online to account for 53% of retail sales by 2028
Online will account for 53% of retail sales by 2028 - up from 19% currently.
Growth will be powered by three factors: the changing demographic of the UK adult population, the development of faster, cheaper, in-home deliveries and fewer physical stores.
Online shopping currently accounts for 19% of retail sales
Online shopping is set to double to account for more than 50% of UK retail sales in the next decade – powered by the changing demographic of the UK adult population, the development of faster, cheaper, in-home deliveries and fewer physical stores. However, there are also potential risks ahead for retailers that don't prioritise data security.
With digital natives – those who have grown up with computers, video games and the internet – expected to form the majority of the adult population in the next ten years, a new report commissioned by law firm Womble Bond Dickinson (WBD) and produced by Retail Economics suggests that online growth will account for 53% of retail sales by 2028 – up from 19% currently.
"Today's customer journey is truly unrecognisable from the analogue path observed just a decade ago. In the next ten years, we expect to see the rate of change accelerate as innovative technology shifts the balance of power in favour of the consumer," the report states. "Powered by technology, changes in the property market, improvements in connectivity, new business models and generational shifts, the physical and online channels will meld together, but online will drive the majority of retail sales within the next ten years."
According to the report, 'The Digital Tipping Point', this growth will be powered by three primary factors: the changing demographic of the UK adult population, the development of faster, cheaper, in-home deliveries and fewer physical stores.
Digital natives Gen Z and Millennials will make up half of adult consumers in ten years' time, meaning the shopping habits of younger groups will become more dominant.
The research conducted by Retail Economics shows that 62% of 16-24-year-olds (Gen Z) shop online at least every fortnight (compared with just 29% aged over 65 years), averaging around three online purchases per month. Millennials also spend the highest proportion online currently (22.1%), averaging GBP42.32 per online transaction and spending GBP110.45 online each month.
More than half (53%) of Gen Z consumers say smartphones influence them most in terms of 'awareness' of new retailers/brands compared with just 3% of those aged over 65 – revealing how much more online marketing impacts younger adults.
However, almost a quarter of Gen Zs also say they are more likely to do shopping in high streets and shopping centres, highlighting the complexity of the customer journey and the importance of shopping experiences for these younger consumers.
Meanwhile, the report also highlights the role delivery has to play in driving online purchases.
The top three factors that would accelerate online shopping are cheaper (47%) and faster (26%) delivery and easier returns (26%) all of which are key areas of investment for retailers looking to own more of the digital market. Again, easier returns are more important for Gen Z (28%) and Millennials (30%) than any other age group, highlighting their significance as dominant consumers in the future. In addition to this, there is a rising trend of in-home deliveries (deliveries while homeowners are out) which is expected to grow, the report states.
Also driving the acceleration of online shopping are emerging business models such as subscriptions and auto-replenishment, which further increase in online penetration rates for repeat purchases.
Urban Outfitters recently became the latest company to launch a rental subscription service for clothing in a move aimed at solving the paradox of Millennials' quest for constant fashion newness alongside the desire for a more sustainable lifestyle.
Indeed several businesses have moved to a subscription model in recent years including Under Armour and Old Navy, which launched a kids' subscription service in 2017. Rent the Runway, a subscription service that launched in 2009, provides designer dress and accessory rentals at a monthly fee of US$99, while more recently, American Eagle Outfitters (AEO) launched AE Style drop, a rental subscription service for clothing, in February this year.
There have been five consecutive years of net closures of retail stores and, with dwindling levels of footfall across high streets, shopping centres and retail parks, this trend seems set to continue. Indeed 10% of consumers say they will shop less in physical stores in the next 12 months, outweighing those who suggested they will shop more frequently in-store, the report states.
And with more consumers turning to online for even mundane purchases, demand for retail property is at its lowest since 2007. The role of the store is becoming polarised, with flagship 'destination' stores continuing to attract sustainable levels of footfall, while other secondary locations with dwindling levels of footfall remain under pressure.
"It's no exaggeration to say that the retail industry is undergoing a period of unprecedented change. Despite concurrent waves of political and economic upheaval in our midst, our work with retailers suggests this is a mere distraction from the seismic structural shifts reshaping the retail landscape," says Richard Lim, chief executive at Retail Economics. "Successful retailers have always had to reinvent themselves to stay relevant. However, the pace of change will inevitably prove too fast for many – as shown by the number of CVAs hitting the headlines. While the impact of future technologies and consumer acceptance is highly uncertain, it definitely feels like the digital retail-revolution is only just getting started."
Just last week, creditors of UK-based fashion and accessories retailer Monsoon Accessorize Limited and Accessorize Limited approved its company voluntary arrangement (CVA) proposals to restructure its business.
A CVA is an insolvency procedure that allows a company to reach a voluntary agreement with its business creditors to repay its debts to avoid going bust. But they have been criticised by landlords who claim retailers are misusing them to cut costs.
One of the most high profile cases has been that of Arcadia Group, owner of the Topshop, Topman, Miss Selfridge, Burton and Dorothy Perkins chains, which recently avoided falling into administration after its creditors approved all seven of its CVAs. Other recent CVA approvals include those at high street fashion retailer Genus UK Ltd, trading as Select, and UK department store retailer Debenhams.
Risks to a digital future – the data keepers
However, the report notes there are also potential risks ahead for retailers that fail to prioritise data security when embracing the new technologies needed to thrive in a digital future.
Whilst consumers demand better technology from retailers for a seamless shopping experience they are also increasingly aware of the need to protect their personal data. Over a quarter of respondents have taken some action to limit the amount of data shared with companies, reaching almost a third for 16-24 year olds.
The report found consumers' attitudes towards sharing data overwhelmingly shows they believe businesses benefit far more than consumers. In fact, two-thirds thought companies benefit more from the sharing of data compared to just 8% of who thought consumers benefited the most. Meanwhile, only a quarter (26%) believe there is an equal exchange of value.
Financial rewards, free and discounted products rank most highly for consumers in terms of benefits they would still be willing to exchange their data for.
"Online retail is being driven on apace due to a combination of factors and early adopters in the retail market who can flex and adapt their business models quickly will rise to the top," says Gavin Matthews, head of retail at Womble Bond Dickinson. "However, as retailers leverage new technologies to support this growth, new risks also emerge. Consumers are increasingly conscious of the need to protect personal data and their privacy in order to reduce the risk of fraud, identity theft and misuse of their data. Real damage can be done to a retailer's brand and reputation with any data breach, and loss of trust can have far-reaching consequences for any business and its bottom line."