Even before the COVID-19 pandemic, the UK market saw a huge shift in consumer purchasing habits, from the boom in eCommerce, to increasing retailers and consumers opting for ‘buy now, pay later’ payment methods such as Klarna and ClearPay. The pandemic has resulted in the rapid acceleration and ultimately solidification of the domination of online retailing not only in UK markets, but worldwide, with alternative and online payment solutions becoming preferred methods. 

The rise of e-commerce 

Through local and national lockdowns across the UK, only retailers deemed ‘essential’ were allowed to open brick-and-mortar stores, causing a huge shift for businesses unable to open physical stores and a shift to online platforms. 

During 2020, total UK online retail sales were estimated to be close to £100 billion; a significant increase from the estimated £76 billion in 2019. 

This echoes the notion of ecommerce becoming a much more dominant sales revenue source in the digital age, with an emphasis on the need for merchants to have a strong omni-channel structure especially those whconduct the majority of trade in brick-and-mortar stores.  

During October 2020, with a national ‘circuit breaker lockdown’ impending and Black Friday and Cyber Monday sales looming, online retail sales say there was an 35% increase from October 2019. This aided in boosting of sales for those unable to open physical stores while highlighting the importance of sales to consumer purchasing behaviour. 

Food stores are among the sectors which have benefitted the most from the pandemic and subsequent restrictions as they were deemed essential, they also saw the largest increase in online sales, August 2020 sales almost doubled that of February 2020 – pre pandemic measures. The shift in click-and-collect and home delivery of weekly food shops is a likely to continue to rise in a post-COVID pandemic market due to more consumers realizing the convenience and opting to stay with this method. 

Impact on payment type 

From governments discouraging the use of cash to the increasing contactless limit from £30 to £45, the COVID pandemic has had a profound impact on the types of payments people are using. In November 2020 contactless payments accounted for 37% of all credit and 59% of all debit card of all debit card transactions, roughly a 43% increase than during November 2019. 

During the first UK COVID lockdown, cash withdrawals from LINK ATM’s were down 60% with 44% of UK consumers saying over the next six months they are planning to shift towards contactless and digital payments to avoid using cash, with the average withdrawing £660 less in 2020 than during 2019. 

Around 2/3 of e-Commerce businesses have seen a change in consumer preferred payment methods during COVID-19 pandemic, within this survey around  60/110 ecommerce businesses saw a rise in paying via mobile phone methods.  

At the start of 2021, there has been talks of increasing the contactless limits in the UK further to £100, which will hugely impact in a greater shift away from chip and pin towards contactless for many purchases. 

In the UK during COVID times, retail finance ‘buy now pay later’ (BNPL) payment options have seen huge increases in consumer use (around 1/3 people using the finance option) and the amount of merchants adopting these methods (around 46% during the first lockdown); Klarna alone reported a 20% increase during  April 2020 with fintech payment companies seeing surges in revenue throughout the COVID induced ecommerce boom. 

Change in consumer purchasing behaviour 

Household spending in February 2021 saw a 15% decrease compared to November 2019, however, this is likely to be as a result of brick-and-mortar stores being shut under the  national lockdown, alongside the natural decrease in spending after Christmas and January sales.  

One of the major purchasing trends, especially at the start of the pandemic was stockpiling. Lack of planning on behalf of the government coupled with a delayed rationing response by supermarkets resulted in failing to cope with the panic buying occurring at the start of the pandemic, which boosted in-store sales by 10%.

9% of the UK population cut spending on non-essential items, with 15% arranged a payment holiday. The same survey found that 75% of women are saving money to some extent and 83% of men are saving money to some extent; of these saving 70% are saving for unexpected expenses a likely result of the pandemic. Interestingly, the South of England has had the slowest recovery in spending, with spending at 7% below pre-crisis, driven by London whose residents are spending 10% less during November 2020, whilst the rest of England is around 3% less than pre-pandemic. The closing of ‘non-essential retailers’ caused around a 5% drop in spending, showing that even though ecommerce is establishing dominance as the main form of retailing, there is still a portion of the UK population who prefer shopping in store or spend more in store as opposed to online. 

Fall of major high street players  

The impact of the COVID pandemic will be felt on the high street for many years with 2020-2021 being the worst years for brick-and-mortar stores 

Major high street players such as Debenhams and the Arcadia Group collapsed and were acquired by two major online fashion retailers; Boohoo and ASOS respectively. The choices by both acquirers to close all brick-and-mortar stores of the acquired brands alludes to the future shift of fashion retailers to purely online platforms.  

Gym and sports chains have also hugely struggled under UK lockdown restrictions and DW sports, a gym and sports retailer fell prey to the impacts of restrictions and unfortunately was not acquired.  

INTU properties, a huge property company owning large malls across the UK fell into administration in June 2020unfortunately, as of yet it has not been rescued, and if left to collapse will prove a huge loss to UK high street and further change the dynamic of the UK retail market 

Future Potential 

The COVID pandemic has hugely changed the UK retail market and will continue to shape the way consumers shop along with the need for UK merchants to undergo a structural change to accommodate the changing shopping environment.  

The importance of merchants developing a greater digital presence and providing a larger array of payment methods will continue to grow in a post-COVID UK market and is predicted to have a huge effect on reducing the number of brick-and-mortar stores on British high streets.  

However, with the changing focus to online retailing, the greater complexity of accepting payments online from increasing fraud, (friendly fraud chargebacks or criminal fraud) to higher payment fees, needs to be taken into consideration. 

However, if more physical retailers focus on providing services that cannot be replicated in an online environment, they will see increasing footfall and rising revenues as a result, showing that the high street isn’t beyond repair, rather a deep restructuring of business models towards a more omni-channel solutions. 

Report written by Iona Diack – Research Consultant HAL Payments