COVID-19 SERVICE: We are heightening our efforts to assist the UK retail & leisure industry through this challenging period. Explore this service now… COVID-19 SERVICE

The True Cost of Online Retail

COVID-19 has profoundly impacted retail industries across Europe. The enforcement of store closures, social distancing measures and heightened anxieties over viral transmission has elevated ‘digital’ to new heights across the entire customer journey.

The initial stages of the pandemic saw a seismic shift towards ecommerce throughout major European retail markets, as consumers embraced new paths to purchase goods and services.

Online sales growth rose rapidly, with markets such as the U.K. seeing online penetration rates peak at almost 40% during 2020. Across key European markets (the U.K., Germany, France, Italy, Spain and Switzerland) the proportion of online sales rose markedly, from 12.1% in 2019 to 14.8% in 2020.

Europe’s ecommerce landscape is undergoing significant structural change. The pandemic has caused a seismic shift in the proportion of online shopping, with prolonged restrictions on socialising and the opening of physical outlets cementing these trends.

For many businesses striving to remain relevant and survive the disruption, their transition will likely mean a challenging readjustment as business models are aligned with the ‘new normal’. Profitability will come under intense pressure as operating models that are disproportionately weighted towards physical channels struggle to rebalance costs as online accounts for a growing proportion of sales. Against a backdrop of falling margins and rising competition, the true cost of the online shift will be revealed.


The True Cost of Online Retail


COVID-19 has accelerated many of these underlying trends; it has sparked a sense of urgency across European retail boardrooms in addressing these challenges head-on.

This report focuses on the impact of COVID-19 and the true cost of online. The research contains insights drawn from a consumer panel of over 3,000 households across six European countries and analysis of over 250 European retailers, accounting for over €2 trillion worth of spending in 2019/20. Specifically, it highlights:

  • the impact of consumer behaviour on European retail sectors as shoppers experience more digital customer journeys, particularly since the pandemic.
  • an analysis of profitability across key European retail markets since 2011, including a forecast for the evolution of profitability across the European retail market through to 2025 revealing the true cost of online.
  • the most pressing themes facing the European retail industry and most suited strategies to survive and thrive in this new digital-first environment.

For retailers and brands seeking valuable insight into the impact of the crisis across Europe, this research provides data-driven insights and guidance for action.


Section 1: Summary

  • COVID-19 has clearly been a catalyst for structural change.
  • Online sales in Europe hit record highs during lockdowns as consumers embraced ecommerce options for the first time across many categories, while online dependency grew for others.  
  • Our research shows that just under a third of European consumers think their shopping habits will change permanently because of COVID-19, with a significant and permanent shift towards online shopping particularly for apparel, homewares and electricals.
  • Digital has played a much more central role in consumers’ lives, whether for social media, communicating with friends and family, or shopping. Our research shows that almost two in five (38%) consumers agreed that there had been a shift towards online when they are browsing and discovering new products. 
  • Across the six European countries analysed, around half of consumers have changed their browsing behaviour due to COVID-19
  • Since COVID-19, a net balance of just under a third of shoppers (31.0%) have increased online browsing, but this shift was disproportionately higher for the U.K., Italy and Spain, suggesting that behavioural change might be ‘stickiest’ for these countries.


Across the six European countries researched, a strong relationship emerged between consumers shopping online for the first time within a category, and their intention to continue this behaviour after the pandemic recedes.



Section 2: Summary

  • Section 2 outlines six phases which will lead to an accelerated erosion of profitability as a direct consequence of the pandemic, revealing the true cost of online.
  • Profits already under pressure. Across the sample of European countries that account for over €2 trillion of retail sales, pre-tax profit margins fell from 6.4% in 2015/16 to 4.5% in 2019/20 – a reduction of 1.9 percentage points.
  • The shift towards online is a significant contributing factor of dwindling profit margins. Our research shows an inverse correlation between a rise in the proportion of online sales and a fall in pre-tax profit margins over the last decade.
  • Across Europe, the impact of COVID-19 has caused step-changes in the proportion of online sales. By 2025, more than 20% of retail sales across key European markets are forecast to shift online.
  • As the growth of online retail spending accelerates in a post-COVID-19 era, the true cost of online will be revealed. Our research compares the future trajectory of pre-tax profit margins based on two scenarios:
  • The impact of COVID-19 accelerating the rate of migration towards.
  • COVID-19 having no impact on the rate of migration towards online.
  • Our model forecasts a reduction of pre-tax profit margins across both scenarios over the forecast period, until 2025. However, an acceleration in the online penetration rate erodes profit margins at a faster pace.

Figure 1: Online as proportion of retail (%)


Section 3: Summary

As the European retail industry undergoes a period of transformation, businesses need to adopt a more detailed and data-driven approach to profitability. The shift towards online will exert greatest pressure on store-dependent operating models, requiring businesses to align with more digital-centric customer journeys.

In the research, we outline four major themes in detail.

  • Scale through consolidation and partnerships
  • Repurposing stores and social places
  • Supply chains and logistics
  • Direct to consumer


"As retail progressively shifts online, brands have more opportunities to sell direct to customers, facing fewer barriers to entry than physical stores."



To access the full report, just complete and submit the form above to download the pdf version. Alternatively, this report is included for FREE when you take out a membership trial HERE


Download: The True Cost of Online Retail report

*All fields required

Don’t worry, your phone number and personal data are kept confidential. We never sell, rent or pass on your details to a third party.

NOTE: We will never sell, rent or pass on your details to a third party.

Find out more about our complete end-to-end thought leadership service

Discover our proven five step process & avoid the complex multi party approach

  • Say something new & insightful
  • Use our extensive experience to inject real industry value
  • Get maximum engagement from our media networks
  • Develop an authoritative voice within UK retail
  • Be seen as an industry leader!


Other popular thought leadership reports

The Retail Experience Economy 2.0 report - How Consumers value experiences in times of crisis - Retail Economics


The Retail Experience Economy 2.0

Find out how the experience economy is being impacted by the cost of living crisis & many other factors.
Top five strategies for retailers and brands to combat rising inflation and operating costs - Retail Economics report


Top 5 strategies for retailers & brands to combat rising inflation & operating costs

Discover our top 5 strategies for retailers & brands to help combat rising inflation & operating costs.
The Big Squeeze Report pressure on consumer finances and rising inflation - Retail Economics


The Big Squeeze: Pressure on consumer finances, rising inflation & money management

Discover the 4 financial personas of consumer spending & how rising inflation & household bills are impacting behaviour
Impact of the metaverse on the retail industry sector - Retail Economics


Impact of the metaverse on the retail industry

Is the metaverse going to be the next big thing? Download our report to find out what retailers should be thinking about & how customer journeys could change.
Ecommerce Delivery Benchmark Report 2022 - Retail Economics - Metapack


The Future of Online Delivery for the Retail Industry

Discover the impact of the ongoing shift to online retail within key European markets & how it's affecting consumer behaviour & retailer's operations.
Future of European Apparel Industry - Evolution of Stores - Retail Economics


Future of European Apparel Industry: Evolution of Stores

See where the future of the European apparel industry is heading & how physical stores & their purpose is fast evolving.
Outlook for UK Retail & Consumer Industry 2022 - Retail Economics


Outlook for the UK Retail & Consumer Industry 2022

Get your free Outlook for UK Retail 2022 report: economic outlook, forecasts, Covid-19 impacts, online, supply chains...
Covid-19 and the Future of UK takeaway industry - Retail Economics


Covid-19 and the Future of Takeaway

This report looks into the valuable economic, social and cultural contribution made by the UK takeaway sector in 2020.
UK Food and Grocery Market Retail Trends to 2025 - Retail Economics


The UK Grocery Market: Five Key Trends to 2025

This report explores five emerging retail trends in the Food & Grocery sector towards 2025 (consumer behaviour, online).
Outlook for UK Retail 2021 - Ten retail trends - Retail Economics


Outlook for UK Retail and Leisure 2021

This report looks at challenges facing UK retail in 2021 in context of Covid-19 & other key structural changes unfolding.
Covid-19 and the Future of Retail Supply Chains - Retail Economics


Covid-19 and the Future of Retail Supply Chains

This report explores retail supply chain networks & key disruptive factors: Covid-19, security, labour, technology, ESG etc.
Connected digital retail customer journey - Retail Economics


The Connected Retail Customer Journey and Digitalisation

Explore the connected retail customer journey & the importance of digital as online engagement soars in this current era.
Retail Customer Journey Fashion Apparel Industry - Retail Economics


Understanding the retail customer journey for the fashion industry

Discover insight into the retail fashion customer journey (stage 1) - consumers first interact with retailers & brands.
Brexit disruption Food & Grocery - Retail Economics


Structural Changes for UK Food & Grocery Sector

In a pre-Covid era, this research report looks at consumer behaviour & the impact of Brexit on how consumers shop for Food.
Economic Outlook for UK Retail and Impact of Covid-19 - Retail Economics


Economic Outlook for the UK Retail Industry and the Impact of Covid-19

Explore the outlook for the UK retail sector & 5 underlying trends that will reshape the industry from Covid-19 impacts.
Consumers and the New Normal - Exploring Covid-19 impact on EU retail


Consumers and the New Normal: Exploring the impact of the coronavirus on European retail

What is the 'new normal' going to look like for retail in the EU? This report examines this in detail & offers insight.
Contribution of the UK takeaway market to the economy - Retail Economics


The Contribution of the Takeaway Market to the UK Economy

How does the UK takeaway industry impact the UK economy? This report looks at the valuable economic & social contribution.
Retail Cash Crunch Impact of Covid-19 - Retail Economics


The Retail Cash Crunch: The Impact of COVID-19 on Major Non-Food UK Retailers

How long can UK retailers' cash reserves last? This report looks at Covid-19 impacts, consumer behaviour & profit margins.
Whats happening to retail property?


What's happening to Retail Property?

Exploring the contributing factors of how physical retail property is changing: rise of online, shopper behaviour & more.
Impact of Artificial Intelligence (AI) on the UK retail industry - Retail Economics


The impact of AI on the UK retail industry

A look into how artificial intelligence (AI) is impacting the UK retail industry, at all stages of the customer journey.
Future of online retail in the UK  - Retail Economics


The Digital Tipping Point: 2019 Retail Report

Unearths insights into causative forces driving digital customer journeys & reveals differences across consumer segments.
Impact of Covid-19 on UK retail industry - Retail Economics


Impact of the Coronavirus on Retailers

This report explores the impact of the initial stages of Covid-19 on the UK retail & leisure industry back in March 2020.
Outlook for UK Retail 2020 - Retail Economics


2020 UK Retail and Leisure Outlook

The outlook for the UK retail industry 2020 from a pre-Covid-19 perspective. Research, commentary & analysis of factors.
Outlook for UK retail 2019 - Retail Economics


Retail Economics/RBS Outlook for UK Retail 2019

Find out what's in store for UK retail in 2019 & beyond. Discover current factors affecting retailer and consumer alike.
The Retail Experience Economy - The Behavioural Revolution - Retail Economics


The Retail Experience Economy: The Behavioural Revolution

This work explores four realms of retail experiences that have been quantified & discusses their impact shopper behaviour.