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The last few years have been turbulent for the retail sector given the number of industry-altering events including, COVID-19, Brexit, supply chain shocks, and the Ukraine war.
In particular, e-commerce experienced a huge uptick during the pandemic as non-essential retail stores closed and demographics previously not online shifted their spending online en masse. While that surge in retail spend has flattened as customers returned to physical shopping, there is no doubt that e-commerce retailers and marketplaces are bigger than ever today.
At the same time, there is growing recognition of the benefits of an omni-channel approach that combines a strong online presence with physical stores, as customers are increasingly keen on having flexibility in how they research, purchase and return goods.
Findings from the Barclays UK Consumer Retail Report highlight consumers’ demand for flexibility when shopping:
Retailers surveyed for the report said that just over 50% of their revenue is now driven by digital channels. Yet, ONS Retail Sales data for April 2024 shows that 26.5% of all retail sales were completed online – down from a peak in February 2021 of 36.8%. This suggests that consumers are engaging with digital but that many are choosing to complete purchases in store.
But not all market participants have adapted a hybrid strategy. The business model of some pure play e-commerce companies that prioritised growth over the bottom line has faced a reckoning. Higher rates and mortgage costs, combined with inflated energy and food prices, have increased consumers’ caution, and slowed growth. With the abrupt end of the low interest rate era of the past decade, investors are less willing to finance companies without a clear route to profitability.
"Retail is more nuanced than ever. A strong e-commerce offering is a prerequisite. In some segments, such as apparel, there are extremely large and well-resourced new entrants in China such as Shein and Temu that are shaking things up. But for most retailers, omni-channel is critical for success."
The shifting landscape of retail has wide ranging implications for treasury management including:
"The cost of capital has changed markedly in the past two years and growth has slowed. While every situation is different, companies need to reassess their capital structure to make sure it is efficiently funded and drawn from appropriate sources."
The retail outlook is undoubtedly tougher than a few years ago. But companies don’t have to face the challenge of adapting to the new era alone. Treasury functions should seek sector expertise to address the unique challenges faced by retailers, whether that’s re-establishing physical space or investing in new technology.
To prosper in this new environment, it is essential that retail companies leverage data on consumer spending habits based on actual transactions. This information can help treasury teams anticipate changing business conditions that might prompt an increased need for working capital or a potential rise in bad debts.
Some firms will require additional help, including turnaround support, as they adjust to new consumer demands and financial conditions. Working with a partner with expertise across pure e-commerce, traditional retail and hybrid business models can deliver significant benefits, minimising turnaround time and ensuring that companies re-emerge ready to take advantage of changes in the retail sector.
About the experts
Tim Helliwell
Head of Consumer & Healthcare UK, International Corporate Banking
Graham Holland
Director, International Corporate Banking
Andrew Ingles
Director, Special Asset Management EMEA & APAC, International Corporate Banking