The growth in online retail has been significant over the last 12 years. Almost nine in ten adults (87%) now shop online in the UK compared to just 53% of adults in 2008. The onset of COVID-19 has also accelerated the surge to online shopping over 2020, as shown in the chart below.
This momentous shift to online retail has created a range of issues for Scottish policy makers to grapple with – the decline of traditional retail and reinvention of the high street, digital connectivity particularly in rural areas, ensuring businesses are ecommerce ready via enterprise agency support, and ensuring Scottish consumers aren’t at an unfair disadvantage with delivery surcharges – to name but a few. Some of these issues are explored in more detail in the remainder of this blog.
COVID-19 has accelerated the move online but what are the implications for festive shopping
The COVID-19 pandemic has forever changed online shopping behaviours globally. Since the beginning of the pandemic, more and more consumers have been shopping online and this trend looks set to continue over the festive period.
The three-month period in the run up to Christmas – known as the golden quarter in retail – should be the most lucrative time of the year for high streets across Scotland. But shops, restaurants and pubs are either operating under restrictions or closed, depending on the COVID-19 protection level in their area.
It is likely that ongoing restrictions, combined with many individuals still not being comfortable returning to retail for safety reasons, will push even more shoppers online, and in particular towards the big e-commerce platforms, such as Amazon, where little of the spend stays in Scotland.
Data from the ONS show that internet sales as a proportion of total retail sales peaked in May 2020, at 33% up from 18% a year previous, as illustrated in the below chart. This means £1 in every £3 is now spent online and could even peak further in the run up to Christmas with parts of the UK under some sort of lockdown.
Due to COVID restrictions it is thought the shift towards online shopping this Christmas could put the logistics and delivery industry under pressure. Experts predict a delivery crunch, as people start panic-buying gifts. There will be a strain on websites, warehouses and delivery networks. It is thought the existing infrastructure isn’t set up for such a colossal switch to online at such pace. However, at the time of writing there was little evidence of significant delivery delays in Scotland.
Growth in online shopping means more Scots disadvantaged by surcharge
Over the last few years SPICe has estimated the additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK:
- In 2017, we estimated a cost of £36.3 million (this was calculated as part of SPICe’s MSP enquiry work).
- Estimating the additional cost to Scotland of parcel delivery surcharges (December 2018) – estimated a cost of £38 million.
- Scotland’s parcel delivery surcharge cost on the up (November 2019) – estimated a cost of £40 million.
SPICe recently updated this calculation for 2020, and our new estimate found that the additional cost to Scotland of parcel delivery surcharges was now £43.1 million in 2020. This is an increase of 19% since the original costing of £36.3 million in 2017. The main factor driving this increase is the continuous growth in online shopping.
Our previous blogs (linked in the bullet points above) provide detail on the methodology used for calculating this estimate.
Using QGIS software, matching postcodes and constituencies, SPICe has been able to provide a constituency breakdown of the £43.1 million additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK.
The chart below shows 20 Scottish Parliament constituencies that are impacted by delivery surcharges. All of the constituencies in the Highlands and Islands parliamentary region are impacted by delivery surcharges, totalling £30.2 million (70%) of the total cost to Scotland. The top three constituencies are:
- Inverness and Nairn (£7.8 million, 18% of total cost to Scotland)
- Skye, Lochaber and Badenoch (£6.7 million, 16% of total cost to Scotland)
- Caithness, Sutherland and Ross (£5.2 million, 12% of total cost to Scotland).
As with any costing of this nature, SPICe emphasise that the estimated figures are based on a variety of information sources from a range of different studies. As such, it should be used to give a broad indication of the possible cost to Scotland, rather than a precise estimation of cost.
The growth in online shopping spurred by the pandemic, particularly in the lead up to the festive period, is likely to further exacerbate the parcel delivery disadvantage faced by many Scottish consumers. Recent research shows more consumers are planning on doing their Christmas gift shopping online due to shop closures and COVID-19 related anxieties around going in-store.
Scottish retail in decline
The retail sector is in crisis, according to the Centre for Retail Research. The impact of COVID-19 restrictions have exacerbated retail’s existing problems. These included high costs (rents, labour, business rates), low profitability (heavy price competition), and losing sales to online shopping. These problems are felt by most businesses operating from physical stores in high streets, shopping centres or neighbourhoods.
Using ONS business count data, Scotland had 11,670 physical retail enterprises in 2020. This represents a decline of 11% since 2010, much greater than the equivalent UK level decline of 6%. The below chart shows the decline by retail subsector. Here we see the impact has not been equal across retail. Stores selling computers and telecommunications equipment have seen the greatest decline, much more severe than the rate of decline at a UK level. Retail in stalls and markets was the only sector to show growth, reflecting recent consumer trends where local markets have been popular.
While these data clearly show the decline of traditional retail, the opposite is true of retail trade not in stores. Retail trade not in stores is predominately online but also includes sale activities by mail order, door-to-door sales, vending machines etc. In 2020, there were 1,715 of these enterprise in Scotland, an increase of 72% since 2010 (comparable UK rate is 153%).
Employment in traditional retail in Scotland has similarly been in decline (ONS BRES data), falling by 5% between 2015 and 2019 to 230,000. The comparable Great Britain rate was a fall of 3%. Against the growth trend in the ‘not in store’ retail enterprises, Scottish employment numbers have actually decreased in this sector from 4,000 in 2015 to 3,000 in 2019 (25% decrease). The comparable rate in Great Britain was 1% growth.
The data presented here illustrate the declining fortunes of traditional retail but due to data lags don’t yet capture the full impact of COVID-19 across the sector. It is anticipated the sector will see significant further store closures and job losses over the coming months. The Scottish Retail Consortium estimate that Scottish stores lost £2.5 billion of retail sales over the first eight months of the pandemic. The Consortium called the current Level 4 restrictions in parts of Scotland a ‘nightmare before Christmas’. Even before Level 4 restrictions, shopper footfall in Scotland was down by a third and shop vacancies are at a 5-year high. Such statistics paint a bleak picture for many of Scotland’s high streets, which were already struggling pre-COVID.
Alison O’Connor, Senior Analyst, Financial Scrutiny Unit