Issue of the day: The rise and rise of online shopping

WHILE high street shops struggle in the midst of the coronavirus crisis some companies, including Tesco and IKEA, are finding their online sales surging. What does this mean for the future of shopping?

So, basically, the pandemic has turned us all into online shoppers?

No surprise, really, given the restrictions we all have been facing. Tesco’s online business has grown by 90 per cent in the six months to the end of August, while Ingka Group, the largest Ikea franchisee has seen online sales rise to 18% of total sales, up from 11% last year.

This can’t be a surprise? Most of us have been stuck at home for much of the year.

True, but some firms have been able to ramp up online retail faster than others. “We were able in some places within days to switch to online,” Jesper Brodin, chief executive of Ingka Group, an Ikea franchisee and the largest Ikea retailer has told the Financial Times.

As a result, online sales surged and recouped around half the loss of revenues reported by physical sales. However, the surge in online demand caught other companies out and they have struggled to cope with the shift to online.

Are both Tesco and Ikea big winners then ?

Up to a point. Tesco has reported a 29% increase in pre-tax profits (some £551m), while Ikea’s sales did drop by 4% (to a mere £36bn and counting). But the online rise did much to mitigate further losses.

Ah, onlytesco then.

Well yes, but the company has also revealed it has had to spend up to £500m to introduce extra safety measures into its stores because of the pandemic. On top of that the performance of Tesco Bank has suffered what it calls a “material impact” with fewer loans and credit cards being issued.

The result has been an operating loss of £155m. Last year it made a profit of £87m.

What’s the story on the high street?

Not great. Footfall, which was rising over the summer, went into reverse in September. It was more than 30% lower in late September than the year before.

High street problems will, in turn, have a knock-on effect on retail landlords who will be faced with demands for rent discounts and deferrals.

That sounds ominous. Is this the beginning of the end the physical store?

The big question is what happens when (let’s be optimistic and not say if) we move to a post-pandemic world will our shopping habits have been changed forever? Or will the lure of the high street return? Given that high street shopping was already struggling before coronavirus the smart bet might be no.

And yet Ikea has announced that it will open more than 50 stores in the current financial year, with many in city centres. It is moving away from the traditional large-scale out-of-town model, it has revealed. Meanwhile, Tesco’s convenience stores in city centres have seen increased sales in recent months. It’s possible the high street isn’t dead after all.