Although total retail sales are expected to contract by 0.6% this year, the UK online retailing market will grow by £2.4bn (13.3%) to £20.9bn, according to UK e-Retail 2009, a new report from Verdict Research. And, by 2013, the market will have grown to £31.2bn at which point it will account for 10% of all retail sales.
The growth will be driven by both continued increases in the number of internet shoppers and higher expenditure per head, says Verdict. This follows on from the trend of 2008 when there was a 1.0% increase in internet users — to 34.4m — and an 18.1% increase in online shoppers — to 26.7m — with each of these individuals spending an average of 5.8% more when compared with 2007.
The major factor behind this outperformance of wider retail is the online channel’s possession of a number of counter-recessionary characteristics, says Verdict:
Internet prices are frequently cheaper than they are in physical stores and shoppers are able to more easily search out bargains, including second-hand goods. Moreover, as a method of shopping, it is disproportionately popular with the more affluent, and therefore more resilient, AB shopping class. For this increasingly time-pressed group, making effective use of their limited leisure time is of the utmost importance. Indeed, Verdict’s report revealed that the AB group is now responsible for a massive 56.8% of all online spending.
“Those with less money to spend are turning to the internet to search out bargains on branded items like electricals,” says Malcolm Pinkerton, senior retail analyst at Verdict Research and author of the report. “Additionally, the more affluent groups, who do still have money to spend, continue to appreciate the internet for its convenience, making the channel doubly resilient to the downturn.”
Although online growth in 2008 represented a substantial outperformance of wider retail, it was also the smallest rise in the channel’s sales since the dotcom bubble burst in 2002. “There are a growing number of signs that the internet is beginning to mature and enter a new, more subdued phase of growth,” says Pinkerton. “Growth in the number of online shoppers in 2008 was strong, but considerably less than the growth seen in 2007. We predict that these growth rates will continue to fall over the next five years, as penetration of the population begins to level out.”
“With the expansion in market capacity slowing, retailers are inevitably going to find themselves having to compete much harder against their rivals in order to achieve the same levels of growth that they have previously become accustomed to,” Pinkerton adds. “Success will depend on a company’s ability to create retail theatre and a consistent shopping experience across all channels, with highly differentiated, targeted, propositions heightening the consumer experience. In addition, retailers will need to become more adept at using technology and unfailing at implementing innovations on their websites.”
“The key for individual retailers is to formulate two clear strategies, one for succeeding through the recession and one targeting growth beyond this, as the online channel begins to approach maturity,” Pinkerton concludes.
