Has the rise of E-bay saved the Royal Mail?

[TrueBlueTerrier]

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The Royal Mail's financial situation has, in the past, made for some fairly depressing reading - its core UK letters and parcels unit reported a £41m loss in 2011.

The latest results however, (the first ones since privatisation) show the Royal Mail did remarkably well last year, enjoying pre-tax profits of £233m in the six months to 29th September, up from £94m the year before.


What caused the rise in profits?

It's tempting to link this in neatly with the e-commerce boom in the UK, in which eBay (with sales of £789m during 2010) plays a huge role, but this connection doesn't quite fit.

Although the rise in profits was driven by higher revenue from their parcel business, which accounts for 51% of their total profit, the volume of parcels sent was in fact no larger than the previous year. Customers were put off by the threats of postal strikes over privatisation, and the price increases brought in with the size-based pricing policy introduced in April 2013. These price increases put customers off sending "uneconomical" parcels, however as there wasn't a drop in the volume of parcels sent, they still caused the healthy profit boost.

So it seems the Royal Mail's financial losses were the result of them under-charging for parcel postage. In the last couple of years however, as they state on their website, they have invested heavily in their parcels business as a "strategic priority...due to the growing popularity of online retailing."


Future profits in e-commerce

As part of a modernisation effort in October 2012, the Royal Mail invested £75m in Parcelforce Worldwide, significantly improving and expanding the organisations parcel processing capacity.

This investment, along with the new size-based pricing structure, has put the Royal Mail in a great position to benefit from servicing the booming e-commerce sector. The IMRG is predicting total online sales in 2014 will rise by 17% to £107bn after rising 16% to £91bn in 2013, and by 2017 UK e-commerce sites will ship almost 2.2 billion packages.

There is also huge potential for mobile commerce in 2014, with September figures showing a growth of 312% year on year.


Share value set to rise

Online investment sites are being quite bullish about Royal Mail and its likelihood of delivering. Most believe the value is set to increase significantly over the next few years, giving great value to investors.

So we couldn't say the success of eBay has saved the Royal Mail as yet, as it's likely it had a detrimental effect when the Royal Mail had its previous pricing structure in place.

However now the pricing structure changes are in full force, and the unrest over privatisation has calmed down, the Royal Mail look set to reap the rewards of eBay's success.

[El-Bandito]

No is the answer. E-bay has had its day. Think you will find it's 100s of other retailers that have decided to sell things online. How old is this pish? Get into the 21st century.

[demon]

royal mail fiddles the figures when it was not privet to keep pay rises low

[5plusbonusball]

I think ebay has saved the likes of hermes and couriers as rm is just ONE option now. And watch&win don't seem to be interested with any leads you tell them.

[Jamesethefirst]

I think ebay has saved the likes of hermes and couriers as rm is just ONE option now. And watch&win don't seem to be interested with any leads you tell them.

That much is true. Not through lack of trying.
However,where is the result of all this "investment" in technology? Blowed if I can see it. More so when we are still manually sorting.