Wed. Dec 1st, 2021

UK retailers have made huge productivity gains from the shift to online sales accelerated by the pandemic, as businesses are better able to work with fewer workers.

Unit labor costs in wholesale and retail trade were 3 percent below the average for 2019 in the second quarter of 2021 while hourly output was about 10 percent higher, according to official figures Published Wednesday.

The Office for National Statistics said it was partly a reflection of the strength of retail sales – which recovered in mid-2020 as home-bound consumers shifted spending from services to goods, staying above pre-pandemic levels, even already spending on recreation is recovering.

But the ONS also said the “rapid uptake of online shopping instead of store-based retail could have contributed to the increase in productivity” – with less labor needed to generate higher sales.

The figures place retail in stark contrast to trends in the overall economy. Unit labor costs in the second quarter of 2021 were 7.5 percent higher than their 2019 average, with almost every other sector suffering a drop in output while still paying wages to deceased staff working less or none of their normal hours .

The data coincided with an excitement trade update from Marks and Spencer, a traditional UK retailer that is now turning to online sales, aided by its recent partnership with Ocado.

The ONS said the sector’s productivity gains could also reflect changes in its composition, with less productive retailers failing to embrace e-commerce, forced out of business, while online giants that could make economies of scale expanded.

The pandemic has accelerated the downfall of stalwarts in the street such as Debenhams, Topshop and Oasis, with stores closed and brands snatched up by online retailers such as Asos and Boohoo.

Further evidence of the productivity advantage that e-commerce enjoys over store-based retail could spark calls for the government to consider more fundamental business tariff reforms, the commercial property tax: the UK retail consortium claims the current system penalizes bricks and mortar operators, leading to main street closures and job losses in especially poorer parts of the country.

However, it is not clear whether retailers will be able to hold on to the productivity gains that have been made recently – given the intense pressure on supply chains, and staff shortages that could increase wage bills.

Oliver Vernon-Harcourt, head of retail at consulting firm Deloitte, said productivity would be boosted by a larger share of full-price sales, with retailers seeing less need to offer discounts while many products are scarce.

But many retailers warn that rising costs will eat into profits, with Next, Asos and Boohoo among those flag the impact of higher shipping prices and staff shortages in UK warehouses.

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