Online-only retailers feel the pressure
The number of online-only shops going bust has soared to a record high amid “the pendulum swinging back towards bricks-and-mortarretail”,combinedwithasaturatedandcompetitive e-commerce market and consumers watching the pennies,anewreporthasfound.
The total amount of onlineonly retailers folding has more than quadrupled since 2010 to reach its highest-ever total last year, according to data obtained by accountancy firm Price Bailey. It found that 615 such firms became insolvent in 2023, a yearon-year increase of 13 per cent, and up from 125 in 2010.
The firm said declining consumer confidence, coupled with aggressive discounting, problems with excess inventory, and higher costs, has put many online retailers under growing financial pressure. It added that the problems are “particularly acute” in online fashion retail, with both Asos and Boohoo having reported falling revenues and cut their outlook for 2024 due to belowforecast sales numbers. The Scottish Retail Consortium recently said Scotland’s retailers enjoyed a bright start to 2024, but challenges remain.
Matt Howard, head of the insolvency and recovery team, commented: “While the pandemic-led online retail boom hasn’tcompletelyfizzledout,we are now seeing the pendulum swinging back towards bricksand-mortarretail.thepandemic led to a surge in new market entrantsintheonline-onlyretail space, and established brands massivelyscalinguptothepoint where there is now significant excess capacity.
“Many online retailers were hit by post-pandemic supplychain problems and had to shift from a lean just-in-time model to keeping large quantities of stock and associated storage space, driving up costs. As consumer confidence faltered, they were left with cash tied up in excess inventory. As the cost-of-living hit consumer demand, retailers have engaged in aggressive discounting.insuchacompetitive market where there is a race to the bottom on pricing, profit margins are squeezed, and growing numbers of online retailers are going out of business.”
The top 30 accountancy practice also pointed out that online sales as a percentage of total retail transactions peaked at 37.8 per cent in January 2021 but fell to 30.7 per cent in November 2023. Howard added: “Pent-up demand for in-person experiences after the pandemic has brought footfall back into bricks-and-mortar retail.”
The news came as Sainsbury's unveiled details of its growth strategy, including plans to overhaul its supermarkets with a focus on creating more food space. The UK'S second-biggest supermarket chain said it will cut its general merchandise and clothing offering across many shops to boost its food ranges. It will also look to shut more standalone Argos stores and bring them within supermarkets as click-and-collect points under the plans.
615
Online retailers became insolvent last
year