Record number of online-only retailers fold as consumers return to high street, says accountancy firm Price Bailey.

Online-only retailers increasingly going to wall amid factors such as saturated market.

The number of online-only shops going bust has soared to a record high amid “the pendulum swinging back towards bricks-and-mortar retail”, combined with a saturated and competitive e-commerce market and consumers watching the pennies, a new report has found.

The total amount of online-only retailers folding has more than quadrupled since 2010 to reach its highest-ever total last year, according to data obtained by accountancy firm Price Bailey. It found that 615 such firms became insolvent in 2023, a year-on-year increase of 13 per cent, and up from 125 in 2010.

The firm said declining consumer confidence, coupled with aggressive discounting, problems with excess inventory, and higher costs, has put many online retailers under growing financial pressure. It added that the problems are “particularly acute” in online fashion retail, with both Asos and Boohoo having reported falling revenues and cut their outlook for 2024 due to below-forecast sales numbers. The Scottish Retail Consortium recently said Scotland’s retailers enjoyed a bright start to 2024, but challenges remain.

Matt Howard, head of the insolvency and recovery team, commented: “While the pandemic-led online retail boom hasn’t completely fizzled out, we are now seeing the pendulum swinging back towards bricks-and-mortar retail. The pandemic led to a surge in new market entrants in the online-only retail space, and established brands massively scaling up to the point where there is now significant excess capacity.

“Many online retailers were hit by post-pandemic supply-chain problems and had to shift from a lean just-in-time model to keeping large quantities of stock and associated storage space, driving up costs. As consumer confidence faltered, they were left with cash tied up in excess inventory. As the cost-of-living hit consumer demand, retailers have engaged in aggressive discounting. In such a competitive market where there is a race to the bottom on pricing, profit margins are squeezed, and growing numbers of online retailers are going out of business.”

The top 30 accountancy practice also pointed out that online sales as a percentage of total retail transactions peaked at 37.8 per cent in January 2021 but fell to 30.7 per cent in November 2023. Howard added: “Pent-up demand for in-person experiences after the pandemic has brought footfall back into bricks-and-mortar retail. Cost-conscious shoppers often find it easier to find price promotions and special offers in physical shops, which has tilted spending away from the online space.”

The news came as Sainsbury's unveiled details of its growth strategy, including plans to overhaul its supermarkets with a focus on creating more food space. The UK's second-biggest supermarket chain said it will cut its general merchandise and clothing offering across many shops to boost its food ranges. It will also look to shut more standalone Argos stores and bring them within supermarkets as click-and-collect points under the plans.

The number of online-only retailers folding reached 615 in 2023, a year-on-year increase of 13 per cent, and up from 125 in 2010. Picture: Getty Images/iStockphoto.

The strategy revamp – called Next Level Sainsbury's – will see it aim to cut costs by £1 billion over the next three years, although it has no plans to shut stores and is not announcing staff cuts as part of the overhaul. The firm also outlined plans to open another 75 convenience stores, to add to its existing 800-strong estate, and is launching a £200 million share buyback programme over the next financial year.