While it is not exactly news that the COVID-19 pandemic has accelerated a wide range of impacts on businesses and our day-to-day lives, a recent report from the Financial Times on the apparent relationship between online-based business and productivity will still raise some eyebrows.
The newspaper cited Office for National Statistics (ONS) figures indicating that while unit labour costs in wholesale and retail trade during 2021’s second quarter were 3% below the average for 2019, output per hour was about 10% up.
It seems, then, that many firms in the UK may have been able to unlock big productivity gains from transitioning to online sales, while becoming better able to operate with a lower number of workers.
What did the ONS say about the figures?
The statistics body commented that these latest numbers partly reflected how strongly retail sales surged during 2020, as many Britons were left stuck in their homes. The coronavirus lockdowns prompted great numbers of people to switch their spending from closed service industries to goods – but even as leisure expenditure has recently recovered, retail sales have remained above pre-pandemic levels.
However, the ONS also stated that the “rapid uptake of online shopping instead of store-based retail may have contributed to the increase in productivity”, with less labour required to drive higher sales.
It is particularly interesting to consider how starkly the figures for retail contrast with trends in the broader economy. Unit labour costs in the second quarter of 2021 were 7.5% higher than their 2019 average, while nearly every sector other than retail had to deal with a decline in output at the same time as still paying wages to furloughed staff working fewer or none of their normal hours.
The ONS also suggested that the heightened productivity seen lately in the retail industry could reflect how the composition of the sector has altered, with less productive stores that did not embrace ecommerce going out of business, as those making the online shift thrived.
What lies next for ambitious retail firms?
Such evidence of online retail stores potentially accessing greater productivity advantages than their brick-and-mortar counterparts could also increase the pressure on the Government to undertake more fundamental reform to the business rates system applicable to commercial property. The British Retail Consortium (BRC) has argued that the present arrangements penalise high-street operators, contributing to closures and job losses – especially in poorer areas of the UK.
Moreover, even the most successful online firms are by no means immune to pressures in the wider economy. Businesses across the UK have faced considerable supply chain pressures and staff shortages that could push up wage bills. This, in turn, raises the question of how well even online businesses will be able to hold on to their recent productivity increases.
Would you appreciate help for your business to navigate the ever-evolving landscape, whatever its sector, and wherever you operate chiefly offline or online? If so, please do not hesitate to contact TS Partners to take advantage of the knowhow and experience of the right chartered tax adviser in Somerset or Devon.
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