Due to the changes and challenges of the past two years, digitalisation has ramped up the competition in the world of ecommerce. Experts are now saying that retailers will see this trend continue and will have to figure out how to live with the tighter margins.
The creation of omni-channel shopping experiences has transformed consumer expectations, boosted convenience and significantly reduced costs for consumers. Combined with the improvements of available digital shopping channels, it comes as no surprise that the online shopping market has grown steadily across the globe.
In fact, it accounted for more than one-fifth of total non-food consumer goods sales in the UK alone – and that was long before the pandemic drove the masses to do their shopping online. New research by Alvarez & Marsal predicts that, by 2025, the UK will be the most deeply penetrated market, with 33.5% of sales occurring online by that year.
Even with all of these promising changes and online shopping considered a “lifeline for retailers”, there are some points of concern moving forward. Most importantly, the market is becoming ever-more saturated. As this continues to increase, researchers say the trend will likely be accompanied with falling profitability.
For example, there is an estimated reduction in pre-tax profit margins from 5.5% at the finish of 2019 to just 3.2% by the end of 2025. During that time, the UK retail industry is predicted to lose around €9.3 billion of profits. Why? While online retailing will remain as prevalent as ever, profit margins are going to be much tighter.
One of the biggest pressure points ecommerce merchants face is the cost of returns. This is not a burden brick-and-mortar shops share. Traditional retailers have physical returns brought in by the customer, but ecommerce merchants have the pressure of catering to customer expectations for fast and efficient service, while also managing the added cost.
Managing Director and Head of Retail and Consumer, Europe, A&M, Erin Brookes, emphasised the importance for retailers to brace and prepare for the moment that will determine their future and prevent their profits from spiraling downward.
“This includes successfully transitioning away from some physical stores and re-imagining the purpose of others. Investments in efficient online operating models such as reverse logistics, strategic partnerships and intelligent data and technology are essential,” says Brookes.
Payment industry guru Taylor Cole is a passionate payments expert who understands the complex world of a high risk merchant. He also writes non-fiction, on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie with ice-cream on his backyard porch, as should all right-thinking people.
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