Online shopping boom delivers the goods for Royal Mail

Royal Mail’s assault on the ecommerce market is starting to pay dividends with soaring parcel revenues more than compensating for a hefty decline in direct mail, which plummeted by nearly 50% in the early days of Covid but is now seeing the green shoots of recovery.

The parcels growth pushed up group revenue by £500m from £5.2bn to £5.7bn and Royal Mail also saw a leap in volumes as it collected and delivered tens of millions of Covid test kits.

However, its H1 results reveal that pretax profits fell to £17m in the six months to September 27, compared to £173m a year earlier, with the firm citing a number of factors, including costs linked to Covid-19, redundancies, and declining letter revenues.

The results announcement also lays bare the impact of the pandemic on direct mail for the first time.

It states the initial impact of Covid-19 saw addressed letter volumes fall 33% in the first two months, with direct mail “significantly impacted”. In the first half, direct mail volumes were down 49% as customer marketing campaigns were delayed or cancelled, with revenues plummeting 47.8% to £160m as a result.

However, stamped traffic, supported by social mailings and fulfilment mailings, continues to be more resilient, holding up well in the face of declines elsewhere; total letter revenue decreased by 20.5%.

Royal Mail says in recent months direct mail has “seen an improvement”, although it estimates that total letter revenue for the year will still decline 16% and just a 1% change from the projection would impact letter revenues in the remainder of the year by £15m.

Luckily, parcel revenue is up 33.2% on a 31% rise in volumes, more than offsetting the letter revenue decline. Parcel revenues now represent 60% of total Royal Mail turnover, compared with 47% last year.

Royal Mail domestic account parcel volumes, excluding Amazon, were up 51% driven by increased ecommerce sales, resulting from the substantial shift in retail spend from physical stores to online, seen following lockdown. Royal Mail Tracked 24/4* and Tracked Returns volumes, its key ecommerce products, grew by 72%.

In recent weeks Royal Mail has stepped up its activity in the parcels market, including the new Parcel Collect service, which will see the company start collecting parcels and mail from people’s homes. It has also launched a marketing campaign to promote the Click & Drop online postage scheme, which enables businesses and consumers to pay online, print off labels and then despatch packages.

Royal Mail interim executive chair Keith Williams said: “The growth in online shopping and parcels during the pandemic, combined with our increased focus on delivering more of what customers want, has led to revenue growth of nearly 10% for the group in the first half, with Royal Mail revenue up nearly 5%.

“For the first time, parcels revenue at Royal Mail is now larger than letters revenue. Across the group, our people have worked incredibly hard to keep delivering for our customers during these unprecedented times, and I want to thank them for their dedication and commitment.

“We have been pushing forward with our transformation in Royal Mail and delivering more new innovations, products and services for our customers. Whilst we have done exceptionally well in terms of revenue and have seen real growth for the first time since privatisation, we have recorded a first half adjusted operating loss of £129m after restructuring charges of £147m, and a reported operating loss of £176m.

“As anticipated the reduction in letter volumes has had a significant impact on the regulated business which lost £180m in the first half, and demonstrates the need for change in the Universal Service.”

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