Covid-19 has impacted every stage of the customer journey. This includes the discovery of new products and brands, to how shoppers track and return online orders. Periods of lockdown accelerated the shift towards digital among those that had not shopped online before, while others went online for categories of goods they would normally buy in a physical store, such as furniture. 

Despite this, 46% of shoppers are thought to be ‘unfazed’ by the pandemic. According to the report, UK consumers divide into four categories:

• Fundamentals: Consumers who have altered shopping habits the most, shopping online for the first time. These represent one in seven consumers and are made up of a majority of older consumers. 
• Part-shifters: This cohort represents one in five consumers, who say that there will be a permanent change across some of their shopping habits. Gen Zs were around three times more likely to say there had been a permanent change in some of their shopping rather than the majority. 
• Reverters: Those whose spending habits have been impacted but are expected to revert to pre-pandemic behaviour when they can. This cohort represents one in five (20%) consumers. 
• Unfazed: Spending behaviour and motivations are unaffected by the impact of the pandemic – around one in two consumers, who are typically younger. 

Despite online growth, the majority of retail sales remain in physical locations. However, the pandemic has changed the spending distribution across high streets, shopping centres, retail parks and city centres.

On balance, more consumers are looking to cut back spending in physical locations, rather than increase it. However, of those looking to increase and shift their spend across physical channels, local high streets are predicted to be the main beneficiaries in future. Retailers will, however, continue to merge physical and digital channels as the purpose and value of stores evolves. Retailers will start to inject greater value into stores through technology, such as augmented reality (AR) and using online fulfilment of physical orders.

Heavy investment is needed to make online operations more efficient, from automating dispatch processes, to hiring data scientists, to integrating more sophisticated marketing campaigns.

Supply chain availability, the report says, is a factor for consumers as well as businesses. As economies reopened, global supply chains buckled under the pressure of pent-up demand. Covid-19 outbreaks, port closures, port congestion, labour shortages and a lack of containers caused disruption, resulting in rapidly escalating costs. The price of shipping a container across most major shipping routes rose by more than nine times in 2021 compared with the previous year. Even when UK- and EU-bound containers reached their destination ports, a shortage of HGV drivers and additional Brexit-related complexities caused further delays. A range of high-profile retailers expect supply chain issues and inflationary pressures to persist into 2022, while freight costs appear to have peaked in September 2021.

Inevitably, this has had a knock-on effect on consumers. More than one in five (28%) experienced issues with product availability in 2021, with 9% saying that it had been a significant issue. This may mean that they will switch away from their favourite or trusted brands and opt for retailers that hold stock.

Consumer-facing brands need to embrace the opportunity to tell compelling sustainability stories. When it comes to a willingness to pay for the reduction in carbon emissions, almost half of consumers (45%) are willing to pay ‘a bit more’. Just 12% said that carbon emissions would not influence their choice in product or service at all – a group consisting mostly of older consumers. All brands, therefore, need to think about their long-term progress towards net zero, and can capitalise on their near-term successes.

Greenhouse gas emissions reached new record highs in 2020, which, alongside the focus on the UN’s COP26 climate conference, elevated the conversation around sustainability and reaching net zero. The UK’s aspirations for carbon neutrality lead many of its European neighbours, and consumer-facing industries in the UK have a leading part in delivery.

Embracing and investing in new technologies, such as renewable power, battery storage, and carbon capture and storage, will be key.

Even before Covid-19, retail profitability was suffering, as businesses sought to balance shifts in consumer buying behaviours with viable operations. In 2012 profit margins for the sector were 9.2%, and by 2019 it was 6%. During the pandemic, the figure is thought to have fallen to 5.1%. The combination of rising costs, competition and the shift towards online, especially, are thought to be to blame.

Indeed, our research shows that the shift towards online is a significant contributing factor of dwindling profit margins, and there is an inverse correlation between the rise in the proportion of online sales and a fall in pre-tax profit margins over the last decade.

Pure online retailers typically operate on considerably lower margins than multichannel and bricks-and-mortar business models. How might businesses react? Heavy investment is needed to make online operations more efficient, from automating dispatch processes, to hiring data scientists, to integrating more sophisticated marketing campaigns.

Across the sector, successful companies will use margin-improvement strategies targeted at the largest cost drivers underpinning the digital switch, including digital marketing, supply chain optimisation and channel-mix management.