The future of e-commerce businesses in the UK
Photo by Timon Studler on Unsplash
E-commerce had a tremendous growth in the UK in 2020. According to a report by MasterCard, e-commerce jumped from 20% of total retail spending in March 2020 to 32.9% in May. Needless to say, it’s clear that e-commerce is here to stay. According to a recent whitepaper by Fourth, 65% of customers shop both online and in-store, suggesting that there’s at least some return to the high street for goods and services. E-commerce has had a big impact on brick and mortar businesses, forcing brick and mortar stores to compete against global giants while simultaneously giving them the tools they need to reach a wider customer base. Over 2022, we’ll likely see big expansions of logistics related to e-commerce, more small shops turning to e-commerce to offer goods, and the slow churn of open banking legislation leading to shifts in how customers pay for online goods.
An exploding market
According to eMarketer, the UK spends 36.3% of all retail dollars on e-commerce, which is the second-highest percentage among all countries. The explosion in e-commerce during the pandemic has companies scrambling to expand their logistical networks. FedEx announced a new flight from the UK to the US on Feb 2nd, allowing UK-based businesses to export 72,500kg of additional cargo per week. Amazon hired 25,000 new employees in 2021, giving the online retail giant the workforce it needed to deliver next-day orders across the UK. Businesses have been attempting to secure warehouse space at a record pace.
According to Colliers’ January 2022 UK Property Snapshot, the take-up for distribution warehouses larger than 100,000 square feet grew by 3.6% year-on-year and hit a record 50.7 million square feet. Despite the acquisition of new warehouses, the amount of warehouse space for sale fell to a record low of 18.1 million square feet, fueling investment and speculation into the development of new warehouses. As it can take as little as three months to build a new warehouse, this development will create lots of storage space for e-commerce businesses to play with in 2022.
Blurring lines
The pandemic forced many businesses and restaurants to offer services online, and it’s likely that these services will stay. MasterCard’s report shows that e-commerce restaurant and bar spending peaked at 21.8% of total restaurant and bar spending in August 2020, up from 8.4% in January of that year. While the percentage of the total has been decreasing since then, it seems likely that it will stay above the 6-8% level that we saw pre-pandemic for the foreseeable future. We’ve become used to the idea of ordering food and businesses have gotten better at handling digital orders.
Elite Business Magazine found that 37% of retail customers prioritized a sophisticated e-commerce experience from the retailers they shop at. This option beat out contactless payments (35%) and loyalty apps (34%), suggesting that it’s definitely worth the time for any business to build a proper online storefront. Fourth’s whitepaper’s claim that 65% of customers have returned to shopping both online and in-person lends credibility to this idea. Customers will nip over to the store to purchase some items, but they’ll appreciate the opportunity to have non-time-sensitive items delivered, especially if it means more choices for big purchases. The continued popularity of third-party delivery services in several sectors makes it possible for shops to offer online storefronts with fairly low investment. In other sectors, however, shop owners will have to build websites, hold extra inventory, and ship products to customers themselves, leading to increased demands on an already strained labour market.
Changing payment types
Cryptocurrencies and NFTs have been buzzwords for most of 2021, and it doesn’t look like they’re going away soon. With the volatility of these cyber-assets and the high cost of making transactions, it’s unlikely for them to suddenly spring to the forefront of e-commerce in 2022. Regular currency, on the other hand, might undergo a big shift. In 2017, the UK started a legislative trend towards open, non-monopolistic banking, and this trajectory looks like it’ll continue in the future. The New Payments Architecture program aims to allow consumers to freely transfer their money directly from their bank without the use of credit cards or other intermediary services.
Pay.UK, the entity in charge of designing the New Payments Architecture plan, said “open banking payments [will] be a viable alternative to card payments for purchase [in] both online and face-to-face retail environments.” It’s not clear exactly when this shift will happen. The Bank of England thinks the system won’t be operational until 2024, but banks and credit card companies are already feeling the pressure. The development of open banking will have a big impact on the amount of leverage businesses have when choosing a merchant services provider. If inter-bank transfers are inexpensive and fast, either credit card and app fees will be pushed down to remain competitive, or we’ll see customers switching to using their bank’s software to wire money directly for e-commerce purchases.
Big shifts, but not sudden shifts
The key trends we’re likely to experience in e-commerce in 2022 are big, but they’ve been brewing for a while. Even pre-pandemic, e-commerce was fairly strong in the UK. In a post-lockdown world, we’re seeing companies putting massive investments into infrastructure. Between new flights, thousands of new hires, and a rush to buy and develop warehouses, these investments will start to pay off in 2022. Customers’ continued desire to shop digitally will lead to many businesses on the high street offering some amount of online services, whether that means an e-commerce storefront, an integration with a delivery platform, or something else entirely. Finally, the government’s slow crawl towards open banking will undoubtedly have some impact on the decisions made by popular online payment platforms. Even though full adoption of the new system is likey two or three years away, credit card companies and companies like PayPal, Venmo, and CashApp are likely to experiment with shifts in their business practices in the UK so that they can remain competitive after a switch to open banking.
All together, these three trends should make 2022 a fantastic year for e-commerce in the UK. More infrastructure will reduce friction between consumers and their goods, more businesses competing in the online sphere will give customers more choice, and more competitive payment options will reduce the amount of money that gets spent on the middleman, enabling customers to get more for their dollar. Businesses with high-quality, innovative products will be able to deliver those products to an expanding consumer base, while consumers will enjoy speedy deliveries, competitive prices, and lots of retailers to choose from. It’ll be a big win for everyone.
