Maximising online retail value: why online and physical stores must be coherent—and complementary

by Rebecca Clayton Partner, PwC United Kingdom

Email +44 (0)7718 339560

Our latest Retail Briefing provides a fascinating snapshot of the current state of play and future drivers of success in UK retail. It paints a picture of an industry with winners and losers in each category—and where the route to growth in a largely flat “new normal” is to take market share from someone else.

The report also assesses the impacts of the UK consumers’ shifting mindset, as they become more cautious, selective and conscientious. There are some great nuggets: for example, it’s the younger demographics who expect to spend more in 2019 than last year—good news for fast fashion and online retailers.

But are drivers like these being reflected in clothing retailers’ revenue growth and margins? We decided to find out.

We began by dividing UK clothing retailers into three broad groups. First, luxury premium brands. Second, online-only retailers and fast fashion merchants combining online and physical presences. Third, traditional mid-market retailers that remain largely physical store-led but are actively building up online.

Having identified these three groups, we collected and analysed their financial numbers, looking at last-twelve-month (LTM) and FY+1 EBITDA multiples (i.e. their key value benchmark) alongside the average forecasts for revenue growth, EBITDA growth and EBITDA margins. The results are shown in the table below.

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As you can see, the differences revealed by our analysis are stark. The premium brands are registering steady but unspectacular growth in EBITDA, while keeping their margins at enviable levels. The traditional mid-market players are lagging in EBITDA growth, but still seeing margins in double figures.

But it’s the online and fast fashion grouping who really stand out. They’re growing revenues and EBITDA at a headlong pace, while accepting lower margins as they fund that growth and invest in solid foundations for the future.

These contrasts reflect fundamental differences between the three groups—with the well-established, high-end luxury brands at one end of the spectrum, and the younger, more distinctive, primarily online-based brands at the other. The luxury brands are continuing to succeed because their consumer base is attracted by the whole experience of the luxury store, customer care and product feel. Meanwhile, the online and fast fashion brands are attracting a younger demographic seeking affordable yet trendy clothing.

One implication from our research is that the gap between the winners and losers is widening. To make sure they’re on the right side of this divide, retailers need to identify their value best creation vehicle and invest in it—be that building their premium brand, investing in automated warehouses or liaising with key online influencers. The right actions targeted in the right way will drive growth and profitability, and hence value.

So, what does all this mean for retailers? A clear message from our analysis is that a lower level of online penetration equates to lower multiples. So an online presence helps build value, linked to high levels of growth. But online is not an automatic panacea for mid-market players: to translate into higher value, online has to be coherent with the physical presence—meaning the right in-store experience attracts people into the stores, and is supported and reinforced by a strong brand or purpose and the right online offer.

The result? The physical and online channels complement each other—adding up to higher value. That’s the key to retailing success in 2019.


by Rebecca Clayton Partner, PwC United Kingdom

Email +44 (0)7718 339560