As the “pendulum is swinging back to brick-and-mortar retailers”, the number of online-only retail stores going bankrupt has reached a new record.
Price Bailey reports that 615 companies went bankrupt last year. This is a 13 percent increase from 2022 when 545 businesses collapsed.
The accounting group reported that the number of Internet-only Retail Sector insolvencies has more than quadrupled from 2010, when only 125 people went bankrupt.
Matt Howard, the head of Price Bailey’s insolvency team, stated: “The pandemic brought back footfall to brick-and-mortar retailers. Price promotions and specials are easier to find in physical stores, so online spending has been shifted away.
He stated that retailers “engaged aggressive discounting” as the cost of living was hitting consumer demand. In a highly competitive market where the race to lower prices is on, margins are squeezed, and a growing number of online retailers go out of business.
Wiggle, an online multi-sports retailer, went into administration at the end of the last year. FRP Advisory reported that the administrator of the online bike specialist owed over £26.7million to unsecured creditors. Haribo was one of those creditors.
Tots Bots online retailer for nappies and other children’s items, and Thought Clothing a fashion label were also on the list of retailers that collapsed and resulted in job loss.
The more established players also struggle: Boohoo Group was valued at £570 millions in 2020 but suffered a £91-million loss last year. Asos is a fashion rival that had been a stock market darling for a while, and reported a £290.9-million loss before taxes during the six months ending February. This follows a £15.8-million loss the previous year.
The closure of non-essential high street stores during the pandemic forced shoppers to shop online. They were no longer able to spend on travel, restaurants or commuting.
These companies are struggling since the physical stores have reopened. High street fashion giants like Next, Inditex and Mango have invested heavily in their online offerings to increase competition.
In January 2021, online sales as a percent of retail sales reached a peak of 37.8%. They are now down to 30.7%.
Howard stated that although the “pandemic led online retail boom” hasn’t totally fizzled, we are seeing the pendulum shift back to brick-and-mortar retailers. The pandemic prompted a surge of new market entrants into the online-only retail sector, and established brands to massively scale up their operations to the point that there is now significant surplus capacity.
Many online retailers had supply chain issues after the pandemic and were forced to switch from a lean model of just-in time to one that required large amounts of inventory and storage space. This increased costs. They were left with excess inventory as consumer confidence declined.