Ecommerce Is Now the Fastest Growing Type of Business

We analysed company data from 2012 to 2023 and what we have seen is a huge paradigm shift in what type of businesses people are creating. Ecommerce now has the highest growth rate of any other business type in the UK and it looks set to continue.

Key Data: Ecommerce Now the Highest Growth Type of Business Created

  • The number of property companies was growing at a 43% CAGR from 2012 to 2017

  • During 2018 to 2023 the CAGR has now fallen to 18%

  • The number of e-commerce companies was growing at a CAGR of 21% between 2012 to 2017

  • The rate at which e-commerce companies are now growing between 2018 to 2023 is at 69% CAGR

  • The total number of e-commerce related companies on companies house is now at 288,933

Source: Companies House data May 2024.

What data did we look at

We looked at all the companies house data from 2012 to 2023 (all 5.6 million of them!), analysed each type of business by incorporation year so we could look at the compound annual growth rate of each type of company over a 5 year period. We split the periods between 2012 to 2017 and 2018 to 2023.

What was the main type of companies created between 2012 and 2017

It may be unsurprising but real estate based companies had the highest CAGR in this period at 43%. We can summarise that due to historic growth in house prices meant that more and more people were focused on creating reals estate companies. Over that period the gold rush was aimed at the promised continued growth of house prices. Its no shock when historic interest rates were at an all time low and houses prices kept on increasing.

Fast forward to 2018 to 2023, this has dropped to 18%. This is a huge reduction in from the previous 5 year period and this can be attributed to several factors.

  • Increased taxes on landlords has forced people out of the market and put people off.

  • House price growth as stagnated since

  • Changes in council tax rules where second homes or empty homes are being taxed double council tax.

  • Changes to stamp duty, where second homes are now charged an additional rate of stamp duty

  • New laws aimed at making it harder for landlord to evict trouble tenants

  • Higher interest rates as a result of inflation has meant a lot of these businesses have become unviable and has put new entrants off.

The top type of business created between 2018 to 2023 is now ecommerce related companies with a CAGR of 69% over the last 5 years. This is a huge jump from the previous compound growth between 2012 to 2017 of 21%. The new gold rush for individuals to create wealth seems to be via an ecommerce company rather than real estate. They are jumping on the trend where online sales are taking over retail sales. By the end of 2023 there were 288,933 ecommerce businesses on companies house.

Why have ecommerce companies overtaken new investment in property companies

  • Real estate is no longer the sure bet it once was

  • The ease of selling on an online store has been made easier in recent years with the creation of Amazon, Ebay and Etsy marketplaces.

  • It is easy to create your online store. Creating your own website used to be an expensive endeavor, you can not create a website targeting online shoppers for as little as £30 per month via Shopify. Optimizing ecommerce sites for better conversion rates is crucial for success.

  • There is more and more content out there on how people can easily start these businesses and expect 20-40% annual returns. The rise of mobile devices has made it essential to optimize websites for mobile commerce.

  • COVID and then the cost of living crisis has meant people are now focusing on using their spare time to generate more money. Ecommerce fraud has significantly impacted online retailers, leading to substantial financial losses.

  • COVID has accelerated the trend of online shoppers using online retail rather than going to the shop

  • Total Retail sales have fallen compared to online retail sales over this period showing there is an appetitive to shop online.

  • The start up costs of ecommerce businesses are minimal when compared to real estate, where you need at least 20% deposit to buy a buy to let property.

What if you own a brick and mortar store?

During covid a huge number of people moved online to follow the trend of online purchases. With the total retail sales dropping cataphoretically during COVID, online shopping boomed! Those who were just selling in their local area now had access to the global ecommerce market.

After the pandemic these stores have kept their online presence and a large proportion get most of their revenue via ecommerce sales to fuel their business growth.

People have started returning to the high street but total retail sales have not recovered to the levels pre- COVID and online purchases have taken over. While there is a significant majority who will go to the high street they are now completing their purchase by shopping online.

Democratisation of ecommerce

You used to be a significant company or have to invest a significant amount to start opening your shop and focusing on retail sales. With the rise of the marketplaces and easy to use website builders creating an ecommerce store has never been easier for an individual. In some cases you can start with as little as £500 and in some cases even less.

There are now huge swathes of people who can create ecommerce brands and get significant ecommerce sales. Not only can they sell in their domestic market but they can sell worldwide and have global sales. Growing internationally used to be the focus of the established listed companies, people can now start selling internationally with little friction and huge potential success. People no longer have to limit them selves to domestic online shoppers and can focus on global ecommerce market.

Total online sales

Physical retail sales are under huge pressure online as more people focus on shopping online. Online sales accounted for28.5% of total retail sales in 2023, up from 27.1% in 2022. This trend is set to continue. 120,000 retail jobs were lose in 2023 with10,000 high street shops closing.

But what about property?

You used to hear down your local pub talking about their latest buy to let scheme where you can never lose money investing property. The last 3 years has shown that this is not the case and real estate globally has been hit by pressure on house prices. In the UK, this trend could continue and people are now worried that the days of year on year house price growth is over.

Ecommerce businesses now represent the way individuals can start creating their own wealth. While it may be less passive than owning a property portfolio, selling online can still be a manageable income stream even whilst working. With fulfillment centers like Amazon and other 3PLs sorting the tedious shipping to customers. As internet users, and therefore potential online shoppers, hit an all time high and as a result online transactions are set to keep growing.

Conclusion

The shift from real estate to ecommerce as the primary focus for new business ventures in the UK marks a significant transformation in the entrepreneurial landscape. From 2012 to 2017, property companies enjoyed unprecedented growth due to favourable market conditions, low interest rates, and rising house prices. However, the period from 2018 to 2023 has seen a dramatic decline in the growth rate of property companies, influenced by increased taxation, regulatory changes, and higher interest rates.

Conversely, ecommerce has surged to become the fastest-growing type of business, reflecting the changing consumer behavior and technological advancements. The convenience, lower startup costs, and global reach of ecommerce platforms have democratized online retail, making it accessible to a wider audience. The COVID-19 pandemic further accelerated this shift, with many traditional

retailers moving online to sustain their operations. The statistics speak volumes: ecommerce businesses are now growing at a staggering 69% CAGR compared to the earlier 21%, highlighting a robust shift in business dynamics.

This trend is set to continue as more entrepreneurs capitalize on the opportunities offered by online marketplaces and the relatively low barrier to entry. With 288,933 ecommerce companies registered by the end of 2023, it’s clear that ecommerce is not just a fleeting trend but a fundamental change in how business is conducted.

While property investment remains a significant economic activity, its allure has waned in the face of regulatory pressures and market saturation. On the other hand, ecommerce offers a scalable, flexible, and lucrative alternative, catering to the modern consumer’s preference for online shopping. As more individuals seek to create wealth, ecommerce stands out as the new frontier, promising growth and innovation in the coming years.

This paradigm shift underscores the importance of adaptability and forward-thinking in business. As the digital economy continues to expand, those who embrace ecommerce will likely find themselves at the forefront of the next wave of economic growth.

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Free 30 Minute Consultation

Why not grab a Free 30 Minute Consultation with an Accountant, they can answer any questions you have about your e-commerce or marketplace business, guide you on tax efficiency and see if we can help you.

You Have Nothing to Lose & A Lot to Gain
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