The retail sector is going through a prolonged period of change with the Scottish Retail Consortium (SRC) stating the sector was at the ‘apex of the current retail revolution’. Factors from technology advances, online retail, COVID-19, and supply chain disruption have created opportunities for some and threats for others in the sector.
Retail is important to Scotland’s economy. It is one of the largest private sector employers in Scotland, contributing nine per cent of Scotland’s entire workforce. And, it makes up approximately five per cent of Scotland’s total economic output.
This blog will explore data around the shift to increased online retail, the impact of this shift on the retail business base, support from the Scottish Government, and the implications for parcel delivery surcharges.
Shift online continues
Digitalisation has changed consumer behaviours, with online shopping now accounting for almost 30% (average across 2021 to date) of all retail sales, compared to 7% in 2010. Furthermore, the pandemic further accelerated the shift to online retail, as consumers increasingly shopped online, often out of necessity, and businesses were forced to rapidly change their strategies and business models as a result. Some retailers struggled to keep pace with this shift in business models and disappeared from the high street.
However, there is evidence the rapid acceleration of online retail has slowed with the reopening of the economy. For example, Royal Mail recently stated UK parcel deliveries appear to be settling at a new normal – higher than before COVID-19 but lower than during the pandemic. This decline is also evident in ONS data on online retail sales. The most recent monthly data show the internet accounted for 26% of retail sales in September 2021, compared to a peak of 37% in January 2021.
Scottish retail in flux
This shift online during the pandemic is evident in Scottish business count data. Scotland had 11,645 physical retail enterprises and 1,950 “retail trade not in stores” enterprises in 2021. Retail trade not in stores is predominately online but also includes sale activities by mail order, door-to-door sales, vending machines, etc. The figures represent a decline of 12% in traditional retail stores since 2010, whereas there was an increase of 95% in online retail businesses since 2010.
The above chart shows the levels of change in retail enterprises since the pandemic (2021 data relative to 2019). Looking at the retail subsectors, we see the impact has not been equal across the sector.
- Only two of the traditional retail subsectors showed growth:
- “Information and communication equipment retail” likely driven by increased demand for equipment to facilitate working from home.
- “Retail in stalls and markets” increased by six per cent. The popularity of local markets and stalls increased over the pandemic, given the often outdoor element.
- Retailers of automotive fuel experienced the greatest decline, at nine per cent. There were 20 less fuel stations in Scotland in 2021 compared to 2019.
- Retail businesses not in stores had the greatest increase, at 38%, 540 additional businesses. This was correlated with accelerated online retail during the pandemic.
The impact of COVID-19 also exacerbated retail’s existing problems. These included high costs (rents, labour, business rates), low profitability (heavy price competition), and losing sales to online shopping. The loss of some traditional retailers over the past year has led to job losses in the sector, many affecting women and young people.
How is the Scottish Government helping the retail sector?
The retail sector was eligible for much of the Scottish Government’s COVID-19 business support funding. Looking forward, the Scottish Government is developing a ‘coordinated and collaborative’ approach to support the future of Scotland’s retail sector, which involves a number of ongoing elements:
- The development of a retail strategy for Scotland, which is expected to be ‘published later in the year’. The Scottish Government has confirmed one element of the strategy will look to establish a sector-led group which will work jointly with partners, including trade unions, to focus on delivering the “fair work” challenges facing retail and in particular will be tasked with improving fair work across the sector.
- The Scotland Loves Local Programme is a national initiative designed to encourage all those who live in Scotland to think local first and support their high streets. It includes the Scotland Loves Local Fund to help bring creative projects and activity into towns and neighbourhoods – building wealth in local communities and attracting footfall which is essential for shops and businesses
- Retail is a key part of town centres and cities, which face difficulties with changing and evolving retail patterns. Support is offered via the work of the Town Centre Review Group and City Centre Recovery Taskforce.
- The forthcoming National Planning Framework (NPF4), a spatial plan for Scotland to 2050, will provide updated planning policy on retail, recognising its role in the economy and for communities.
What does this mean for Scottish consumers and parcel delivery surcharges?
The substantial shift in behaviour to online shopping has had a range of policy implications for Scottish consumers, including those disadvantaged by digital connectivity issues, parcel surcharges, late delivery or those refused delivery altogether when they try to buy goods online. Other issues from the significant shift to online retail include the decline and reinvention of the high street, and ensuring that Scottish businesses are ecommerce ready, via enterprise agency support, to take advantage of these changing consumer behaviours.
Let’s look at the issue of parcel delivery surcharges in more detail. SPICe has previously published a series of blogs (2018, 2019, 2020) estimating the additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK. For 2021, we have produced a new model, with improved, more up to date information. Here we summarise the results of this new model.
Readers should note the new impact figure is not comparable with any of our previous estimates. All previous estimates were based on the additional cost to Scotland of parcel delivery surcharges relative to the rest of the UK.
Due to data categorisation changes, this 2021 costing is instead estimating the additional cost to Scottish adults in areas commonly impacted by parcel delivery surcharges relative to the rest of Scotland. Consequently, this new estimate must not be used in reference or comparison to any of SPICe’s previous estimates produced between 2017 and 2020.
In this 2021 costing, in calculating the additional cost to Scottish adults in areas commonly impacted by parcel delivery surcharges relative to the rest of Scotland, the key data inputs were:
- average Scottish region parcel charges by parcel size sourced from the Scottish Government publication Econometric Analysis of Postal Delivery Pricing in Scotland from August 2020
- distribution of parcels by weight sourced from Apex Insight Parcel Delivery Surcharging Study from 2017
- postcodes of areas that were impacted by a parcel delivery surcharge were extracted from The Postcode Penalty: Delivering Solutions (CAS & Consumer Futures Unit 2017) where estimates are in line with the 2020 econometric analysis which states 440,000 people live in areas impacted by surcharges
- the postcode population counts are based on the 2011 Census. These have been adjusted to reflect regional growth trends from the National Records of Scotland population estimates
- the proportion of UK adults that bought goods online was 87%. This was sourced from the ONS internet access survey 2020. This figure has been adjusted upwards to 95% to account for the impact of COVID-19 (Parcel Delivery Boom; FT October 2020, Royal Mail delivers record parcel numbers but fewer letters during pandemic; Guardian February 2021)
- the average number of parcels received each week per UK household was two. This is from the UK Postal Users Research: Quantitative Research Report commissioned by Ofcom and published in late 2020. These household estimates were adjusted with National Records of Scotland household and population datasets to create a per person ratio.
Overall bringing together the data inputs outlined above, it is estimated that the additional cost to Scottish adults in areas commonly impacted by parcel delivery surcharges relative to the rest of Scotland is £45 million.
SPICe has been able to provide a constituency breakdown of the £45 million additional cost to Scottish adults in areas commonly impacted by parcel delivery surcharges relative to the rest of Scotland. The chart above shows that 14 Scottish Parliamentary Constituencies are impacted by delivery surcharges.
- All of the constituencies in the Highlands and Islands parliamentary region are impacted by delivery surcharges, totalling £39.9 million (89%) of the total cost to Scotland.
- The constituencies of Skye, Lochaber and Badenoch (£9.1 million) and Inverness and Nairn (£8.5 million) account for the highest proportion of delivery surcharges.
Please note the list of constituencies is not exhaustive. It represents the availability of robust data. It is very possible that residents of other constituencies may have experienced parcel delivery surcharges but not to scale that would be considered statistically significant.
Alison O’Connor, Senior Analyst, Financial Scrutiny Unit