Welcome to lopsided retail: online sales and the coronavirus

To start with an understatement, the coronavirus outbreak is having something of an impact on the retail industry. In many ways that impact can be seen as very negative, due to the widespread disruption, shut stores, uncertainty and economic meltdown it has enforced on the UK (and, indeed, globally).

Yet the picture is actually quite complex. I’d like to suggest it’s more accurate to say that we’ve now entered into a phase of retail where demand is very lopsided. How and if it readjusts over the coming months is likely to be a pretty fraught and traumatic experience for many retailers.

Focused demand

Anyone who has been to a supermarket over the past few weeks or tried to book an online grocery delivery slot will know full well that empty shelves and three-hour virtual queues are suggestive of something outside of normal operations.

Now the sun is out and the UK population is facing a prolonged and indeterminate period of time trapped inside our houses, home and garden retailers are likely to do well. Ditto anyone selling home office equipment – keyboards, monitors, desks – as we are all forced to set up working spaces in our living rooms and bedrooms. Health products, for obvious reasons, are also shifting.

Outside of that though, demand does not look very strong. In the IMRG Capgemini Digital Dashboard, we are able to report online sales growth weekly. For w/c 8 March, almost all categories were in negative growth with the overall index down -12.3% versus the same week last year.

Long time coming

That might sound quite bad, but year-on-year weekly growth rates can fluctuate quite a bit depending on the activity retailers are using to drive sales, what happened last year etc. However, there are two very important things to consider here.

The first is that online sales growth has been underperforming for some time. With the exception of November and December, which were surprisingly strong, growth had been on a bit of a downward trajectory throughout 2019. After that bumper Black Friday and peak trading period, January and February were both flat for online sales growth.

The second is that it was the week just gone when the outbreak got really serious in the UK, as that’s when the lopsidedness of retail demand is likely to have intensified. We’ll find out later this week, but from what we’ve been hearing from retailers, it has been very tough trading conditions.

Where from here

With all the shops being closed and nothing like a resolution in sight, it would seem logical that online will be the chief beneficiary and, depending on how long this crisis lasts for, retail could well be changed forever. In truth, it is an acceleration of where things have been going anyway – the coronavirus hasn’t caused retail’s problems, but it’s certainly going to exacerbate them to an extent we could never have foreseen a few short weeks ago.

It’s very difficult to predict the course of events from here. Will demand for non-essential categories gradually re-emerge, now that everyone is stuck at home? We may see growth for the online side of multichannel retailers record significant growth, but whether it will be enough to offset the loss of store sales is a moot point.

Things will inevitably pivot toward online, but that doesn’t mean it’s easy street for those selling online. There are an awful lot of people who now have very little job security, particularly the self-employed, so we could be entering a recession like nothing seen for a very long time.

Retail will emerge from this necessarily far more digital than it was before, but quite which existing brands – those on the wrong side of the lopsided retail period we are now in – will still be there to tell the tale is a much more complex question.