, with those aged 50-64 and 65 and over, of whom just 55.4% and 60.8% respectively expect they’ll spend less online following the end of lockdown. This is most likely due to older generations having gotten used to online shopping during lockdown, and appreciating its convenience.

Online retail growth during the pandemic

Figure 2: Total UK online retail sales 2018 - 2020 actuals and 2021 - 2022 forecasts

 

Currency values are in Sterling billions

Table of total uk online retail sales

 

Before the pandemic, online retail sales were already increasing every year thanks to the ever growing convenience and product offering available to consumers when shopping online. Online shopping is also becoming more and more accessible each year as technology prices get more affordable. Between 2018 -2019, total internet retail sales grew by 10.3% to £75.478bn - a considerable increase. However, thanks to the pandemic hitting the UK in early 2020, YoY online retail sales grew by a huge 46.5% between 2019 -2020, hitting a record £110.575bn.

When examining how the pandemic impacted online food retail versus online non-food retail in 2020, online food retail sales showed the most dramatic YoY percentage increase of 79.9%, from a relatively low £9.058bn in 2019 to £16.293bn in 2020. Non-food online retail sales soared to £94.282 in 2020, 46.5% more than in 2019.

Figure 3: Online retail's share of total retail spend in the UK 2018 - 2020 actuals and 2021 - 2022 forecasts

 

Table of online retails share of total retail spend

 

During 2020, the proportion of total retail spending coming from online sales soared to a new high of 28% in the UK - an 8.8% increase on 2019’s 19.2%. Unsurprisingly, online non-food retailers saw the biggest boost when it comes to share of total retail sales. In 2019, 29.4% of non-food spend came from online transactions, whereas in 2020 this rose to a new high of 43.1% as non-essential stores were forced to close their doors for large periods of time during lockdown. Despite not seeing such a dramatic surge in demand, online food retailers also benefited as a result of lockdown. Prior to 2020, online food sales accounted for 5.4 - 5.5% of total food retail sales for several years, but in 2020 this rose to 9.3% as people began avoiding supermarkets and more people turned to shopping online for food than ever before.

Prospects for online retail in 2021 & 2022

Our forecasts suggest that online shopping sales will continue to rise in 2021, before levelling out in 2022. However, the proportion of sales made through online transactions will steadily fall as people return to more ‘normal’ shopping habits and resume shopping in stores.

Total online retail sales are forecast to reach £120.489bn in 2021, and marginally increase to £120.625bn in 2022. In 2021, this total will make up a 30.2% of all retail sales in the UK, however by 2022 - the first year predicted to happen as ‘normal’ - without any lockdowns or store closures - this share will fall to 28.1%.

These figures show that the Covid-19 pandemic will ultimately mean more people continuing to shop online forever and buying a larger proportion of goods online than they did pre-pandemic, but most people will return to shopping at a mix of online and physical stores for convenience.

Looking further ahead, online retail sales are predicted to continue rising each year, however at a more steady rate than during the pandemic. With consumers once again having the option to shop at physical stores, online retailers are unlikely to ever see this same sudden hike in sales, however the sharp rise in people shopping online during Covid means that online retailers will benefit from some retained custom.

Physical stores

The impact of Covid-19 on footfall in physical stores

Customer footfall in town and city centres dropped dramatically during the pandemic, mostly thanks to the closure of non-essential retail stores for over 30 weeks throughout the period of March 2020 - March 2021. On top of store closures, widespread anxiety about coming into contact with other people and the risk of catching and spreading Covid-19 was prevalent throughout all periods of lockdown, further putting people off visiting essential retail stores in shopping locations.

For those willing to risk coming into contact with others within stores, safety restrictions put in place in these locations to help minimise the spread of the virus such as compulsory mask wearing and social distancing are also thought to have been off-putting for shoppers - this has been observed during both lockdown and non-lockdown periods.

Over the course of the pandemic in the UK, shoppers tended to avoid the central shopping areas found in cities and towns. During the first lockdown in 2020, average footfall in city centres was just 20% of that in the same period in 2019. By late September it had risen to 64% of footfall in the previous September, before the second wave of Covid-19 plunged the back into lockdown in December 2020.

Social distancing message
Image sourced from Getty

Stores in the UK’s biggest cities such as London, Birmingham and Manchester have felt the biggest impact of the pandemic, as they lost both customers who live locally to stores, and the hundreds of thousands who travel into the cities to work. In February of 2021, footfall in core cities across the UK was just 26% of the same time the year before. City centres were also most affected by the impact of not only retail closures, but hospitality, beauty, entertainment and leisure venues. Without these venues open to attract people to a city centre, retail footfall inevitably suffers significantly.

In contrast, smaller towns and local shopping high streets experienced much smaller losses than cities during the pandemic, with market and smaller industrial towns achieving above 85% of their usual footfall during lockdown periods.

Where a store is situated also had a large impact on its sales during the pandemic. Retail parks saw the lowest drop in footfall of any location - in April 2020 retail parks saw a footfall hit 31.9% of the same month in 2019, due to them being deemed ‘safe’ open, airy outside spaces, easily accessible by car. In contrast, shopping malls were worst hit, with footfall reaching just 15.2% of pre-pandemic levels, followed closely by the high street at 16.7%.

The impact of Covid-19 on sales in physical stores

Figure 4: Estimates of changing sales in physical stores (online sales excluded) 2019 - 2020 and 2020 - 2021

 

Currency values are in Sterling billions. Based on a 54 week year

Table of estimates of changing sales in physical stores

 

When looking at the 54 week period between March 2020 - March 2021 when the Covid-19 pandemic took hold of the UK, total sales in physical stores fell by a huge £35.261bn when compared to the same period in 2019-2020. Sales in non-food stores fell by a huge £36.226bn when non-essential stores were closed during the three lockdowns. Whilst food stores including supermarkets and grocery stores saw a sales rise of £0.965bn, it’s clear from these figures that the pandemic devastated bricks and mortar stores in 2021 and early 2021.

Where do shoppers want to shop after Covid-19?

Figure 5: UK consumer expectations for visiting large shopping centres after Covid

Chart of UK consumer expectations for visiting large shopping centres
  after Covid

Looking ahead to a post-pandemic future, we predict that Covid-19 will have a marginal impact on the places people choose to shop in the UK. An average of 41.6% of people predict that they will visit large shopping centres as much as they did before Covid, but a significant minority of 36.3% think they’ll visit them less than before. However, 22.1% say they think they’ll visit shopping centres more than they did before Covid. Women anticipate going to shopping centres more than they did before the pandemic (24%), more so than men (20%). In fact, 42% of men anticipate making fewer trips to shopping centres than before the pandemic, contrasting 31% of women.

Figure 6: UK consumer expected shopping behaviours after Covid-19

 

Table of UK consumer expected shopping behaviours after covid 19

 

More generally, the overall feeling amongst consumers is that people do want to go shopping as they get back to the new ‘normal’. Although 16.4% say they expect to buy more online after the pandemic than they usually did before Covid. An average of 40% want to use local shops more after the pandemic, 41.7% think they will visit the high street more, 41.1% expect they’ll seek shops selling local produce and 43.6% expect to resume shopping with friends.

Attitudes towards returning to shop on the high street are mixed, with 41.7% of people anticipating to visit more regularly than they did pre-pandemic. However, 33.4% also say that they expect to avoid the high street. Younger people aged 18 - 24 are more likely to make more visits to the high street after the pandemic (48.8%), followed by those aged 65 and over (44.6%). In contrast, those aged 50-64 and 25-49 are most likely to avoid high street altogether following the pandemic (38.1% and 34.7% respectively).

Support for shopping locally is likely to continue after the pandemic, with 40% of people on average pledging to shop at local shops more after the pandemic. Similarly, 41.1% say they will purposefully shop at stores selling local products.

Prospects for physical stores in 2021 & 2022

Figure 7a: Total UK (offline) physical store retail sales 2018 - 2020 actuals and 2021 - 2022 forecasts

 

Currency values are in Sterling billions

Table of total sales in physical stores

 

Figure 7b: YoY change in annual sales in UK physical retail stores 2019 - 2020 actuals and 2020 - 2021 and 2021 - 2022 forecasts

 

Table of YoY change in annual sales

 

Looking ahead to the future for physical stores in 2021 and 2022, sales are expected to continue rising at a steady rate, with significant growth between 2021 and 2022.

2021

In 2021, total sales made in physical stores is set to reach £288.099bn - a YoY increase of 1.4% on 2020’s sales - equivalent to £3.886bn. However, its expected that there will be a large disparity between sales in food and non-food stores. Non-food sales are set to rise by 10% (£12.517bn) between 2020 and 2021, reaching £137.160bn, as people take advantage of returning to the stores closed for large periods of lockdown in 2020. In contrast, food stores are expected to see a -5.4% (-£8.630bn) drop in sales from 2020 - 2021, meaning that offline food retailers who saw sales of £159.569bn in 2020 expect to see profits drop to £150.939bn in 2021. The main reason for this drop is that people will rely less on food stores as life returns to normal. Since reopening in Spring, people have enjoyed returning to visiting restaurants, pubs, coffee shops and other hospitality venues and this will increase even more after 19th July when Covid restrictions are lifted in these venues. As people take advantage of the freedoms they lost during lockdown, less time will be spent at home, therefore less reliance on supermarkets to cater for home needs.

2022

In 2022, set to be the first full ‘normal’ year without restrictions since 2019, prospects are looking brighter for bricks and mortar stores. Total sales in physical stores are set to grow by 7% (£20.293bn) from 2021 - 2022, reaching £308.392bn. Non-food retail will continue to make up the bulk of this increase, growing by a further 12% (£16.569bn) between 2021 - 2022, with non-food retail spend reaching a total of £153.729bn. For the first time since the pandemic hit the UK, sales of food in physical stores is set to grow in 2022, with a 2.47% (£3.724bn) YoY increase. Food sales are forecast to reach £154.663bn in 2022 - a fraction more than sales levels in 2018. Whilst this may seem insignificant, this shows promise for physical food stores, who in 2021 will see their largest sales dip on record. This 2022 forecast suggests a strong future for these retailers, despite the dramatic increase in people turning online to shop for food during the pandemic and beyond.

People walking on street
Image sourced from Getty

The future of payments

How was the way we pay impacted by Covid?

Before the Covid-19 pandemic hit the UK in early 2020, consumers were increasingly using debit and credit cards, digital payments and bank transfers over cash to make purchases.

Figure 8: Preffered payment methods amongst UK shoppers in 2019 - pre-pandemic 2020

Chart of preffered payment methods amongst UK shoppers in 2019

The most popular payment method amongst UK shoppers before the pandemic was a debit/ credit card using chip and pin payment (36.5%), followed by cash (26.6%) then contactless card (16.8%) - although this is likely due to the £30 contactless card limit in place before the pandemic.

During the pandemic, use of cash has been generally avoided due to fears that the virus can be spread on contact. The government issued new regulations to increase the maximum payment on contactless purchases to £45 to minimise the need for contact during payments. At the same time, many businesses switched to a strict no-cash policy. This has caused a significant shift in the way consumers like to pay when they shop.

How will Covid shape the way we pay in the future?

Figure 9: Forecasted payment methods amongst UK shoppers in 2021 - 2022

Chart of preffered payment methods amongst UK shoppers in 201

Thanks to the increase in maximum payment on contactless purchases being in place for over a year, and discussion of raising the limit even further to £100, it’s likely that consumers expect this to remain in place after the UK comes out of the pandemic - even when cash payments are once again permitted.

This means that after the pandemic in 2021 - 2022, we forecast that contactless payments will make up almost half of all transactions (46.7%). Cash payments are set to fall even further to account for just 10.9% of all transactions. Predictably, chip and pin payments are also set to fall, accounting for just 24.9% of payments - largely due to the increased contactless limit. Cheques are predicted to become almost obsolete, making up just 1.7% of all transactions.

In a post-pandemic UK, cash will therefore play a much smaller role in our day-to-day lives than ever before. Cards, especially contactless cards will be responsible for 71.6% of all transactions, including online purchases. It remains to be seen whether the government will amend laws relating to legal tender, enabling retailers to permanently refuse to accept cash if they wish - something that could ultimately lead to a cashless society.

About this report

Life After Covid is an independently commissioned report by VoucherCodes.co.uk, created by Professor Joshua Bamfield, Director of the Centre for Retail Research in 2021.

In this report, we explore how the Covid-19 pandemic has impacted the retail and hospitality industries, as well as UK consumers. The original data in this report is comprised of 15 retailer interviews and consumer surveys conducted with a sample of 1,825 UK adults. Additional data from the Bank of England, and Office for National Statistics is also referenced - correct as of April 2021.

Photo of Jess Read

About Jess Read

I love books, travel and home-cooking so can usually be found with my nose in a book or browsing the internet for a place to visit or a recipe to try out. My most wanted items include an unlimited round the world ticket and my own library.

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