The bad, the ugly, and the good: UK ecommerce sellers weather the storm

The UK is one of the most mature ecommerce markets globally, however digital businesses still face significant obstacles to growth. In the past couple of years, local merchants have faced macro challenges such as the fallout from Brexit, the Covid-19 pandemic, and most recently, the impact on global supply chains from Russia’s invasion of Ukraine. Merchants are facing high levels of uncertainty with internal politics in turmoil, a looming recession on the horizon, and a cost-of-living crisis heavily impacting on consumers and businesses alike. It’s clear that not only do major challenges exist today, but there are emerging issues as we look ahead to the future.

To identify which issues are currently weighing most on their minds, we surveyed over 130 UK small to medium sized ecommerce businesses (SMBs) to uncover their top concerns and how they plan to achieve growth over the next 12 months.

Unsurprisingly, merchants are apprehensive about today’s economic instability and consider the uncertainties that abound in this area to pose the biggest threat to their business. As the reality of a recession sets in, 62% consider the high rate of inflation to be their number one concern for adding downward pressure on their revenues.

However, while this is certainly the most challenging economic landscape the UK has seen in 40 years, UK merchants remain optimistic and proactive in seeking out new opportunities to grow their business. Whether it be to expand to new markets or leverage new technologies such as the Metaverse, they are already seeking out new paths that will guide them through these challenging times.

Key Takeaways

The Bad & The Ugly

• 64% of businesses expect economic uncertainty to be the biggest threat or challenge to their business over the next 12 months, 62% said inflationary pressures.
• 53% of businesses see the rising cost of living/economic downturn as a barrier to investing more to expand sales among customers abroad.
• 68% of businesses have seen sales to the EU decrease since Brexit

The Good

• 62% of businesses are likely to grow their online presence in the next 12 months.
• 46% consider direct to consumer sales to be the biggest opportunity for their business in the next 12 months. 38% say social commerce presents the biggest opportunity and 7% each believe the Metaverse and cryptocurrencies present the biggest opportunities.
• 24% of merchants are looking to Europe for future growth opportunities, 15% to North America, 9% Asia, 2% South America, and 1% to Africa.

The UK’s cost of living crisis

No markets are immune to economic instability, whether emerging or well established. This has been made particularly clear over the last few months as the UK looks set for recession.

Driving this instability are a confluence of factors:

• Inflation rates not seen for almost 40 years. Some businesses have had energy costs rise by as much as 90% in the past year alone, expenses which are then passed on to the consumer. This is driving a cost-of-living crisis that is plaguing businesses and consumers alike.
• Supply-demand mismatch. Between labour shortages caused by pandemic layoffs and further exacerbated by Brexit, and supply chain issues all over the world, businesses have found themselves unable to meet pent up demand.
• War in Ukraine. The Russian invasion of Ukraine and the subsequent sanctions imposed on the country have caused further disruption and added pressure. The resulting sharp rise in oil, gas, energy, and food prices, has added to the woes caused by post-pandemic inflation.

The Bad: the impact on UK SMBs

Just as millions of people across the UK are concerned about what lies ahead, business owners are also feeling the pressure. As seen from our survey, 64% expect economic uncertainty to be the biggest threat or challenge to their business over the next 12 months.

Indeed, with reports of a looming recession ahead, ecommerce business owners are rightly concerned, with 62% citing inflation as being their main worry. Also, as we look ahead to the future and the prospect of recovery, it’s clear that these businesses are going to need support to weather the storm and look for growth.

Of those businesses surveyed who are doing worse since the pandemic, only 15% said they would recover in the next 6 months, while over a third said that recovery is over a year away, if it’s coming at all. This is a concerning picture and it is vital that action is taken both by businesses and the broader ecosystem to support them in finding new opportunities in digital commerce.

With businesses also having to deal with increased energy and oil prices, they must either let them eat into their profits or pass them on to the customer. But there’s only so much the consumer will be willing to pay, if they are able to buy their goods at all.That’s why a recent proposal from the UK’s newly appointed Cost of Living Tsar suggested business owners reallocate their budgets and help the consumer by lowering prices. This was largely met with resistance, as lower consumer prices would leave businesses with less profit due to having to manage their own increasingly high costs. Despite the proposal’s unpopularity, though, 58% of respondents claimed that they will be looking to provide new deals and offers to consumers, as well as freezing prices (31%), over the next 12 months. But reducing their own costs in the supply chain is also a major priority for 48% of businesses to maintain revenues and profits.

The Ugly: the backdrop of Brexit

Of course, before the current cost-of-living crisis took hold, the UK made a decisive, and divisive, exit from the EU, and much has been written about the impact of Brexit on British merchants. Among others, this has included the introduction of custom tariffs and import sales taxes, increased logistics requirements, increased levels of bureaucracy, and delays in shipment times. As a result, 68% of SMBs saw a decrease in EU sales following Brexit.

In addition to these issues, many businesses across the country are struggling to recruit qualified staff following the introduction of new Brexit immigration rules. In fact, over a third of UK businesses feel Brexit has had a bigger impact on their staff recruitment and retention than even the Covid-19 pandemic and 41% expect recruiting new staff will only get more difficult over the next 12 months.

All these additional complications from Brexit serve as a backdrop and only exacerbate the difficulties merchants now face within today’s highly challenging economic climate.

The impact on future growth

While it’s difficult to say for sure how long any potential UK recession may last, it’s clear that the current economic downturn will have a significant impact on longer term business growth. This is evident from the fact that 53% of businesses see the rising cost of living as a barrier to investing more to expand sales among customers abroad. The opportunities available to businesses through selling into new markets can drive business and economic growth, so it is vital that work is done to reduce these barriers as much as possible.

With so many unable to invest in growing their business, this will have a far deeper economic impact in the long run. Putting a portion of revenues aside and investing those funds in new technologies or marketing strategies is a key strategy for any business to grow. With profit margins becoming ever tighter and running costs increasing, there is precious little left over for such investment. This puts UK businesses at risk of falling behind in the global market and impeding future economic growth for the entire country.

The Good: opportunities ahead

While the picture could be seen to be gloomy, there are pockets of optimism among UK business owners. After all, with crisis comes opportunity.

One such opportunity is the direct to consumer selling trend (DTC). During the pandemic, online sales saw 10 years of growth in just 3 months due to an increasing number of consumers shopping online for the first time. As digital commerce matured, small businesses also evolved the channels that they sold across, with many building their own webstores to supplement their sales on marketplaces like Amazon and eBay.

DTC sales are expected to reach £123 billion in the UK by 2023. Companies who adopt this business model, as well as continuing to sell on online marketplaces, give themselves a new path to reach customers while taking out some intermediary costs often associated with expansion.

Using social media platforms, like Facebook, Instagram, and TikTok to reach consumers is also an area that UK businesses are looking at as the next big channel for growth. 38% say that social commerce presents the biggest opportunity for them as they’re able to reach a larger target audience, provide a frictionless shopping experience, collect data on their audience, leverage the power of social proof as well as better access to customer feedback.

Finally, there are also businesses who are looking to technology innovations as a driver of future growth with 7% believing that the Metaverse presents the biggest opportunities for ecommerce growth. Using a collection of several technologies, such as Augmented Reality (AR) and virtual reality (VR), the Metaverse aims to combine the online shopping experience with the traditional physical one to create a new frontier in the digital economy.

Likewise, as cryptocurrencies become more widely adopted in many countries, they offer sellers and consumers new ways to pay and receive payments. This presents opportunities for UK sellers to not only reach younger audiences but also gives their customers a high level of privacy and transparency that come with blockchain transactions.

With the various opportunities available to transact with more people online, it’s promising to see that 62% of businesses are likely to grow their online presence in the next 12 months.

Of course, by extending their presence online, they are also able to reach new customers across borders. 36% of UK business owners reported looking to enter new markets over the next 12 months.

Selling at home and away

In addition to new ways of selling online, many UK businesses are also identifying new markets to sell to. While half of merchants remain focused on their domestic challenges, the other half are looking to international expansion as the next frontier.

Unsurprisingly, for those who are looking to expand further afield, historically strong markets like Europe and North America are seen as offering the greatest opportunities for growth, but interest is also growing in Asian and LatAm regions. After all, with the pound currently at record lows against the dollar and Euro, exports become more attractive to foreign buyers.

With new markets and sales channels in their sights, there is a strong sense of optimism from UK sellers who are confident their businesses will, despite everything, be able to weather the stormy economic conditions they are facing. This is reflected by the 36% of businesses that believe their staff levels will increase over the next 12 months, with 28% of these expecting them to rise by as much as 30%. Considering how gloomy the economic situation may seem now, this is an impressive number.

Some final words

The challenges facing the UK, both at the consumer and business level, are some of the toughest the country has faced in the last 40 years.

Merchants are highly concerned about today’s economic instability and consider the uncertainties that abound in this area to pose the biggest threat to their business. Operating within a perfect storm of such turbulent political and economic conditions, it’s no wonder that 64% of businesses expect economic uncertainty to be the biggest threat to their business over the next 12 months.UK merchants, though, remain optimistic, proactive, and hopeful in achieving growth. The rise of the direct to consumer selling trend poses a huge opportunity, which is why 46% are considering this channel a potentially strong way to grow their business. Others are looking to new global markets or expanding their domestic presence.
But whether it be to expand to new audiences or leverage new technologies such as cryptocurrencies or the Metaverse, despite all the challenges, UK merchants are used to navigating themselves to stay ahead of the game and are already seeking out new paths to guide them through these challenging times.

How Payoneer can help

If you’re an UK-based eSeller, Payoneer is your go-to partner for managing all your business payments.

From multi-currency receiving accounts that enable you get paid from international marketplaces and store your earnings in stronger currencies such as the dollar to mitigate the risk of currency fluctuations, to Working Capital that can help provide you with the funds you need to invest in your business during today’s economic downturn, Payoneer has a whole suite of tools to help.

Open an account today and see how easy, fast, and low-cost managing your business payments can be.