9,000+ e-tailers under major financial pressure - report

By

Sandra Halliday

Published
Dec 23, 2019

It may sometimes seem that the future belongs to online retailers, but in reality, they are not immune to the devastation that is happening in UK retail at the moment. A new study from Begbies Traynor said that more than 9,000 online retailers are suffering from significant financial distress.

We've seen in the past few years how a number of shop-based retailers have been struggling, with even some big names going under or having to resort to company voluntary arrangements. But it seems that some of the same issues that are affecting them are having an impact on their online peers. 

They may not be facing business rates and footfall issues, but ever-deeper discounts, a high volume of returns and the costs associated with them, plus heavy competition in the market are undermining their businesses too.

Insolvency specialist Begbies Traynor said in its latest assessment of the situation that e-tailer distress is still rising while physical stores with problems have plateaued. That said, the number of physical stores in distress (17,893) remains higher than the number of e-tailers in the same position.

The company expects the problems to continue for online sellers with Begbies Trayner partner Julie Palmer saying: “Looking to 2020, it seems as if the accelerating numbers of online retailers in distress will continue. The competition online is ferocious but the rewards for those that succeed, such as Boohoo, are huge.”

It’s perhaps no surprise that some e-tailers are struggling given that non-food online sales fell 10% last month (according to the regular BRC/KPMG report), with the later Black Friday being a factor. Even with Black Friday included, the fact that the event is discount-driven means that profit margins would have been under heavy pressure.

One major problem e-tailers have is returns. While clothing that customers have been able to try on in the shop could still be returned, clothing that they’ve ordered without ever trying it on is even more likely to be sent back.

The returns rate for online orders varies between 20% and 40% and online mega-giants are better positioned to cope with this. And with them offering options such as buy now, pay later and currently offering huge markdowns (up to 60% at Asos, 70% at Missguided and 80% at Boohoo), the pressure on smaller rivals is huge.