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Taxation, regulation, innovation. The hidden working capital challenges of 2021

As the vaccination programme continues to roll out across the UK, with schools re-opening in March, could the worst of the pandemic be behind us?

Dare we even ask, could it really be back to business as usual in 2021?

 

eCommerce was the business success story of 2020

Whilst COVID-19 heightened uncertainty everywhere, one trend became clear:

The almost overnight speed of digital adoption throughout the UK, and the meteoric rise of eCommerce as a result.

Commentators everywhere described the acceleration as five years of advancement for the eCommerce industry in the space of just six months.

‚ÄúeCommerce shopping has leapfrogged¬†ahead about three to five years during the pandemic and they don‚Äôt think it‚Äôs going back to where it was before.‚ÄĚ

‚Äď Susan Kapner, Retail Reporter, Wall Street Journal

 

 

Catching up with online retail in 2021

The progression to online retail isn‚Äôt really news. Alongside the ongoing story of the decline of Britain‚Äôs high¬†street,¬†it‚Äôs been told since the advent of the internet¬†‚Äď surely for at least the last ten years, if not longer? ¬†

 The rise and rise of eCommerce has changed the retail landscape. On one hand, it has created stars, regaled with fame and fortune.  On the other hand, with all eyes on the sector, both the national media and government seem to be out for blood. eCommerce is still a young industry and is experiencing growing pains like any other.  

 

Regulation ‚ÄstBoohoo¬†and supply chain¬†¬†

The hidden working capital challenges of 2021

The Manchester-based online fashion giant Boohoo has received fierce criticism over its approach to sourcing. As a result, Boohoo’s share price plummeted to almost half in 2020 following an investigation by the Sunday Times.  

Based on this investigation, the Sunday Times published and¬†outed, a¬†number of UK-based¬†factories in the¬†Boohoo¬†supply chain¬†who¬†were paying workers¬†as little as ¬£3.50 per hour,¬†a long way¬†below¬†the UK‚Äôs minimum wage of ¬£8.91.‚ÄĮ¬†

The scandal escalated to¬†the¬†highest echelons¬†of the UK¬†government‚ÄĮand drew the attention of¬†Home Secretary¬†Priti¬†Patel. The home secretary¬†insisted that the eCommerce retailer¬†‚Äúmust step up and take responsibility.‚Ä̬†

In the lead up to Christmas,¬†Boohoo¬†founder,¬†Mahmud‚ÄĮKamani‚ÄĮexplained,¬†¬†

‚ÄúIf we are guilty of anything, then it‚Äôs failing to realise we needed to put in more oversight and governance when dealing with suppliers.‚Ä̬†

 

In¬†February 2021,¬†fast fashion brand¬†Boohoo gave its British suppliers in Leicester until March 5th to,‚ÄĮ¬†

‚Äúbring all finished goods manufacturing in-house.‚Ä̬†

 

As a fast-growing marketplace, it’s clear that Boohoo were scaling quickly to meet demand. Yet managing a burgeoning portfolio of merchants places huge demands on their systems and processes. 

Working capital is not¬†solely¬†for securing the best possible deal from a supplier,¬†it¬†also¬†enables businesses to invest positively¬†in their process and practice¬†‚Ästworking capital funds growth.¬†

 

Taxation¬†‚ÄstRetail¬†calls for 1% sales tax for online retail¬†¬†

In February 2020, no fewer than eighteen supermarkets, retail property owners, and CEOs of high street chain stores called on chancellor Rishi Sunak to overhaul the current tax system and put them on a level playing field’ with eCommerce.  

 This is unsurprising from an ailing traditional retail sector that has been hit hard by the pandemic. 

¬†While eCommerce has soared in 2020 ‚Äď Amazon alone reporting that UK sales have risen by¬†51% to the tune of ¬£19.3 billion ‚Äď the giants of online retail and big tech have drawn the attention of the world‚Äôs media and lawmakers for their minimisation avoidance of paying taxes.¬†¬†


It’s fascinating to see such rivalry between traditional retail and eCommerce emerge so publicly. Online retail has experienced exponential growth, with that comes scrutiny.  

¬†In our recent article ‚ÄėGlobal racketeering online‚Äô¬†we explored the potentially darker side of eCommerce.¬†¬†

 For the giants of the industry, the independent online retailer, or the eCommerce merchant selling goods on a marketplace, a heavy dose of taxation and regulation can fast become a working capital issue.  

 Meeting new financial requirements, or if the demands on business’ cash suddenly change, it can prove more costly than simply paying taxes. Especially if it means that a business can replenish stocks in a time of high demand.  

 

Try our eCommerce Calculator

ecommerce calculator The availability of working capital (cash) allows merchants to capitalise on good deals from their suppliers, which means they never run out of stock and can invest in strategies for growth.  

 Woodford TradeBridge has launched a working capital facility specifically for online merchants. 

Learn more: How it works   

 Use our quick calculator to estimate the growth in GMV that a typical merchant might achieve with our eCommerce Merchant Finance solution. 

 Find out how much you could borrow.  

 

Expensive problems drive great innovations  

If necessity is the mother of all invention, there’s no doubt that the key to the unbridled success of eCommerce are the extended periods of government-imposed lockdown throughout the world.  

 Online retail was ready to be a solution to the world’s problem.  

 What about the problems caused by the solution?  There’s a great distance between revenue and the bottom line of every balance sheet.  

 While online revenues soared in 2020, online returns were up as much as 70% from 2019 and this is an astronomical expense for the online retailer.  

 Industry executives told the Wall Street Journal, 

“for every $1,000,000 reduction in returns, could translate into $500,000, added directly to a retailer’s bottom line. “

 

Innovative technology solutions can have hidden costs 

fashion-retail-onlineAmong other retailers, Amazon and H&M have started testing technology solutions to drive efficiencies, and deliver made-to-measure garments. 

A couple of the solutions involve:   

  • uploading¬†a¬†3D body scan¬†that a customer¬†can take using an iPhone¬†¬†
  • simply answering¬†an¬†online questionnaire with the customers measurements¬†¬†

 

A bespoke pattern will then be created and sent directly to a factory where garments can be made to a bespoke specification. This also demonstrates an even greater investment in customer experience.  

 At this scale, customer returns could so easily move from being a working capital issue to THE working capital issue for online retail in 2021.  

 The payment cycle for a marketplace can take between seven to thirty days to cover exactly this circumstance. If an online retailer has a surge in demand, working capital (cash) continues to re-stock and meet the demand whilst they wait for the funds from their sales to clear. It will be vital to ensuring a successful 2021. 

 

For more information, get in touch with one of our experts.

For more information on this customer and similar facilities:
Murray Stevenson on 07825 915705 or
[email protected]

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