By Mark Andreev, COO at Exactly.com
Chancellor of the Exchequer Rachel Reeves’ latest budget is aiming to permanently ease tax burden for retailers, likely consolidating tax relief for businesses from April 2026, while reductions will be funded through higher warehousing rates.
For high-street retailers that have experienced a quinquennium of ever-changing footfall and shifting customer preferences, the relief from rising costs appears as a lifeline. For online giants that rely heavily on warehousing, this tax rate change could lead to higher operational expenses and, in turn, likely higher prices for consumers.
A pressing question arises: will the Budget work to rebalance the playing field between e-commerce and brick-and-mortar retailers? The answer hinges on more than taxes; it is about consumer behaviour. And that behaviour changed for good during the Covid-19 pandemic.
A mechanism already in motion
During the pandemic, the retail sector’s shift to digital was comprehensive. Five years later, it is clear this was not a temporary spike but an acceleration of pre-existing trends.
Although stores have reopened, customer footfall has yet to return to pre-pandemic levels. At the same time, online shopping has continued to thrive, remaining well above 2019 benchmarks. This trend is consistently highlighted in industry analyses, such as the Retail Sector Report published by the House of Commons, which underscores the pandemic’s lasting impact on consumer behaviour and the retail landscape.
As a result, while measures like lower business rates and regulatory facilitations for retailers may provide some immediate relief, they are unlikely to reverse structural behavioural shifts. Such policies alone will not be sufficient to close the widening gap between brick-and-mortar stores and dominant digital players, whose growth is fuelled by ongoing shifts in consumer shopping preferences.
By a stroke of AI
Digital shopping habits are not stagnant – they are ever-evolving and fundamentally propelled by advancing technologies, AI in particular. Early signs of agentic commerce are evident and will proliferate as consumers set new standards of convenience – with AI agents researching, comparing, and even making purchases autonomously for users. These developments signal a future in which AI will not only streamline transactions but also influence purchasing decisions by automating much of the shopping process.
This transformation will introduce a new standard for e-commerce experiences, requiring both online and offline retailers to adapt. Digital commerce players will need to keep pace with the evolving, AI-driven standards of consumers, and brick-and-mortar will be required to develop new solutions to plug in AI to enhance in-store experiences. Fundamentally, AI will not only impact what people buy, but also where customers make those purchases.
The commerce battleground is likely going to shift from digital vs physical to increasingly algorithmic leadership, raising the risk for retailers of losing market visibility. However, this new layer of commerce faces the same bottleneck that still limits social commerce today: trust. High levels of scams, counterfeit goods and opaque sellers continue to undermine customer confidence. Until the trust gap narrows, AI-mediated shopping will grow, but not to its full potential.
What can offline retailers do?
Offline retailers should strengthen what digital channels still struggle to replicate: presence, emotion and genuine brand experience. These human-centric advantages become even more valuable in a world where algorithms increasingly mediate choice.
Retailers can leverage in-person events, personalised service and thoughtfully designed spaces to create memorable experiences that drive loyalty. As algorithms mediate more consumer choices and digital interactions become more transactional, these human-centric advantages will become increasingly significant, providing a differentiator that is difficult for digital competitors to imitate.
Key considerations following the budget
The Budget is a step toward fairness, one that eases the burden on physical retailers and gives them the opportunity to regain momentum. But the real change following the Budget isn’t fiscal – it’s behavioural and technological, and most definitely, trust-driven.
Clinging to old retail frameworks puts players at risk. Retailers must look beyond how the potential tax cut may save the high street and focus on understanding evolving preferences, integrating omnichannel and emotion-driven loyalty to maintain competitiveness. Ultimately, the future of retail depends on whether both online and offline players can adapt to an increasingly automated world where trust is the true currency.
