Retail Returns To Default Settings As The Covid Online Bubble Bursts

8th August 2022

With online sales falling to their lowest level since March 2020, Shopify and Amazon have shed staff in a reset to the pre-Covid era.

ParcelHero asks if e-commerce is the victim of its own rapid growth?.

The home delivery expert ParcelHero says people are shopping like it's 2019. As the impact of Covid diminishes, UK e-commerce sales have fallen to their lowest level since the online boom started in March 2020. Online sales have fallen from 37% of the entire retail market in February 2021 to 25% this June.

ParcelHero's Head of Consumer Research, David Jinks M.I.L.T., says: ‘A falling off in demand for online shopping was always expected, but it's beginning to look as if the pandemic online bubble has burst. The e-commerce giant Shopify has laid off 1,000 staff, announcing: "We are going to a staffing level that we would be at if Covid wouldn't have happened," while Amazon has also admitted to overexpanding, culling 6% of its staff in the latest quarter, which saw a $2bn net loss.

‘As people's fears around visiting High Street stores have subsided, our entrenched pre-Covid shopping habits have reasserted themselves. One big example is the collapse of online grocery shopping. Online food sales have fallen by -13% against this time last year. This month’s ChaseDesign Online Shopper Survey found the number of people who claim to "always" use home delivery for groceries has already dropped by half (16% of consumers, down from 31% in 2021).

‘This fall is reflected in the grocery home delivery specialist Ocado’s 2022 half year report, which revealed a collapse of -8.3% in Ocado Retail’s revenue. This was driven by what it describes as "the challenging trading environment...[and] reduced basket sizes post-pandemic."

‘The strain online services are under was highlighted by the demise of London’s Jiffy rapid grocery delivery service this May. Jiffy abandoned its entire network, transforming itself into a delivery software company.

‘Similarly, last month Deliveroo slashed its takeaway food service growth forecast by half as people returned to restaurants and fast-food outlets.

‘Ironically, online’s rapid growth in 2020 might be responsible for its rapid fall in 2022. Many online retailers, particularly in the groceries sector, were ill-prepared for the scale of growth at the beginning of the lockdown. This didn’t make a great impression on people attempting to create accounts and book orders for the first time. Many consumers put up with the shortcomings of online food shopping through necessity but have now returned to physical stores. Shoppers like to impulse buy and personally select items, particularly when it comes to fruit and veg, rather than trust pickers’ selections or substitutions.

‘The fall in e-commerce is also being seen in traditional postal services. UK parcels delivered by the familiar postie, rather than couriers, are down 15% compared to 2021, and non-courier parcel volumes are hovering at just 1% above pre-pandemic growth levels.

‘Back in April 2020, when Covid’s impact was first becoming apparent, we predicted e-commerce would grab up to 40% of the entire retail sector during the pandemic. We were a little out (it peaked at 37.4%) but not far off. However, we warned at the time that the long-term future for all retailers was to better integrate both their online and instore services.

‘That warning has been proved right. The High Street has grown healthier as a result of its Covid-era pruning. Struggling retailers without a great online operation, such as Animal, Oasis, Warehouse, BrightHouse, Cath Kidston and Debenhams, all entered administration in the first four months of 2020. Those that thrived have successfully integrated omnichannel offerings, vastly improving services such as click and collect to encourage online shoppers back into their stores.

‘Fashion chain Next’s latest results reinforce this change. This month’s trading statement revealed: "At first sight, our full price sales performance against last year suggests that growth online has ground to a halt... Last year, our stores were closed for most of the first quarter. Even when they reopened, we believe that many customers remained wary of visiting shops. During this time, we think online shopping was inflated by at least as much as retail sales were depressed."

‘However, despite the fluctuations, Next still regards online as a key part of its omnichannel approach. It says: "We think that these changes reflect a short-term reversal of pandemic trends, and are unlikely to be indicative of longer term trends in consumer behaviour."

‘As retail returns to its default settings, it will be those retailers with strong instore and online sales that will ultimately triumph in a post-Covid world. ParcelHero’s influential report “2030: Death of the High Street” has been discussed in Parliament. It reveals that, unless retailers develop an omnichannel approach, embracing both online and physical store sales, the High Street as we know it will reach a dead-end by 2030. Read the full report at:https://www.parcelhero.com/content/downloads/pdfs/high-street/deathofthehighstreetreport.pdf