6 ways COVID-19 is changing U.K. e-commerce

September 4, 2020 10:47 AM

When the U.K. went into a coronavirus-induced lockdown on March 23 as Prime Minister Boris Johnson announced school, office and retail closures, it caused a ripple effect on the U.K. e-commerce market. This effect has increased consumer willingness to shop for new items and at new retailers, as well as to digitize common tasks such as grocery shopping.

Despite the increased interest in e-commerce, the experiences have not been felt equally across all generations. Further, as the country began to slowly reopen schools in June, along with outdoor markets and car showrooms — and then more broadly to other venues in July and August — it became clear that the U.K. shift to shopping online may linger long after the virus is gone.

Finally, the U.K.’s e-commerce will grow in 2020 by billions of pounds, but the majority of that new spending will land in the shopping carts of just a handful of retailers, including Amazon.

CORONAVIRUS IMPACT: ADDITIONAL COVERAGE

Over the last few years, internet sales as a percentage of total retail sales in the U.K. — much like the U.S. and other Western European countries — has been on a general upward growth trend, experiencing modest share gains for the winter holidays between November through January.

According to data from the Office for National Statistics, internet sales as a percentage of total retail sales shot up as the country went into lockdown in late March. It peaked at 32.8% in May and has slowly begun to fall. However, despite the economy beginning a slow, phased reopening in early June, internet sales continue to have a hold over more than one-quarter of the retail economy. In July, internet sales accounted for 28.1% of retail sales, which is almost seven percentage points of share greater than the 2019 peak of 21.5% in November.

The pandemic is expected to have a boosting effect on the U.K.’s e-commerce market by adding £5.3 billion (about $7 billion) in sales in 2020, bringing the total market volume to £78.9 billion (about $105 billion) according to a press release from retail insights firm Edge by Ascential. The original 2020 forecast was for only £73.6 billion (about $98 billion) in sales volume. The new 2020 sales number will show a growth of 19% from 2019’s figure of £66.3 billion (about $88 billion).

About 38% of this online sales increase, or £2 billion (about $2.6 billion), will be won by Amazon, according to Edge by Ascential. Other major beneficiaries will be the e-commerce units of brick and mortar grocery giants Tesco and Sainsbury, along with Walmart (Asda).

An important factor in accelerating internet sales in a time of crisis, where there is limited access to office-based computers, library-based laptops and other non-home-based PCs, is the role that smartphones play in a country’s e-commerce market.

According to PPRO’s 2020 Payments Almanac, 55% of the U.K.’s e-commerce shopping is conducted on a mobile device, putting it within reach of mobile-first e-commerce leaders Sweden (60%), China (59%) and Norway (57%). In comparison, the U.S. e-commerce market — which is the second largest in the world after China according to the media website business.com — generates only 39% of its e-commerce sales on a mobile device.

The high level of mobile e-commerce in the U.K. is enabled by its high level of smartphone penetration based on the PPRO data, which reaches 85%, the same level as Sweden and Norway; and higher than the U.S. (84%), Germany (79%) and China (60%).

While China and the U.K. have large e-commerce markets, heavy mobile commerce penetration rates don’t necessarily correlate to significant online spending. For example, Germany, which is the fifth-largest e-commerce market in the world and has about 50% of its business conducted on a mobile device, is about one-fifth the size of the U.S. market, according to business.com. Mobile commerce penetration leaders such as Sweden and Norway don’t even make it to the top 10 e-commerce markets of the world based on sales volume.

Since so many retailers were closed during the U.K.'s lockdown, and some are still experiencing operating restrictions as the country reopens, numerous consumers have found themselves discovering completely new categories of items to buy on the internet.

Based on a survey of 2,000 U.K. consumers by PFS, an e-commerce order fulfillment and operations solutions provider, 39% of respondents reported that they had been encouraged by the crisis to shop online for products such as pet food, which they had previously bought only in person. This willingness to explore new purchase categories was strongest among younger consumers.

About 61% of Gen Z consumers and 52% of millennials found themselves online shopping for new categories of goods during the pandemic.

While items such as pet food may be deemed essential for pet owners, other categories have suffered as a result of the crisis. PFS data found that 26% of consumers said that their purchases of clothing had decreased, and 18% said that they have bought fewer cosmetics and luxury items since the lockdown began. Over half (53%) stated that they are spending less on fashion as they aren’t going out as much or at all.

Based on data from a 2,000 person sample of U.K. adults by PFS, consumer expectations of rapid delivery have fallen as COVID-19 has taken hold.

In Pre-COVID-19 times (before March 23), 90% of consumers expected their online purchases to arrive within one week, 36% expected them to arrive in three to five days and 29% had expected them to arrive in two days or less. After the pandemic took hold, only 71% expected their online ordered goods delivered in a week, 29% in three to five days and just 14% expected deliveries in two days or less.

While the deluge of consumers shopping on the internet has played a role in slowing deliveries, there are other complicating factors such as Amazon’s new safety and prioritization protocols in the U.K., U.S. and other markets. According to the U.K. publication Express, Amazon’s protocols for its warehouses prioritize shelf space and shipping of essential items such as medical supplies. Additionally, Amazon has also prioritized restocking of essential items over restocking non-essential items, which could impact resupply wait times.

Despite the shipping pandemonium caused by COVID-19, younger consumers were less understanding than older consumers when it came to delivery times. About 19% of millennials surveyed still expected to receive their online-purchased goods in no more than 24 hours after ordering them, compared to just 7% of the general population, according to the PFS survey.

As more consumers shop online, particularly younger consumers and those who may not have access to a credit card or want to add to any existing credit card debt, alternative payment methods (APMs) such as buy now, pay later schemes (e.g., Klarna), along with digital bank transfers and e-wallets, have grown in popularity. A host of new APM firms have joined the U.K. market.

A recent survey of U.K. consumers by PPRO found that 42% of millennials and 35% of Gen Z felt confident in using or have used APMs, compared to just 19% of the U.K. general consumer population. Since many of the APMs initially targeted online merchants or the e-commerce wing of omnichannel merchants, these players were poised to benefit from the growth of the U.K.’s e-commerce market.

Almost half (46%) of U.K. consumers had heard of APMs but have not used them, and 28% stated that they will use or plan to use APMs more than a debit or credit card within the next two years.

One e-commerce category that has experienced a continued surge in online shopping in the U.K. is groceries.

According to the Office for National Statistics, the average weekly internet sales for groceries more than doubled during the pandemic from pre-pandemic levels, going from roughly £175 million (about $231 million) per week in October to £366.7 million ($484 million) in July.

Grocery chains Tesco and Sainsbury, along with Amazon’s pantry and grocery delivery arm, have been the biggest beneficiaries, according to data from Edge by Ascential. Chains Tesco and Sainsbury have added to their home delivery units to take advantage of the growth in demand, meanwhile Amazon has ramped up its grocery delivery efforts as well.

Amazon has begun to offer free grocery deliveries to its Prime members in London and surrounding areas as it seeks to capitalize on the boom in online grocery orders and to take on traditional supermarket players such as Tesco and Sainsbury, CNN reports.

According to research consultancy Mintel, almost nine in ten (86%) British consumers are Amazon users/shoppers and about four in ten (39%) have access to Amazon Prime, making the Seattle-based e-commerce giant a direct beneficiary of any growth in online spending occurring in the U.K. as a result of the pandemic.