Reconfigured retail: Covid-driven online sales boom nearing peak, says Toscafund’s Savvas Savouri

The boom in online retail during Covid-19 is substantially reshaping the UK’s consumer sector, but Toscafund Asset Management’s Savvas Savouri believes e-commerce sales may peak sooner rather later as restrictions finally end.

In a market commentary on Wednesday, Savouri – chief economist and partner at Martin Hughes’ hedge fund behemoth Toscafund – reflected on how the coronavirus pandemic sent online sales soaring as the UK entered a protracted lockdown.

However, looking ahead, he believes that multi-channel retail operators that offer both digital sales and ‘bricks-and-mortar’ stores may now have reached a point where their online offering has gone from a “disruptive competitor” to their physical presence to a “stable companion”.

Observing the rise in internet shopping, he noted that as recently as 2008, less than one-twentieth of UK retail sales were online; within a decade, that number had swelled to a fifth, as a result of online sales growing at an average of 20 per cent every year.

But that 20 per cent levelled off towards the end of 2019 and into 2020, nearing what Savouri referred to as ‘retail internet penetration’ (RIP) – before spiking back up towards highs of almost 80 per cent UK’s first coronavirus lockdown in March 2020.

“From hovering just under one-fifth, internet penetration of retail reached 35 per cent; 45 per cent for the online channels of non-food retailers whose physical presence had been hard closed,” he noted.

“We were never allowed to know whether e-retail’s lacklustre growth towards the end of 2019 and early 2020 was a mere pause, before another burst of strength, or the beginning of it moving towards far more modest growth.”

Building on this point, he suggested peak RIP “come sooner than many might otherwise suggest”, settling at around 25 per cent, he predicted.

While the exact RIP peaks will vary across categories of goods and services – such as supermarkets, non-food retailers with physical stores, and online-only merchants – at some point “all must reach a true plateau, rather than a mere pause in ascent.”

Predicting a sharp rise in UK employment towards “historic highs”, he noted: “The reality is that far from unleashing job destruction the rise of e-commerce has in fact caused a displacement into it of workers from traditional physical retail and leisure sectors. It has also generated a need to recruit and retain ever more manual as well as skilled workers.”

Underlining this point, he said: “The simple truth is that delivery to our doors is more worker intensive than our travelling to destinations to make a purchase. From the point of dispatch to point of delivery what we have come to buy on-line has involved more hands being employed for the same volume of goods sold than when we journeyed to make comparable purchases.”

Expanding further, he added UK consumer behaviour since 2008 has brought “seismic shocks” for UK commercial property – boosting, for instance, warehouses across the Midlands, while driving high streets and shopping centres towards vacancy or repurposing. At the same time, the Covid crisis had shown younger generations to be “particularly vulnerable to the need for social proofing and minimal grouping”, citing the growth of organic grocers, artisan bakeries and coffee shops.

“Having had so much change forced upon us by this accursed virus, we can all be forgiven for despairing that things will never again ‘settle down’. And yet they will, albeit at a different kind of normal from what we considered it before.

“When we return to our old normal, there will be new features. Our high streets, shopping centres and retail parks will be reconfigured. Reconfigured as elements see a change of use.”

Founded in 2000 by high-profile hedge fund industry veteran Martin Hughes, who earlier managed money at US hedge fund giant Tiger Management, multi-strategy firm Toscafund Asset Management today has around USD4 billion in assets.