Online shopping

Why retailers’ big bet on an online shopping boom went so wrong

Fashion websites Asos and Boohoo have repeatedly raised profit alarms amid higher yields, while online electronics seller AO World was recently forced to raise £40m sterling from investors to allay concerns about the soundness of its finances.

“We didn’t believe all these platitudes,” said David Reynolds, an analyst at Irish financial services firm Davy. “‘Ten years of digital change in one, fundamental structural change’ – we thought it was all b——- basically.

“What the pandemic has done, it hasn’t permanently displaced people. The consumer, in our minds, hasn’t changed, they’ve just become much more comfortable with using multiple channels to shop.

During the shutdowns, when brick-and-mortar stores were forced to close for months, online sales accounted for more than 60% of the total. Yet when restrictions were eased in 2020, and from April 2021, penetration was around 40%: higher than the pre-Covid 30%, but a clear indication that consumers would switch to in-store shopping as quickly as they would move online.

However, a post-pandemic slowdown doesn’t mean e-commerce has lost its luster.

Online sales are about where pre-Covid data suggested they should be at this point – still growing steadily, not having surged.

William Woods, retail analyst at Bernstein, says: “If you just take the more affluent young people, they tend to shop online and especially for groceries. If you take all the 30-somethings who shop online and you make 40 and so on, online penetration is going to increase as people get older. We will all behave the same way.

But the slowdown in demand has already taken its toll. Studio Retail, an online player, collapsed in February, followed by fast fashion website Missguided in May.

Meanwhile, the rise of fast grocery delivery companies has been short-lived, with several start-ups cutting jobs or closing as the easy money era of venture capitalists and private capital draws to a close. coming to an end, due to high interest rates.

Davy’s Reynolds is sympathetic to companies trying to decipher what was the underlying growth versus the tailwinds provided by the pandemic and lockdowns.

“One of the challenges of the web, even in a normalized world, is that it’s still very difficult to accurately predict what your volume and prices will do,” he says.

“Everyone thought it would be fantastic to come out of the shutdowns and of course we had supply chain issues, only to be hit over the head with rising interest rates, the Ukraine conflict, the cost of living crisis and massive energy inflation. It’s been horrible [for businesses].”

Still, Ocado’s Steiner – unsurprisingly – remains optimistic about online grocery shopping.

“We went from about 7pc [of the total market] to about 15% at the height of the pandemic and we’re back to about 12%, so actually we’ve seen pretty significant growth overall,” he said when asked about his predictions from two years ago during Ocado’s recent semester. results.

“If you look at our numbers, while volume and cash have gone down, the number of customers and orders have both gone up.

“I think there is an ongoing channel shift online that will continue for many years to come and online will continue to grow.”

Sales fell 8% to £1.1bn at its joint venture with Marks & Spencer in the period. While active customers grew to 867,000, up 12% year-on-year, the average basket fell 13% to £120 as shoppers reduced their volumes by 15%.

The group’s loss came to £211m. Away from groceries, the company has invested heavily in its robotic warehouses which it sells to other supermarkets around the world.

Ocado said it would not need any additional “medium-term” funding only for credit agency Moody’s to downgrade its debt rating a few days later due to weaker-than-percent profitability and pressures. provided in its retail business. In June, it raised more than £875million in new equity and debt, following another £1billion increase in 2020.

Steiner added, “We’re now at record levels of growth, so let’s trade a few more years and then look back more in hindsight and see what we think.”