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Our views 23 June 2021

The Viewpoint: Will consumers ditch online shopping as normality returns?

5 min read

Before I delve into the topic of online shopping, I wanted to welcome you all to my new blog, The Viewpoint. As the Head of Equities at Royal London Asset Management overseeing the UK, Global, Sustainable, Passive and Quantitative teams, we are very exposed to the latest developments and thinking in the global corporate economy.

As an asset manager, our role is to steward billions of pounds of pensioners' and customers' savings. With a passion for what we are always learning and how we apply that to stewarding clients’ assets, I wanted to start a blog to share my latest thinking and insights.

Covid-19 has triggered a seismic change in the world of online shopping. Without a doubt, the pandemic has turbo charged this  and there may be no going back. The necessity for online shopping significantly increased during the pandemic on the back of social distancing and lockdowns as many physical retail outlets were forced to close. In our view, there are a couple of important downstream impacts from this. First, customers got set up and then used to online shopping - new accounts, new familiarity, and of course new experiences. Second, it drove a further wave of investment in online shopping networks, scale and infrastructure - by November 2020, Amazon had hired an additional 425,000 people in just ten months. This, in time, makes the online shopping experience, service and value add ever more attractive to customers.

Online benefits

Online retailers have had an edge over physical ones for some time - they offer around-the-clock shopping, tailored advertising and delivery straight to the door. This meant during the pandemic there was a bifurcation between two categories of retailers - leaders such as Amazon and Ocado, who had invested in a substantial logistics network geared towards online shopping, were able to thrive. Meanwhile the retailers that hadn’t invested in their online platforms struggled with margins, or worse, went into liquidation.

With vaccine rollouts gathering momentum and restrictions being eased, short-term online shopping at the margin could see a fall in demand. Those who were unable or unwilling to shop physically, now increasingly head back to the shops, or simply head out on a shopping trip as some kind of entertainment/leisure activity. But longer-term, it’s very likely that online shopping will be the dominant form of shopping simply because for many items it is the cheapest and best customer outcome. It currently already represents about one-third of retail in the UK. Things that make life easier for customers tend to do well over time. In many cases, online shopping offers more variety for lower cost. The challenges to online have been perishability, immediacy (I want it now), transport costs (relative to the value of goods), physical experience and the importance of being present at the point of sale (e.g. trying on shoes). Any retail items or store formats that do not offer some kind of advantage in at least one of these areas will probably fail over time simply because they can’t compete with the cost and range advantage of online. The real challenge as online matures is that innovation doesn’t stop - online channels will increasingly need to find ways to overcome these areas of physical retail resistance e.g. Amazon same day delivery, or Ocado food delivery slots within an hour.

Company insights

We have found recent comments from various companies very insightful.

“The rapid acceleration of many pre-existing trends in business and society has been a feature of the Covid-19 crisis, and the dramatic channel shift in grocery is a clear example of this,” Ocado chief executive Tim Steiner said in a statement. “The landscape for food retailing is changing for good.”

Elsewhere Visa’s CFO said the trend for cashles purchases seems here to stay as cash has fallen out of vogue. Interestingly, he stated that during the pandemic, Visa Debit use has been very high versus credit cards as fears of job losses meant people were less keen to pay for things on credit. We think cashless payments are typically better for the consumer (more convenient, less hassle) and are significantly better for retailers and vendors given the cost, risk and challenges of cash in stores and elsewhere. Processing, securing and transporting cash is expensive for shops and vendors. It’s therefore no surprise that the mix of payments towards cashless continues to grow and you can see this in the underlying transaction volume growth of 8-10% per annum at companies like Visa or Mastercard. Add in the health benefits during Covid of not handling cash and it’s no surprise to see a surge in cashless payments.

Meanwhile, trucking company Old Dominion Freight Line is booming as it’s very nimble and able to adapt its routes very quickly versus aviation or shipping freight. It has cited a boom in customers online shopping as one of their reasons for their growth.

A different world

The future of physical stores very likely remains around the physical experience and the importance of being present at the point of sale. An increasing mix towards entertainment, services and the shopping experience is part of this. Also, a physical presence that supports the online presence and consumer brands is likely to continue. The Apple Store or a car show room in a shopping centre are fantastic examples of this.

Ultimately, the boom in online shopping might initially slow a tad as normality returns, but, if anything, Covid has accelerated the ultimate dominance of online and cashless payments in the majority of retail activity. As such, it is not a one-off we expect to reverse and is material of an acceleration towards a different world.

Anyway, I’ve got to dash, my online groceries have just arrived…


Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are the author’s own and do not constitute investment advice.