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UK retail profits to shrink by £8bn, new research says

// UK retail profits to shrink by £8bn by 2025
// This would come as a result of the increased shift to online in the wake of Covid-19
// Pre-tax profit margins are forecast to fall to 3.2% by 2025

New research has found that UK retail profits are expected to shrink by £8 billion by 2025.

This would come as a result of the increased shift to online retail in the wake of the Covid-19 pandemic, according to a report by global professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics.

Pre-tax profit margins are forecast to fall to 3.2 per cent by 2025, compared to 3.7 per cent in a ‘no Covid’ scenario where the trajectory for consumer behaviour would have remained unchanged.

READ MORE: Shop prices slide further in June

The lasting impact of Covid-19 will not be felt equally across all retail categories, with some businesses significantly more vulnerable to pressures on profit margins than others.

Almost 20 per cent of spending across apparel, homewares and electricals is expected to permanently shift online.

These changes will be felt most by retailers with a presence in the UK, with four in 10 consumers stating that their shopping habits will change permanently – the highest across Europe.

“Covid-19 has wrought irreversible change which has left the future of many retailers hanging in the balance,” A&M managing director, Richard Fleming said.

“Those businesses that will remain relevant and survive the disruption will be those that are able to realign operating models with the new normal and meet the needs of a post-pandemic consumer – but there will be an inevitable shake out of those that cannot do so before it’s too late.”

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