The online shopping market is forecast to increase from &£750m in 1998 to &£1.5bn in 1999, according to Mintel. Over the next three years as Internet access grows, Mintel estimates online sales will rise to more than &£7bn by 2002, a 351 per cent growth in real terms.
Although these figures show that over the short term, online shopping is a niche business, retailers ignore these growth rates at their peril. Mintel has found that while online trading poses a threat to store-based commerce over the long term, the prospect is too distant for them to contemplate. But those retailers without a presence on the Web risk being left behind.
The appearance of aggressive specialists which have built online businesses at any cost is, at the moment, the biggest obstacle to profitability.
But there are several other drawbacks for retailers which want to take advantage of the growing e-commerce market. As yet the commercial viability of online trading has not been proven, largely on account of low sales and high start-up costs.
One development manger for a multiple entertainment retailer says: “In the long term online might dilute sales in our stores. There is no answer to that at present. There are a number of dilemmas to face, such as should we compete on price with our own stores? I’m not sure that anyone has an answer to these issues.”
The base of online shoppers is narrow and weighted to ABC1s, men and those aged under 35, however, shopper enthusiasm for online buying is evident. Mintel believes that this profile is unlikely to change much in the short term, since more of these consumers are expected to get on the Net in the next two months.
Online shopping is most likely to grow among affluent empty nesters and younger adults. New users are also likely to be influenced by technological developments which will make e-shopping much easier and entertaining to use, such as greater bandwidth – which enables sound and vision to be sent over the Net. However, the costs of site development are likely to rise for the site providers as technology becomes more sophisticated.
Over the short term, the most active markets for online shopping will continue to be books, music, entertainment products and computer software and hardware. Clothing, sports and leisurewear are seen as areas where shoppers are most interested. The provision of sites is limited, which could provide some retailers with golden opportunities.
Researchers have found a number of development issues to be overcome. Consumers are still wary of shopping online because of uncertainty about the security of payments. Companies may have to embark on joint marketing efforts with payment card companies to provide security assurances. Researchers also found that retailers will need improved marketing skills to realise the full potential of e-commerce. Effective design, construction and marketing of sites are crucial in developing online sales.
Store-based retailers are tending to see online trading as little threat to their existing business, but rather complementary to their store offer. Most of those who use the Net for shopping are more affluent groups and men who have historically been more reluctant than women to go shopping in stores.
This adds weight to the view that online shopping can complement the store offer because it is likely that those who prefer to shop on the Net are pressed for time and might spend more money online than they would in-store.
Grocery companies are experimenting with online shopping but have to overcome the problem of making home delivery cost effective. Both Tesco and Sainsbury’s have online home shopping tests in operation, but only Tesco has announced a commitment to make its service widely available and expects to offer it from 100 stores by the end of the year.
In non-food sectors, the demand for online shopping is unproven. Until consumers have more experience of shopping online, demand for goods in categories that are bought infrequently and for expensive items will grow slowly.
The biggest online market is likely to be grocery, although the commercial case for home delivery has yet to be proved. In a sign of things to come, Tesco and Asda are to roll-out their online shopping.