Local Response | Creating Resilience
Post-pandemic consumer spending: What are the implications for retailers?
March 15, 2023 6 Minute Read
At the start of the pandemic, the UK was the leading e-commerce market in Europe, with an e-commerce penetration rate of 19%. This was considerably higher than the next most-established e-commerce market, the Netherlands, at 14%.
Closures to physical stores at the start of the COVID-19 pandemic saw UK consumers rapidly increase their online shopping habits, shown in Figure 1.
Figure 1: UK e-commerce penetration rate (%)
Source: CBRE Research
The UK was well positioned to respond to the sudden jump in consumer shopping habits due to the country’s existing e-commerce infrastructure. CBRE’s Global E-Commerce Outlook explored 28 factors responsible for the growth of e-commerce. Using a cross section regression model, the report identified the six key factors that underpin a market’s uptake in e-commerce. These are:
- Percentage of urban population
- Mobile internet sales ratio
- Debit and credit card use, or the use of digital wallets
- Digital skills of the population
- Presence of a dominant e-commerce player
- Fixed broadband subscriptions per capita
Out of 48 markets analysed globally, the UK came second for the presence of these drivers. This explains why the UK had the highest e-commerce penetration in Europe at the start of the pandemic, and why penetration rates almost doubled to 37% by Q1 2021.
Since the end of COVID-19 restrictions, the UK has seen its share of e-commerce sales fall to 27% in Q4 2022. When comparing to pre-pandemic trends, current online penetrations are only 2% ahead of expectation – indicating the pandemic didn’t have the lasting effect many thought it may.
So what is driving consumers back to stores? Our recent Global Live-Work-Shop Survey found consumers still prefer to shop in-store for the majority of product types (Figure 2).
Figure 2: Consumers’ in-store shopping habits by product type (%)
Source: CBRE Research
According to our Global Live-Work-Shop Survey, the most important driver that attracts consumers to the store is the physical product – with the ability view and try a product before purchasing cited as the number one reason why consumers prefer to shop in-store. The second most common reason was the immediate availability of products. Given the importance in which consumers regard the physical product, occupiers need to find a balance between having a refined product mix, whilst also satisfying consumer instant gratification requirements.
Figure 3: UK Consumers’ reasons for preferring in-store shopping (%)
Source: CBRE Research
The return of consumers to in-store shopping provides a positive opportunity for occupiers. In our EMEA Retail Occupier Survey, retailers rated physical retail as more effective than online for metrics such as consumer engagement and cross-selling products. Along with the lure of the physical product, physical retail is well placed to continue to attract consumers.
There are other benefits for occupiers too. Physical stores can help save costs; the high return rate of items bought online poses a challenge to retailers because of the costs retailers must bear. As more retailers begin to charge consumers for postal returns, the number of in-store returns should rise. Click & Collect facilities, where consumers buy online but collect in-store, provide retailers the opportunity to cross-sell products and further engage with consumers.
In conclusion, the pandemic brought a rise in e-commerce penetration due to restrictions imposed on consumers. The high peaks seen in the UK were a result of greater existing drivers of e-commerce growth; however, outside of restrictions, it is evident consumers still value physical retail, with e-commerce penetration rates falling to a level only marginally above the pre-pandemic growth trend. With this context, retailers must harness consumer preference to shop in-store by ensuring product availability and by satisfying consumer preferences to try products before purchasing. In addition, the role of physical retail should not be seen as separate to online retail, as retailers’ evolving omnichannel presence can benefit both physical stores and online sales through Click & Collect services, showrooming and in-store returns.
Read our Global Live-Work-Shop Report to find out more.