The online retail sector saw the largest jump of all 237 UK business sectors in the number of new businesses created over the last five years, says Growthdeck, the private equity investment firm.
The number of new online retail businesses opening per year tripled to 25,675* in 2018 from 7,720 in 2013.
Growthdeck says whilst the e-commerce sector is dominated by global giants such as Amazon, its growth has also created a huge number of smaller businesses.
The rise of e-commerce has also driven growth in support industries including warehousing (second of 237 industries), couriers (third) and air transport (fourth), which have all have seen the number of new businesses rise rapidly (see table below). The number of new warehousing and courier businesses have both more than doubled in the last five years.
Growthdeck explains that demand for shorter delivery times is changing the shape of distribution networks with businesses now needing many smaller, regional hubs rather than one central hub. This has fuelled demand for warehousing space across the UK.
But the failure rate of e-commerce businesses is also high
However, the business failure rate in e-commerce is also high, with 13,195 businesses closing last year. Whilst some of these businesses will be Amazon and eBay sellers, a large number are smaller independent retailers looking to gain a share of the e-commerce market. Many find scaling up in order to achieve profitability difficult.
Start-ups often find it difficult to secure the funding they need to expand from mainstream sources. However, there are a number of bespoke funding options available to entrepreneurs which may better fit with their growth plans. This includes investment through the Enterprise Investment Scheme (EIS), long a source of funding for growing technology businesses.
Gary Robins, Head of Business Development at Growthdeck, comments: “Entrepreneurs are taking advantage of unprecedented change in online retail. That’s despite the sector already notching up 20 years of strong growth.”
“There is also a relatively high attrition rate among e-commerce businesses, which points to a need for funding to get some of these businesses out of the startup stage and begin to really build scale.”
“There is a multitude of opportunities for entrepreneurs at different stages of the e-commerce supply chain, such as warehousing and couriers. So many of these young businesses need funding to scale up, and EIS investment has long acted as a powerful driver of their growth.”