An analysis of 250 retailers shows what online shopping does to profit margins

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By Quartz

The unstoppable ascent of e-commerce is spurring a corresponding decline in retailers’ profit margins, according to an analysis of six key European markets and more than 250 retailers. The trend is only set to continue with the pandemic speeding online shopping’s growth, making profits for the competitive retail industry that much harder to come by.

Over roughly the past decade, retailers’ pre-tax profit margins across the UK, Spain, Switzerland, France, Italy, and Germany have dwindled from 6.4% to 4.5%, said the study by Alvarez & Marsal, a management consultancy, in partnership with Retail Economics, a research firm focused on the UK’s retail and consumer industries. It pointed to online shopping as a major contributor. Its analysis found an inverse correlation between the increase in share of sales happening online and margins: as e-commerce penetration rises, margins fall.

It said it expects the trend to keep gathering momentum in the wake of the pandemic, as some of the online shopping habits consumers embraced become permanent. By 2025, it forecasted pre-tax margins for retailers in the six countries it analyzed will sink to just 3.2%. Without the pandemic prodding shoppers toward e-commerce, margins would have dropped only to 3.7%, it estimated. The gap translates to profits across those markets being €11 billion ($13 billion) less by that point than they would have been otherwise.

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